Iowa co-op's heavy data users upset with new Internet pricing structure

Pricing structure based on data usage, but not affordable for many customers

Orlan Love
Published: January 28 2014 | 3:30 am - Updated: 29 March 2014 | 2:45 am in
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Customers of the East Buchanan Telephone Cooperative, which serves the towns of Winthrop, Quasqueton, Aurora and Stanley, are adjusting to a new tiered Internet pricing structure that broadens the definition of limited broadband service in rural Iowa.

Unlike the Iowans targeted in Gov. Terry Branstad’s recently announced broadband expansion initiative, EBTC customers have access to high-speed Internet. Many of them, however, cannot afford to use much of it under the new price structure.

Implemented Dec. 26, the pricing for digital subscriber line (DSL) service and the company’s new wireless offering is based on customer usage. While that is the industry standard for cellular Internet providers, few other wired Internet services providers in Iowa have adopted the practice.

Bills for heavy Internet users have increased dramatically since the change, prompting more than 480 people to sign a protest petition on change.org, an online petition site.

“Although measured Internet may not be popular, I am genuinely concerned about the long-term survival of the co-op if changes are not made,” said Butch Rorabaugh, the co-op’s general manager.

Rorabaugh said Branstad’s proposed incentives for companies that build or upgrade their networks in areas where broadband is limited or unavailable will not help the co-op or its customers.

Price tiers range from $24.95 for 5 gigabytes to $299.95 for 100 gigabytes, with overages priced at $5 per GB for 3Mbps (data transfer speed over the Internet).

The new pricing hits hardest those customers who play Internet games or stream video over services such as Netflix, students taking online courses, libraries and those who conduct business from home.

In an effort to get EBTC to “stop pricing home Internet like cellular Internet,” former Winthrop resident David McElroy started the protest petition and led a delegation of about 25 customers in a Jan. 9 meeting with the EBTC Board of Directors.

McElroy, an information technology professional who lives in Dubuque, said EBTC prices are much higher than other providers in the area, citing as examples Indytel at Independence, PrairieiNet Wireless in Masonville and Rowley, and Mediacom in Manchester.

McElroy said his perception is that EBTC is just writing off the growing part of the market that wants to stream video entertainment over the Internet.

“Netflix users and people who play online games have specifically been called out by EBTC. This change disproportionately impacts families with children, and young people in general, since they grew up using online video services,” he said.

Rorabaugh said the rate increases are needed to help offset revenue losses in phone service and federal funding. The co-op’s income from long-distance access charges fell from $738,929 in 2009 to $456,701 in 2013. Meanwhile, during that same period, income from the Federal Communications Commission's Universal Service Fund, designed to prop up rural broadband service, fell from $454,200 to $169,196.

That is a gross revenue decline of $570,000 for a company that reported less than $2.4 million in operating revenue in 2012.

Rorabaugh acknowledged that nearby internet providers charge less for equivalent services but questioned whether they will be able to maintain their prices. He said he believes many small internet providers are facing the same financial pressures that forced EBTC to change its rate structure.

Rorabaugh said the company considered an overall Internet services increase but “thought it was unfair” for the 70 percent of customers who use less than 25 GB per month to subsidize the 10 percent who use more than 50 GB per month.

At the end of last year, the co-op had 1,057 customers spread across 165 square miles, a density of fewer than seven customers per square mile, which makes “the cost of providing wireline insfrastructure quite large on a per-home basis,” Rorabaugh said.

“Small companies are providing broadband service to high cost rural areas while large companies are only focusing on the low cost, high-density markets,” he said.

Legislation providing incentives to companies such as EBTC for investing in broadband services would be helpful, he said.

Whether more of Iowa’s 200-plus Internet providers will adopt pricing based on metered usage is hard to predict, said Amy Kuhlers, program manager for Connect Iowa, a not-for-profit organization promoting high-speed Internet access and use.

With more people pulling down more data through computer games and streaming video services such as Netflix, Internet pricing will become more of an issue, she noted.

Kuhlers said that declining revenue associated with long-distance access charges and the FCC’s Universal Service Fund “hits every provider.”

State incentives to expand high-speed Internet in unserved and under-served parts of the state, as announced in Branstad’s recent Condition of the State speech, will be targeted toward Iowans who lack access to minimum speeds, Kuhlers said.

The co-op is considering special packages for online students and home-based workers, Rorabaugh said.

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