Time Warner places consumption-based billing test on hold

Time Warner Cable announced late last week that they would postpone their test of consumption-based billing for broadband service.  Flat-rate proponents may be reveling in the belief that they won the mother of all battles and if this was a permanent nail in the coffin of consumption-based billing, I'd say that might be true.  But Time Warner announced a postponement, not a cancellation, in order to hear more from customers.

Here's part of what CEO, Glenn Britt said in announcing the delay.

"...we will not proceed with implementation of additional tests until further consultation with our customers and other interested parties, ensuring that community needs are being met," Britt continued. "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 and have the benefit of their views as part of our testing process."

Unfortunately many broadband customers, both in the Time Warner Cable test markets and elsewhere, have only heard the misguided arguments of opponents of metered broadband. In an attempt to communicate the other side of the issue, let me explain, in bullet-point form, why consumption-based billing is actually pro-consumer.

• Networks would be more aggressively upgraded for new and advanced services
• ISPs could stop or reduce managing their networks during peak periods
• Online video would be more available and deliverable on upgraded networks
• Legal P2P services would be faster and more available
• Only a small percentage of customers would pay more (those who use the most bandwidth)
• Light users would pay less
• Most would see no change in their bill at all

Ironically, America's second-largest cable operator got into this situation partially because they were being totally transparent about their plans at a very early stage of their thinking.  Perhaps it was too early because their plans hadn't be finalized. Indeed, they were still listening to consumers as they were developing the program.  They also were totally unprepared for the onslaught of misinformation and misunderstanding that would swirl up around their plan.

Even without starting their test, I think the folks at Time Warner already have learned a lot.  Unfortunately, it has nothing to do with the fairness, accuracy or acceptability of usage-based billing.  The only way to answer those critical questions is by going forward with the very test Time Warner delayed. 

Customers have become accustomed to paying a monthly bill for unlimited broadband and if ISPs are going to change that paradigm, it's incumbent upon them to explain the benefits to customers.  Time Warner did learn some things though -- that ISPs have to be much clearer on what they are planning, and carefully and must simply explain why it would be beneficial to consumers. ISP's also need to be much clearer about who would pay more, who would pay less and who would pay the same when considering such a change.  

If this emotion-charged issue results in a prohibition of usage-based billing, an ISP's ability to aggressively keep up with demand will be financially compromised.  That will limit the speed of important upgrades thus limit the expansion of new bandwidth-consuming new services.  At the end of the day, everyone ultimately will pay more for extremely heavy usage by a small minority of customers.   

Also AWOL from this conversation -- consumption-based billing creates an environment that encourages consumers to become responsible self-regulators of network resources.  That's a really good thing because it means that ISPs won't need to manage consumption for their customers.  I've previously written that 5% of our customers would use over 80% of our network resources if the network was left unmanaged.  Indeed, some of the leading critics of Time Warner's plan previously endorsed metered billing as a solution to the need to manage Internet traffic. 

I suppose there's also a bigger thing going on here.  Americans are sick and tired of the recession and they blame big business for it.  Although there is plenty of blame to go around, there also is plenty of evidence to suggest that a lot of industries, particularly financial institutions, were terribly out of control, leading up to our economic woes.  A new era of regulation is both popular and probably necessary. 

But let's not go crazy either.  Broadband is dynamic, job-creating and increasingly a central part of the future of communications and entertainment. 

And it's very competitive.  Fact is, if customers didn't like Time Warner's billing policies, they could call up Verizon, AT&T or anyone else that competes against them in their markets. 

So, let's not knee-jerk react to regulating everything that moves.  History consistently has proven that real innovation is born out of entrepreneurship and free markets. 

This issue will take a rest for a while.  But it's important that we keep talking about it.  Time Warner was not looking to gouge their customers without regard for their ability or desire to pay.  They simply were  seeking an answer about how to cope with the rapidly changing nature of broadband services that are being launched today.  We either have to be flexible or we will seriously lag the rest of the world in broadband acceptance for years to come. 

And that's not good for anyone.

Comments

[Rob Dicken]

Michael, it's quite simple. People look at the numbers and feel cheated. When they are getting "Unlimited" access for $40 per month, then see they are being limited to 100 GB for $40 per month...they feel cheated. They could care less what 100GB means, but they feel cheated for something they were getting Unlimited access to a week or month ago.

