Friday, April 3, 2009

Time Warner Cable Expanding the Practice of Consumption-Based Internet Billing

For the past several months, Time Warner Cable has been conducting a study on Internet usage in the town of Beaumont, Texas. Beaumont has been used as a testing ground for Time Warner Cable's plan to see if it is feasible to charge Internet users for how much data they consume. Currently, companies charge a flat-fee for Internet usage meaning that once you pay for access, there is no limit to how much information you can download or consume online. The only limiting factor, is your connection speed. Under this new system, customers would subscribe to a plan with a cap on how many gigabytes you are allotted within a month. Time Warner Cable would then meter your service and if you go over your allotted gigabytes, you would be charged a fee similar to how cell phone companies charge for going over the allotted minutes of your cell phone plan.

According to this article in Business Week, Time Warner Cable customers would be charged between $29.95 and $54.90 per month for plans that would be capped at 5GB (gigabytes), 10GB, 20GB, and 40GB. For each gigabyte that customers would go over their plan, they would be charged an extra $1. The article I reference above quotes a recent study by Sanford C. Bernstein that suggests that a family on the 40GB plan that streams 7.25 hours a week of online video could end up paying $200 per month on broadband fees.

Time Warner Cable counters these figures by claiming that customers do not typically use that much online data. They point to their study in Beaumont, Texas which monitored 10,000 broadband customers. Time Warner says that about 14% of those tested exceeded their plans and racked up an average of $19 dollars in monthly fines. Time Warner has found this system to be favorable and beginning this month, they are expanding so-called "consumption billing" to Austin and San Antonio, Texas, Rochester, New York and Greensboro, North Carolina. Why make this change in billing? CEO Glenn Britt of Time Warner Cable says:

"We need a viable model to be able to support the infrastructure of the broadband business."

Some, myself included, are quite skeptical of this reasoning and find consumption billing to be problematic. Nate Anderson recently wrote a piece in which he also shares skepticism in the reasoning from Time Warner Cable:

My own recent conversations with other major ISPs suggest that the average broadband user only pulls down 2-6GB of data per month as it is. One the one hand, this suggests that caps don't really bother most people; on the other, it indicates that low cap levels aren't needed to keep traffic "reasonable" since it's actually quite low to begin with. The shift toward metered pricing can't help but benefit TWC's cable business (unless consumers truly revolt), since low caps will ensure that Internet users think twice before doing data-intensive activities on the Internet such as streaming files from Hulu or downloading HD movies and TV episodes from Amazon and iTunes. TWC's own cable video service may prove more compelling than the online alternatives because it has no "caps" or additional fees for watching too much TV.

One of the important points that is listed above, is that consumption billing will ensure that the online habits of customers will change. The downloading of music and movies as well as watching television programs online will most certainly be affected as customers will be mindful of going over their monthly limit. Time Warner Cable makes it sound like these actions are necessary in order to support their broadband infrastructure, but as Anderson points out, "cable Internet is a bargain" for the operators:

Cable's physical plant has been in the ground for years; even hybrid fiber-coax systems have been widely deployed for some time. Internet access simply runs across the existing network, and one of cable's big advantages over DSL is that speeds can be upgraded cheaply by swapping in new DOCSIS headend gear, with DOCSIS 3.0 the current standard.

It certainly makes one scratch their head and wonder if these actions are being undertaken with the public interest in mind or with Time Warner Cable's bottom line in mind.

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