Time Warner Cable modifies metered broadband plans as politicos see red meat

Time Warner’s Unlimited Bandwidth Plan: $150 a Month [NYT Bits Blog]

Responding to customer input in the wake of their announcement of metered broadband tiers, Time Warner Cable has announced some changes to their proposed metered tiers. During the company's testing in Beaumont, Texas, packages were available from 5 GB per month to 40 GB per month. The company had planned to roll out those levels in additional locations, but has modified the plans to run from 10 GB per month up to 60 GB per month. Time Warner Cable also is creating a 100 GB super-tier for very heavy users.  For customers who exceed their package's included bandwidth, each gigabyte will be charged at $1 per gigabyte. 

The metered rates will not apply for the first two months in the next trial markets, allowing customers to have an opportunity to become familiar with the meter being offered.  That will help customers measure their data usage and pick the right plan for their needs and budget. 

There's a snag. 

Time Warner's plan is turning into a slab of red meat for a few politicians who seem intent to create a divisive political issue out of it.  In doing so, they ignore the fact that broadband is a job creator as cable operators continue to invest heavily in their networks.  The fact is, if you want to kill job creation and reduce the quality of service to everyone, pass a law to prohibit companies from finding ways to fairly distribute the cost of providing world-class broadband service to all users, large and small. 

It's very costly to have customer usage continue to rise exponentially.  Large amounts of capital must be deployed to upgrade networks in order to keep up with the demand.  Those investments are being made to expand capacity in our technical centers (headends), in the neighborhood nodes and throughout the community (the fiber optic cables) connecting the two. 

Ten years ago, when flat rate billing was decided upon (primarily because consumer usage patterns were similar and there wasn't a developed technology in place to check consumption), no one anticipated that video would become so prevalent on the Internet -- not to mention the insatiable appetite for bandwidth of high definition video.  But it has and we have to find ways to fairly distribute the cost of providing the products and services that today consume such large amounts of bandwidth. 

Just this morning in the Evansville (IN) Courier and Press, Justin Williams, a respected local blogger and owner of a web and software development firm, offered his own thoughts about Time Warner's metered billing plans. Justin makes a good point about the way companies like America Online used to sell access to the Internet -- by the minute on a dial-up connection, not an unlimited plan. It was American Online's form of "metered narrowband." So, in truth, this is a concept that customers have seen before.

But, I disagree with Justin's notion that metered broadband is simply about retention of cable companies' video customers. If anything, we are encouraging the expansion of video alternatives by offering faster and faster speeds.  Besides, there really isn't any evidence to suggest that subscribers are dropping cable television programming in favor of online options like Hulu, Netflix or iTunes. Customers have looked at those options and compared the quantity and quality of content and value available in cable television, and they realize there's no comparison -- conventional cable is just too inexpensive, too rich in content and too simple to use to replace it with exclusive online viewing. 

If you question whether that's true, check out this post on Cable TechTalk about how much it would cost the average American to consume the same amount of video on iTunes as they do on cable TV.  Instead, viewers generally are opting for these new video sources to enhance their viewing decisions, not to replace existing ones.  Sure, some younger folks have become Internet-only TV viewers, but their numbers are extremely low and often limited to college campuses.

Where's all this coming from?

First term Congressman Eric Massa (D-NY), who represents one of the areas slated for consumption based billing, appears to be determined to jump on the bandwagon of uninformed criticism.   He seems to be defining this complicated issue as something out of a class warfare playbook.  Here's what he said according to Multichannel News earlier this week:

I view this as nothing more than a large corporation making a move to force customers into paying more money," Massa said in a statement Tuesday. "I firmly oppose capping Internet usage and I will be taking a leadership role in stopping this outrageous, job-killing initiative.

Come on.  Consumption based billing isn't simply about charging more.  It's about fairly distributing the substantial cost of keeping the Internet running smoothly while usage patterns increase dramatically.  Rising consumption is a critical issue and, if ignored, would ultimately result in reduced quality of online experiences for everyone.  If this was only about making more money, why would Time Warner also announce a plan for light broadband users to save money, charging only $15 for a 1 GB? That's a move that certainly calls into question the Congressman's contention that this all about extracting more money from consumers.

Once again, I openly admit that most cable companies, including Insight, are closely following Time Warner launch of these plans. In my opinion, there will be other ISPs joining their ranks. Full disclosure -- here at Insight, we're among those monitoring these developments. While we don't currently have any plans to implement metered broadband, should that change, we'll be giving customers plenty of notice and we will provide the tools to track their data usage.