I look at the numbers and feel cheated. I look at the numbers, and they don't make sense. Again, the question is not being answered...

HOW do you propose that to get Unlimited Access to the internet, the customer should now pay $140+ per month as opposed to just $40? That price gouging is almost as bad as the Pharmaceutical business who is increasing costs at 3x the rate of inflation!

How about creating ACTUAL solutions to the problems of the 5% of users that seem to be abusing "Unlimited" access? Such as, create dedicated lines like DSL so that each person on the street isn't leaching off one line. Or how about...create static IPs, and have monitoring services (software and people) monitor each person's activity?

Metered broadband is the easy way out. Try finding a solution that actually benefits the customer and the company, as opposed to what will benefit the company and "claim" that it benefits the consumer as well.

[Joe]

Over the next several years IP bandwidth utilization is expected to increase drastically as faster technologies arrive (DOCSIS 3.0) and customers increasingly watch television programming online and use apps "in the cloud".

As bandwidth utilization skyrockets, CBB (combined with the unfortunate duopoly of cable and telecom companies) will ensure operators rake in all that missed revenue from IP services they couldn't obtain due to their inability to roll out their own compelling IP services.

CBB will allow operators to have a tiered architecture as they'll be able to choose which traffic counts against the bandwidth counter. So, for example, they'll be able to go to Netflix and work out a deal so their bits won't rack up on their customers bill but leave Apple's iTunes streaming service alone, thereby controlling which IP service provider is likely to receive more users. This is exactly what they wanted to accomplish by removing network neutrality.

In fact, operators might offer customers different packages the same way channels are offered for TV; $50 / month gets you 250GB and all-you-can-eat Netflix, Amazon and YouTube traffic; $75 / month gets you 50GB extra plus unlimited iTunes streaming!

It's a pretty sneaky way to extract additional revenue from customers and Internet companies... especially since the cost of upgrading networks is going DOWN.

[Brian Boyko]

I'm very tired of having my arguments characterized as "misguided" when they're based on observable fact, whereas:

* There's no evidence that networks would be more aggressively upgraded for new and advanced services - TWC could just pocket the money. Besides, the DOCSIS 3.0 rollout will cost $20-100 per customer, which does not justify price raises of $115 a month.

* ISPs should manage their networks during peak periods, and there are many ways to do so, from the sophisticated to the trivial; but congestion is not a problem on Time Warner's ISPs in their test markets at this time and is unlikely to be so in the future.

* Online video would technically be more deliverable on upgraded networks, but Time Warner customers would be able to watch less of it without incurring massive fees - 4 hours of HD television shows a week would wipe out the 40GB bandwidth cap entirely.

* The current percentage of customers paying an overage in Beaumont is 14% - not small - and this does not include customers who upgraded their service because they were happy with the speed but unhappy with the cap. In Austin, a high-tech city with a young population and academic center, you're probably looking at much higher numbers, possibly a majority.

* Light users would not pay less because light users (http://a.longreply.com/123992

[Jason Stiles]

Michael, I think everyones major concern with usage metered broadband stems from our experience with cell phones. We all know if you ever exceed your plan, the rates will bury you. Suddenly you are being charge per minute or per kilobyte and even a small overage can double or triple your entire bill. Cell phone companies disincentivize you to be on the plan that fits your needs 90% of the time by making you fear overage so much that you buy a plan to fit your the usage pattern of the one month that you happen to have increased use.

The result? We pay all year long for more service than we need for all but one of the months.

As you can see, metered billing isn't saving cell phone customers any money at all, in fact you'll be hard pressed to find someone who pay a lower cellphone bill than their home phone, but the dirty little secret is that cell networks are even cheaper to maintain than their land line counterparts.

So you must forgive us if we don't believe the "This is best for the customer" mantra you seem to be chanting.

So lets move to broadband. Right now your model is to cap speeds and charge for increased download speeds while providing "unlimited" usage. I think people like this method because they don't have to wonder if their internet bill will be more or less each month and they know if they feel its moving to slow they can buy the next speed level up. (Unless you are at the top like me!).

Would this speed based model go away if you started charging by the megabyte or gigabyte? I doubt it. Unless you uncapped the speeds, all metered billing does is add another revenue stream for the provider. You never realize what you'll do with the extra speed until you experience it. The net effect is slower speed users end up with metered usage and pay extra for overages with no incentive to upgrade to faster speeds.

