The Meter Is Running

[b]"We need a viable model to be able to support the infrastructure of the broadband business. We made a mistake early on by not defining our business based on the consumption dimension."
--Time Warner CEO Glenn Britt, to Business Week
[/b]

Ready to pay for your internet by the banner ad? Time Warner thinks you are.

Last week, Time Warner Cable announced Phase 2 of its new broadband pricing model, a tiered billing system that would charge internet users based on their monthly consumption. The company will soon begin metered pricing in four cities: Greensboro, NC; Austin and San Antonio, TX; and my current hometown, Rochester, NY.

Understandably, the news has sent the internet into a tizzy, which is why I thought it might be a good idea to break down the facts and put things into perspective.

But make no mistake: As gamers—many of us with families—we're the ones most affected by Time Warner's new pricing structure. This is a direct warning shot across our controllers and keyboards: a sign to wake up and smell the profiteering.

Crunching the Numbers

Here's how Time Warner's new pricing model works. Each household chooses one of five cap levels, ranging from 5 GB/month to 100 GB/month. Pricing resembles that of cell phone plans: Those who use the most broadband pay the highest amount and those who exceed their allotment are charged a fee—in this case, $1 for every excess GB.

The prices break down as follows:

5 GB: $29.99/month
10 GB: $39.99/month
20 GB: $49.99/month
40 GB: $54.90/ month
100 GB: No information yet
Source: Democrat & Chronicle

Of course, most customers have little context with which to judge this new pricing structure, since many of us have no idea how much bandwidth we use in a month. So let's crunch some numbers. I'll use my husband and I as an example.

Although we are young, childless and live in a two-gamer household, neither my husband nor I are overwhelmingly extravagant with our Internet usage. We're not even what you might consider "hardcore" gamers. Between the two of us, we buy on average one new game a month, and maybe one or two classic or casual games as well. Occasionally, we also download a few demos. But our Xbox gets most of its use on Friday nights, when I kick back with a beer and instantly stream an HD movie from Netflix.

Let's say we spring for the 40 GB plan (I choose this one because neither pricing nor availability for the 100 GB plan has yet been announced for Rochester). Would this be enough to satisfy our monthly Internet habits?

Last month, my husband bought The Witcher: Enhanced Edition off of Stardock, which was about a 13 GB download. Since I'm a sucker for Psychonauts, I bought it (again) from GameTap, at 3.78 GB. I also couldn't resist the siren call of competitive Peggle, so I picked that up too for the Xbox (0.1 GB). Together, we downloaded demos for World in Conflict, Empire: Total War (1.2 GB and 2.2 GB from Steam, respectively), and the Xbox demo for Resident Evil 5 (0.47 GB). Finally, since streaming an HD movie eats up an average of 8 GB a pop (Source: Business Week), altogether my Friday movie nights on the Xbox add another 32 GB.

So in just one month, we've downloaded about 52.75 GB on our various gaming devices. If we were on the 40 GB/month plan, we'd be paying about $67 for our broadband service. (Currently, we pay $39.99.) [Edit 4/9/09: Turns out these numbers may be off-base. See comments below for the correction.]

And that rough calculation ignores all the other multitudes of ways the two of us use the Internet: I work from home; he buys digital tunes off Amazon; I watch Battlestar Galactica episodes on Hulu; and so on. Perhaps one of us might be able to get our gaming fix on the 40 GB plan—but only if the other rarely used the Internet at all.

"To put it mildly," Sanford C. Bernstein analyst Craig Moffett told Business Week, "the decision to limit data consumption can be expected to have profound implications for [consumer] behavior."

Justifying the Cap

Perhaps that's the point. Time Warner justifies its new pricing model by directing blame at its heaviest users, claiming that a few terabyte-hogging party poopers with an unquenchable thirst for LOLCat clips have slowed down the network for the rest of us. Tiered billing would speed up the network, says Time Warner, by forcing these heavy users to cut back, or at least pay a premium that the company claims it would re-invest in network upgrades.

But by painting upgrades as so expensive and Herculean a task that the only way to manage them is through steep caps and punitive fees, it's obvious Time Warner is counting on consumer ignorance.

Relatively speaking, cable networks are downright cheap to upgrade; in many cases, improving speed is just a matter of upgrading the existing DOCSIS delivery platform. Consider that J:Com, Japan's largest cable company, managed to install the world's fastest consumer broadband service—160 MB/second—for less than $100 per home (Source: NY Times). Compare that to Verizon, which must spend an average of $1,500 per home to wire neighborhoods for its FIOS network (Source: NY Times). On price alone, maintaining a cable network beats the alternative every time.