In truth, Time Warner's new plan is much more reflective of today's usage patterns, including the light users plan to charge less than they do today.  Opponents hang their hat on the argument that they deserve flat rate billing just because they always had it.  That's how companies -- no -- that's how entire industries become obsolete.  Refusing to change with the times is a recipe for disaster. 

Just ask the auto industry.

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[Michael Covington]

I noticed that you began the Time Warner story with "Responding to customer input..." Hmmm.. How do customer's provide input? The premium music channels included Americana and a subgroup of Americana known as Bluegrass. Formerlly they had Bluegrass only. When they added Americana as a separate genre, they unwittingly divided the Market and neither channel had a large following. So, what did they do? They cancelled both! I have tried to submit customer input, but there doesn't seem to be a way to do it.

[aaronwt]

"Ten years ago, when flat rate billing was decided upon (primarily because consumer usage patterns were similar and there wasn't a developed technology in place to check consumption), no one anticipated that video would become so prevalent on the Internet -- not to mention the insatiable appetite for bandwidth of high definition video.."

I don't know where you were, but yes it was predicted and should not have been a surprise to you.

[Ethan Hawk]

Hi
I lived in Japan for the past 2 years and let me tell you what I think of this backward business thinking.
First in Japan which has now the highest speed on the planet , there is no such thing as metered billing , you can now get 60mb/s download speed for only $34, using your logic if you were offering that kind of speed , you would charge $600
I come back to the US to the slowest speeds I have seen , we lagging behind other countries and I believe our economy depends great deal on the internet.
I believe this money grab by companies like yours hamper innovation and hurt the economy overall .
your way of thinking is flawed and self depricating.

[Beemer]

Broadband caps are nothing more than a money grab. Period. End of Story. Michael, you are either lying when you state caps are needed or really have no clue about how your company actually works. I don't like being harsh but your statements (which echo those of some other broadband providers) just don't add up.

From public filings, we can see that companies are making a large profit and claim costs are going down. Then they stated to the public at large that they can't keep up with costs. Which is it? Those statements are mutually exclusive.

Also, don't tell us you want to cap our usage and increase speeds. Why would you say/do that? So we can hit your caps faster? That makes zero sense. If the cap is 100G but you double my speed, doesn't that mean that I could potentially hit my cap in half the time I used to?

Get off the rhetoric. If you want us to accept caps, then I challenge you to do this - prove they are needed. Show us (put up a web site about it):

The hard raw data.
The method(s) you used to analyze the data.
How the data supports your conclusions.
Include your costs, how you expect them to rise, and explain your method that shows how cost will outpace profit if things continue.

In other words, I'm sick of hearing this BS from ISP's so either put up or shut up about it.

Thank you.

[Ben Katz]

I'd also like to toss into the mix the fact that Insight and others are constantly hyping their new FASTER services that would suck up bandwidth even faster. It's an odd conflict- you constantly get the ads to upgrade to 20.0 broadband service, but wouldn't that technically eat up your bandwidth twice as fast, while at the same time you get constantly the message that Insight is closely monitoring ISP's that are capping bandwidth. Doesn't it sort of defeat your business model? I'd imagine nearly everyone would drop their 20.0 service if Insight capped bandwidth, because who wants to pay more when they're getting much less? Before you were getting unlimited at speeds of 20mb, now we're capping you at 100mb, so basically you're getting 20mb speeds but for only 10 days a month until you hit your cap.

It just doesn't make any sense at all. I can't imagine bandwidth actually costs enough to warrant switching an unlimited plan to 3'x a higher price.

[Rob Dicken]

"Talk about an apples and oranges comparison! What are you talking about? Hard drives and bandwidth have nothing to do with each other. Just because they are using the same units of measurement doesn't mean they cost remotely the same."

I never said they were one-in-the-same. My comparison was based on the fact that along with storage space, bandwidth is decreasing in price by the day. Why? Because the "stuff" being transferred from medium to medium is ALL stored upon hard disks. Essentially, bandwidth is related in an essence to storage space. Without the increases in storage space, you wouldn't have the increases in bandwidth (with the exception of Netflix).

As far as pirated software, ISPs are supposed to have filters in place to monitor this type of stuff. If it's sucking up bandwidth, whilst in the fault of the consumer doing so, it is also the fault of the ISP for not recognizing the illegal usage.

For years, cable has advertised bandwidth that is nearly unreachable. And you're right, people down the street may be sucking up bandwidth. But shouldn't the argument that cable should have already provided some sort of technological solution to where users cannot effect other users bandwidth (ala DSL) be used? Their GENIUS answer to the solution...lets just cap limits and charge everyone 3 times the amount for internet usage. Ummm...wrong answer. There is competition to their services, and there will be people switching companies once this stuff starts. It's the game of the business. Then Insight, Time Warner, and every other major cable company will be forced to rethink their business plans to attract customers back to their products.

