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Heavy Broadband Users in Cable’s Cross-Hairs

14 May, 2009 By: Chris Tribbey

Time Warner Cable backed down mid-April on its plan to test usage-based pricing for its broadband subscribers, but it likely won’t be the last time the idea is discussed, analysts agree.

“We’re headed for a reckoning,” said Richard Doherty, research director for the Envisioneering Group, which studies the cable industry.

In October, Comcast, the nation’s largest cable operator, started capping monthly broadband data use at 250GB per subscriber, issuing warnings to those who went over, threatening to terminate their service. In March, Comcast began offering a selection of faster Internet broadband packages for residents in the San Francisco Bay Area.

AT&T started testing its tiered pricing system in Reno, Nev., in November, telling the Federal Communications Commission that customers who use more than 150GB a month would “be subject to a certain monthly usage tier for the total amount of data they may send and receive, as well as a per-gigabyte charge [of $1] in the event they exceed the usage tier.”

Frontier Online — which operates in more than 20 states — caps its subscribers at a mere 5GB, and Charter Communications just began putting caps on subscribers to its lower-speed broadband services (100GB on connections of 15MB per second or less, 250GB on connections between 15 and 25MBPS).

Time Warner may have backed down after state and local politicians applied pressure, but the company said it’s not done with the idea.

“There is a great deal of misunderstanding about our plans to roll out additional tests on consumption-based billing,” said Time Warner Cable CEO Glenn Britt. “While we continue to believe that consumption-based billing may be the best pricing plan for consumers, we want to do everything we can to inform our customers of our plans.”

“I don’t think it’s the end of it by any means,” said Fred von Lohmann with the Electronic Frontier Foundation, who called the tiered plan a result of the free market. “When consumers have no choice, that’s where the problem lies.”

One of the locations where Time Warner was going to test tiers was Beaumont, Texas, where it is the only major broadband provider.

Marty Lafferty, CEO of the Distributed Computing Industry Association, which represents companies in digital distribution and file sharing, said broadband providers need to be more aware of their consumers. “Some folks are still doing just text [and[ e-mailing, while others are doing nothing but [video] related surfing,” he said.

Doherty agreed. “My mother does just e-mail, but there are others who are downloading terabytes,” he said.

But, he added, all the pricing plans fail to account for the peak hours that people are downloading, uploading and streaming data. He pointed out that the power companies charge more during high-usage periods, as the phone companies used to do.

“Right now you could do 200GBs from midnight to 6 a.m., but just one gigabyte from 5 to 8 p.m.,” he said, referring to one service.

“If we all want to enjoy streaming Netflix, time of day has to come into play,” Doherty said.

He also pointed out that since the economy went south, the lack of new infrastructure has contributed to the issue. Service providers are gaining more and more customers, but aren’t laying down new lines.

“There hasn’t been much investment in infrastructure in the past nine months,” Doherty said.

As cable companies look to charge more for broadband usage, they may also have a motivation other than capacity: The purpose for which people are using broadband may be cutting into cable’s core television business.

In late March, Time Warner CEO Jeff Bewkes announced a “TV Everywhere” initiative, which would offer cable series to Time Warner Cable subscribers online. The announcement was widely seen as a reaction to large losses in cable subscribers, with speculation that the combination of tough economic times and an onslaught of free online video from sites, such as Hulu, is turning people away from cable.

At the Digital Hollywood conference in Santa Monica, Calif., this month, several attendees said cable companies are finding their business increasingly obsolete.

“Look at CDs,” said Phil Wiser, president of Sezmi, which produces Web-connected personal TV set-tops. “They made people buy stuff they didn’t want.”

Instead of subscribing to a large variety of channels from cable companies, many of which they’ll never watch, consumers instead are getting shows they want online for free.

“Hundreds of linear channels running 24 hours a day will go away,” Wiser said. “It will be a quaint concept to our kids.”

Vic Odryna, co-founder and CEO of ZeeVee, whose technology links computers with HDTVs, put it this way: “I think it began with the DVR; you told it to record ‘Lost,’ not ABC.”


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