So why is Time Warner so reluctant to upgrade? Well, it hasn't had any reason to. Unlike Japan or European countries, ISP competition is woefully lacking in most U.S. markets. In some areas like Rochester, Time Warner is the only reasonable choice in town.

Rochester is the only city in all of Upstate and Western New York without access to Verizon's FIOS network. Instead, we're left with Frontier Communications, an independent telephone company whose DSL line can't even come close to matching the speeds Time Warner's Road Runner service can offer.

What's more, last summer Frontier already tried its own all-inclusive 5 GB cap (yes, you read that right). Although that venture failed, it surely factored into Time Warner's decision to choose Rochester as a test city.

Likewise with the other three cities in the pilot program. Basically, Time Warner only selected test markets where it possesses a captive customer base, where the competition offers much slower service and may have even already implemented their own broadband caps.

Internet Killed the TV Star?

The whole premise of Time Warner's argument is that most subscribers don't use much bandwidth; indeed, in a previous trial in Beaumont, Texas, only 14% of subscribers exceeded their caps. But as Nate Anderson at Ars Technica asks, if most people use little bandwidth, doesn't that suggest that caps are unnecessary to keep traffic within "reasonable" limits—because the bulk of traffic is so low to start with?

After all, there will always be pirates, people running illegal file-sharing servers, and morons who can't bother to secure their Wi-Fi. But under the existing terms of service, ISPs like Time Warner already have the right to warn, discipline and ban these bandwidth hogs as they see fit. Isn't that enough?

I understand that it costs money to manage and maintain a digital infrastructure, and I certainly don't feel entitled to Internet access, much less the unlimited kind. But I can't help feeling that this new pricing scheme isn't about broadband networks at all.

Time Warner is first and foremost a cable TV company, and over the past few years, it has spent millions of marketing dollars to promote its various TV services, from HD programming to video-on-demand to DVR.

But if Time Warner's customers start streaming their TV and movies from Netflix, Hulu, iTunes and other online services, then they're not using the cable company's own offerings. Perhaps Time Warner hopes an Internet cap may change that, and push customers back to TV where no caps or fees exist.

If that's the case, then their efforts are doomed to fail. If there's one thing the last decade of technological advance has proven, it's that the revolution will be downloaded, blogged, streamed, even Twittered. Trying to prevent consumers from accessing the Internet makes them want it all the more. Savvy broadband providers will recognize this, and capitalize on the rabid customer loyalty uncapped service would undoubtedly unleash.

And when the time comes for me to choose, I plan to vote not with my computer, but with my wallet.

If you'd like more information about Time Warner's tiered billing system, or you'd just like to share your thoughts with the powers that be, email [email protected]. Or send a Twitter message to Jeff Simmermon, Time Warner's Director of Digital Communications, at @JeffTWC, or Alex Dudley, the VP of Public Relations, at @AlexTWC. Rochester residents can also call Time Warner Rochester Customer Service at (585) 756-5000, or snail-mail the local Time Warner Cable office at 71 Mt. Hope Avenue, Rochester, NY 14620. (Thanks to Stop The Cap for collating this contact info!)

Comments

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How long until we see a coordinated nerd effort to physically mail bottle-caps to TWC's home office?

Reading about broken schemes like bandwith caps and threats to net neutrality really bother me on a base technocrat level. I remember, rather clearly, when we set aside a few million or billion dollars in the 90s in order to get the US's informational infrastructure up to par. From all I've heard, the telcoms sat on that cash and made piddling upkeep efforts. Now, they can't even stomach someone actually using their service? Doesn't anyone remember how unpopular the AOL capped service was?

Great article, Lara!

Bill Harris posted a fantastic rant about this last week, which i highly reccomend.

http://dubiousquality.blogspot.com/2...
http://dubiousquality.blogspot.com/2...

Bill's stance is that TWC's move has nothing to do with the end users and everything to do with trying to squeeze money out of content providers like netflix and ESPN.

Look, I know this announcement makes it look like Time Warner is trying to limit how consumers use their broadband connections, but it's not. It's not a shakedown of consumers, because we have shallow pockets.

It is, however, a shakedown.

When in doubt, look for the deep pockets, and in this case, those pockets belong to the content providers. Video-on-demand has absolutely EXPLODED in the last two years, and new services seem to get added daily. Content providers are stampeding to get all of their content online and watchable on demand.

I think he's onto something.

Great summary! I went ahead and submitted it to Digg.

We're in Raleigh, so I'm sure we're the next to get screwed if they deem Greensboro a success. Unfortunately, there's not a lot of other options in the area. DSL used to be the kind of low latency, but so far the service around here is spotty at best.