Do you honestly think that companies that provide internet solutions, such as e-commerce solution providers, hosting companies, etc...are actually going to pay 3 times the amount for their internet usage when there is competition out there that is exponentially cheaper? Absolutely not. Cost effectiveness is the answer, and usage capping just isn't the answer to the solution.

And the assumption that usage capping will allow users to play games still is just one of the most abstract comments I have seen thus far. Playing games online such as XBOX 360 and even bandwidth entensive games such as Battlefield require 100's of MBs per hour of play. So you're saying it's logical to cap usage and have a consumer pay hundreds of dollars a month just to play video games? Oh that's right...that usage is stealing all your bandwidth so you can check email and surf the web? How is that even remotely logical or worth arguing over?

If the 5% are using 95% of the bandwidth (not sure if that is even a real statistics or not), then why not monitor those 5% that are hogging the bandwidth? If they are downloading pirated games, movies, software, etc...then shut off their service. It's not like it's rocket science here. ISPs have this monitoring in place. If Insight or Time Warner does not, then I believe it's time to invest in something worthy of keeping customers around as opposed to capping limits and watching their customer base decrease dramatically.

[sineswiper]

| 100GB in today's standards is very little,
| considering that storage space costs only .15
| cents a GB from a hardware perspective. That's
| basing it on 1TB hard drives now being sold for
| $150 or less (that would come out to be $15 for
| 100GB). So how in the WORLD do you think a
| provider can be "fair" to the consumer for
| charging $75 (4 times the amount) for the same
| size in bandwidth (100 GB)?

Talk about an apples and oranges comparison! What are you talking about? Hard drives and bandwidth have nothing to do with each other. Just because they are using the same units of measurement doesn't mean they cost remotely the same.

Personally, I'm okay with the metered usage if:

1. The limits are reasonable. The 100GB limits seem to be pretty reasonable, just as long as increased usage of stuff like Netflix movies and YouTube videos are factored into the limits. These things need to be adjustable as standard usage goes up. (After all, it's about targetting the top 5% users who are eating up 95% of the bandwidth.)

2. That it would mean that my neighbor down the street can't suck up all of MY bandwidth because he's downloading/seeding 300GB of pirated movies. There's a difference between using your connection to look at email, web pages, and play games; versus using your connection to practically download THE INTERNET, one movie file at a time.

3. It means that we can stop trying to ban or limit protocols. It seems like companies like AT&T fell into the same "unlimited data" trap when suddenly a P2P app came to the iPhone. Now, they don't want to play ball and they're trying to ban P2P on any mobile network. If they had been more realistic with their "unlimited data" plan, they wouldn't have had this problem.

[Ben Katz]

One final comment, off topic, but I see no recent mention of HD from Insight...

Can Insight please stop advertising HD the way it does? You guy have new commercials that claim HD is free, unlike AT&T and satellie which charge you an access fee for HD. Insight charges a $5 premium for an HD STB. You MUST have the HD STB to access HD content...thus, you ARE, in fact, charging for access to HD.

I got a flyer yesterday that read on the front- HD, FEE OR FREE? Insight charges no access fee to get tons of HD channels. AT&T and satellite charge up to $10 for HD. In tiny print, it says "most HD" channels are free. Most consumers will see "FREE" in massive letters and assume- "okay, HD on Insight is free...we won't have to pay more like AT&T and satellite customers. Clearly when they say most HD channels are free, they mean that we'll have to pay for premium channels in HD like HBO and Showtime and Starz." Wrong. HD, as I mentioned, charges $5 more for an HD STB AND they charge $11.95 for the "HD Tier." So, for many of the HD channels that Insight doesn't charge you any fee to access, you actually pay $17 a month. According to the AT&T website, you can get access to all HD channels for $10 a month, which is nearly half what Insight charges.

I saw the commercials and now the flyer, and it'd be nice if there was some honesty and transparency in the advertisements. Again, I have to mention the fact that cableco's consistently poll near the top of companies people loathe. Bogus claims and false advertising are found in nearly every industry, but few industries have as bad a rep as cable companies tend to have.

I do appreciate the forum here. It's very nice to see executives doing something right in this era of companies seemingly so disconnected from their customers they've got no clue what any of them want.

[Ben Katz]

By the way- can you imagine if your internet bill for the same services went from $40 to $150? Yeah, let's give you what you were getting before but more than triple the bill. I'm sorry, but no one is fooled here...the pricing doesn't even fit in the same universe as the services offered.

Is there an example of another industry where companies started offering the same services at triple the price all of a sudden?

