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Analyst Says Usage-based Fees for Web Access Coming

30 Nov, 2011 By: Erik Gruenwedel

Move is seen to compensate cable broadband providers in the face of increased video streaming

Cable operators are expected to implement incremental fees to subscribers who exceed monthly limits on the amount of data accessed from the Internet, including video streams from subscription video-on-demand services such as Netflix and Hulu Plus, beginning next year, an analyst said.

And with TV networks and pay-TV channels such as HBO and Showtime ramping up platforms to deliver repurposed and original content over the Internet, the broadband pipes required to deliver the content are becoming congested.

Craig Moffet, analyst with Sanford Bernstein & Co. in New York, said Time Warner Cable, Charter Communications and/or Cox Communications could be the first domestic multichannel video distributors to impose fees on subscribers who exceed monthly gigabyte limits.

Cable, satellite TV and others typically allocate monthly data limits up to 250GB, charging incremental $10 fees for each 50GB of data consumed above that. The caps limit users to about 20 movie downloads in standard-definition and 10 in high-definition, in addition to about 200 hours of TV programming in HD.

“As more video shifts to the Web, the cable operators will inevitably align their pricing models,” Moffett told Bloomberg. “With the right usage-based pricing plan, they can embrace the transition instead of resisting it.”

Indeed, more than 12 million U.S. households will access movies and TV programs from the Internet by 2015 compared to 2.5 million homes in 2010, according to SNL Kagan. About 27% of cable, satellite and IPTV subs also have Netflix memberships, according to The NPD Group.

Consumers getting high-speed Internet access through their cable operator has coincided with larger numbers of subscribers dropping premium pay-TV channels, including a combined 293,000 departing video subs by No. 1 & 2 cable providers Comcast and Time Warner Cable in their most recent fiscal quarters.

Time Warner Cable reported a $12 million decline in premium channel revenue in the third quarter.

“It may well be some impact from the ... so-called over-the-top services (such as Netflix) … but nobody that I know has been able to measure it yet,” CEO Glenn Britt said diplomatically in an analyst call last month. In other statements Britt has characterized usage-based fees as “inevitable.”

The move to tax heavy users of the Internet already is occurring in Canada where that country’s largest cable operator, Rogers Communications, has imposed usage-based fees since 2008. When Netflix launched SVOD service in the country last year, there was concern that regional cable operators would lower their subscribers’ monthly caps in an attempt to thwart Netflix and promote their own streaming services.

Attempts to impose incremental fees based content downloaded from the Web currently are being tested by AT&T and Suddenlink Communications in St. Louis.

Netflix, naturally, has resisted attempts by cable operators to levy usage-based fees, going so far as to hire lobbyists in Canada to further its cause. CEO Reed Hastings, who has been adamant that cable operators not reduce data caps in an effort to stymie Netflix’s $7.99 monthly unlimited SVOD service, has characterized caps as not in the best interest of consumers.

“We don’t think ISPs should be able to use their exclusive control of their residential customers to force us to pay them to let in the data their customers desire [and already pay for],” Hastings wrote in a May letter to Congress and the Canadian Radio-Television and Telecommunications Commission.

Regardless, Peter Stern, chief strategy officer with TWC, said cable’s increasing role as Internet provider can’t be ignored.

“We’re basically a broadband provider,” Stern told a television conference in New York earlier this month.

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