How to make metered billing work and be acceptable:

1) The bandwidth must not be speed limited. Everyone goes as fast as they possibly can.

2) If you want to take it on the high end you have to give it on the low end. You want to charge people more for more usage? Don't bill by the byte. Everyone must start at the lowest usage level and move up through TIERS of service as their usage increases. If I go on vacation for 2 weeks of a month, my usage would be halved: so should my bill. You can't have it both ways. I don't want to pay for 250GB every month, then when I use 350GB you charge me more, but when I only use 150GB I still must pay for the 250GB service.

These 2 things address my issues with usage based schemes that cell phone companies have devised, but honestly, I know that metered usage by broadband providers is just a scheme to get more money from the consumers because as you said 5% of your customers could use 80% of the bandwidth. Thats because 95% of the customers are email checking, and only doing minimal websurfing. You don't want to charge those people for their actual usage because you will LOSE money. You want to keep charging them your regular rates and then charge anyone who actually uses the service even more.

All this being said, I am a VERY HAPPY Insight customer. Insight is one of the few companies that have actually overdelivered on their promises to me. I've received great service, fantastic support that is rarely even needed, and I think you guys are probably the best cable/phone/internet company out there, judging by what others say of their respective providers. But when I read this post I saw the Dollar Signs in your eyes. You are justifying metered billing but you aren't addressing the problems inherent with it or recognizing that you already have have speed based metering. Truth be told most people need less internet than they pay for and if you only charged them for their usage you would be out of business. We all understand and accept this because we know if we ever need to use more, it will be there and it won't cost extra, but if you really want to charge the heavy users to be fair you must discount the light users.

Jason Stiles

[Dave]

Here is the reason we consumers do not want this.

We remember all to well the Pre-America Online, where is you went over your limit, Holy Cow are you serious with that Charge.

Don't mind paying some resonalbe fee, when you go over the limit but gouging is never consumer friendly no matter how you spin it.

[Ben Katz]

Pro-consumer? Nonsense. I'm sick and tired of hearing ISPs tell me that metered bandwidth is good for me. Apparently, having unmetered broadband the past decade was doing me harm? Get real! You and others constantly state that only a tiny fraction of users actually use bandwidth that would even begin to cause problems, and even in those cases the network administration stops any degradation of the network for others. If the number is so minuscule, you can't then claim that a metered plan would benefit customers, because the bandwidth hogs somehow hog the bandwidth when they exist in such small numbers, they don't cause any issues.

It's confusing to keep up with the twists in the logic here.

This new way is good for you, customers- the way we've been doing it for a decade has been bad for us, bad for you, and bad for the internet itself.

Sorry, if I'm not swallowing this logic.

And Time Warner isn't fooling anyone- they're not delaying metered bandwidth to discuss the issue with their customers. Are we really going to pretend that any significant amount of TW's customers are begging for metered access? I think we can safely assume 95% of TW's customers would, if given a choice, say "I'll take my internet like I've had it for the past decade. It's worked fine for me since then, who are you to suddenly tell me that it's actually good for me to pay 3 times as much for the same product?" Are you folks really this out of touch with the average consumer?

I've commented before here and I will say the same thing- start metering bandwidth. Soon enough you will go the way of the dinosaurs and consumers will find a better option. If your idea of a good business model is to feel the wrath of most of your customers, go at it. Just don't be surprised when the mass exodus occurs. The future will require more bandwidth not less. New technologies will require higher levels of consumption, not less. I'm willing to wager, few customers will pay double for that opportunity.

[CableTech Student]

Why don't cable companies also start metered billing for viewing cable? The more you watch, the more bandwidth a customer will consume on the cable companies network.

[Rob Dicken]

"Why don't cable companies also start metered billing for viewing cable? The more you watch, the more bandwidth a customer will consume on the cable companies network."

Because that would be just as stupid and people will go to DISH or DirecTV.

[Mike]

So please explain the rollout of these metered broadband plans in areas where TWC has little or no competition and an aggressive infrastructure upgrade in areas with significant competition? Obviously TWC knew there would be defection/outcry in advcance, funny if it is supposed to be so good for customers, why do they expect thm to havea problem with it. You and all of your peers are full of the smelly stuff, internet is the cheapest captial expenditure you have (we know, thank god for 10-k's), and you are afraid it is going to hurt your tv biz. Price gouging, end of story.