[Ben Katz]

I don't know why Michael just won't come out and say it- Insight will soon be capping bandwidth. I've read this blog for several months and nearly every other story is either about caps or includes a mention of the technology mentioned and that it would require capping bandwidth.

Caps are a stupid idea. Why would companies want to come up with great new technologies that will inherently require more bandwidth if a select few can afford to use them? I pay $120 a month for digital cable, an HD DVR, HD tier (which Insight continually claims is "free"), and high speed internet. I simply cannot afford to pay even more when Insight introduces the caps. I would wager in the current economy few others can afford it either.

I say, go for it. Take the technology back a decade...kill the innovation that will require more bandwith. Push people away and to a new technology that will take over your own. Don't you ever wonder why cable companies consistently poll near the tops of companies Americans just can't stand? If you track the history of the cable industry, most of the big decisions from the top are just mind boggling.

[DM]

Michael,

Isn't this argument similar to the "a-la-carte" distribution model for television? I would be paying for the "bits" that I use for the internet and paying for the "bits" that I use for TV video. Insight (and other companies) would have costs associated with maintaining the infrastructure and costs associated with the delivery of the content (carriage fees for TV and monitoring costs for internet).

You seem to always dismiss "a-la-carte" TV as being bad for customers because it would increase the cost of the service to the customer. Can the same argument not be made about these proposed usage caps and overage fees?

Correct me if I am wrong, but haven't you mentioned before that you are a Time Warner customer yourself? If so, how do you think these changes would affect your internet habits?

[Robert Dicken]

Michael, your assumption that the cable industry should charge for monitoring of internet usage is inconsistent and wrong. Here's why...

The auto industry did not adapt to fuel efficient vehicles while the oil industry was reaping the benefits of it. It lead to less driving, which HURT not only the auto industry, but as you see...the oil industry as well. Oil was trading for $147/barrel on the NYME late last year. It's now trading for $52/barrel. What's wrong with your assumption that the cable industry should monitor and limit usage? Here's what's wrong with it...

AOL (currently merged with Time Warner) started the monitoring and was successful for a brief period of time before nearly crashing at the turn of change and acception to broadband internet. Honestly...who's going to pay $30/month for limited dial-up usage when you can get unlimited broadband for $50? It's a no-brainer. AOL sales quickly fell.

With the advancement in technology, it would be a safe assumption to bet that broadband bandwidth monitoring and usage limiting would also fall under the same circumstances that AOL found themselves in. Verizon currently has their FiOS internet with unlimited usage and has claimed they will not be capping internet usage. So why would any cable company? Because of bandwidth costs? That's ironic...under an SEC filing, cable companies such as Time Warner have stated that bandwidth is getting cheaper and cheaper. So why the increase in prices?

Here's some more questions:

Why would you need to pay over 3.5 times the amount for the same internet usage you had before? That's not even remotely CLOSE to the level of inflation or the standard rate of living.

Why would anyone want to stick along with a cable company for broadband internet, whilst getting capped, and not switch over to DSL? The speed? That is also rather ironic. Time Warner has claimed 7MB pipe speeds and have been clocked around 150KB. They have been, for years, cutting off bandwidth speeds to try and "cut down on bandwidth costs." So why the false advertisement?

I personally quit using cable TV because of the constant increases in prices. Every 6 months, I was getting $10 slapped on by Insight (yes, I am a customer) after being promised certain prices for a long period of time. So, I simply quit and went to Dish Network where I am getting a guaranteed price for 2 years and 6 months of half-priced! It comes out to LESS than I was paying for cable TV. I still need unlimited high speed internet for work usage, but I can guarantee one thing...if I see capped usage, I will switch to Cincinnati Bell and tell every other person to do the same thing.

Is the idea of capped usage to deplete a customer database? After all, the consumer is the person fitting the bills and paying the employees, correct? So from your perspective, it is a safe assumption that the consumer (however stupid they may seem to be) should be forced to pay $150/month for something they were paying $40 for less than a month ago? Your explanations of how this is "fair" to both the consumer and provider is simply incorrect and misinformed. This will not benefit or help the consumer, but in fact hurt the consumer. 100GB in today's standards is very little, considering that storage space costs only .15 cents a GB from a hardware perspective. That's basing it on 1TB hard drives now being sold for $150 or less (that would come out to be $15 for 100GB). So how in the WORLD do you think a provider can be "fair" to the consumer for charging $75 (4 times the amount) for the same size in bandwidth (100 GB)?

Fact is, with the advancement in technology, the cost for storage space, and the need more bandwidth, a cable company's limiting of bandwidth and capping usage will only HURT their business.