Canada is already getting screwed in this way by the binary oligarchy of Bell / Rogers. I went with Rogers, the "better" choice, for high-speed and currently cap out at 60 GB. Also Rogers splices bandwidth warnings directly into your web browser.

We share wireless with our next door neighbours, who help foot the bill, but if they weren't doctors who work all the time and don't use the internet for anything other than email, we'd be exceeding our cap every single month. At huge additional cost.

I'm far less likely to download a demo off Xbox Live as the month end nears, just to be safe. It sucks.

As a college student who lives in Rochester, I am very disappointed. I shall be living with four other people in six months and there's no way that even the 100gb option will satisfy the normal bandwidth usage of my roommates and I. We all play online games, any television shows we keep track of are watched on hulu, and we all do online shopping.

I'm angry I'm part of this experiment.

I smell a resemblance to AOL's minutes. Look what happened to them... It's unfathomable to me that my mother in Sweden is sitting on a 100 Mb line for a pittance and in the US they are looking to these schemes.

Even if they are really just trying to hit the deep-pocket content providers, isn't their cap a little LOW? I mean, if end-users like us hit the cap so easily, won't the cost to netflix / espn etc be downright ludicrous? I would think they'd try a more subtle pricing scheme first!

Obviously, the solution is to leave Rochester, NY and settle elsewhere. Looking into immigration to Japan would be a good start!

Unlike Japan or European countries, ISP competition is woefully lacking in most U.S. markets.

Those TW pricing plans are pretty high, but usage caps are the norm for DSL in the UK and have been for several years. They used to all be unlimited, but I think all the P2P/torrenting killed that idea. I pay £20($30)/month for 50GB. I generally use about 20-30GB, more if I buy something off Steam.

The increase in supply of cable internet and Local Loop Unbundling is starting to increase the number of unlimited plans.

Ya'know, a little competition would probably present a very quick solution. I've never understood why people put up with cable monopolies.

The whole premise of Time Warner's argument is that most subscribers don't use much bandwidth; indeed, in a previous trial in Beaumont, Texas, only 14% of subscribers exceeded their caps. But as Nate Anderson at Ars Technica asks, if most people use little bandwidth, doesn't that suggest that caps are unnecessary to keep traffic within "reasonable" limits—because the bulk of traffic is so low to start with?

That right there is the big tip off that there is something else going on than what they say.

I have also read other articles that put most of the blame of clogged bandwidth lines is mostly just peoples bit torrenting specifically the uploading. Seems to me they could just put a cap on uploading and solve the problem really simply. Your typical online gamer or movie streamer would never be effected by it since none of those things uploads much data at all. But that's just my two cents.

Zelos wrote:
Unlike Japan or European countries, ISP competition is woefully lacking in most U.S. markets.

Those TW pricing plans are pretty high, but usage caps are the norm for DSL in the UK and have been for several years. They used to all be unlimited, but I think all the P2P/torrenting killed that idea. I pay £20($30)/month for 50GB. I generally use about 20-30GB, more if I buy something off Steam.

There's this awesome policy in most US cities where the city will actually give a region of the city to a particular provider and then actively forbid all competition. it's awesome for consumers!

note: TWC wouldn't be able to try this sort of thing if the government didn't enforce non-competitive behavior.

Fredrik_S wrote:

I smell a resemblance to AOL's minutes. Look what happened to them... It's unfathomable to me that my mother in Sweden is sitting on a 100 Mb line for a pittance and in the US they are looking to these schemes.

Hmm, wasn't AOL bought by TWC... Me thinks they missed the history channel special...

Poor Old Lu wrote:

Ya'know, a little competition would probably present a very quick solution. I've never understood why people put up with cable [i]monopolies.[/i]

Monopoly. One option.

Jack Random wrote:
Zelos wrote:
Unlike Japan or European countries, ISP competition is woefully lacking in most U.S. markets.

Those TW pricing plans are pretty high, but usage caps are the norm for DSL in the UK and have been for several years. They used to all be unlimited, but I think all the P2P/torrenting killed that idea. I pay £20($30)/month for 50GB. I generally use about 20-30GB, more if I buy something off Steam.

There's this awesome policy in most US cities where the city will actually give a region of the city to a particular provider and then actively forbid all competition. it's awesome for consumers!

note: TWC wouldn't be able to try this sort of thing if the government didn't enforce non-competitive behavior.

Yep. In Lancaster County (Containing the capital of Nebraska, Lincoln.), Windstream (Phone/DSL) and TWC (Cable/Internet) is the only game in town. Omaha, NE has FiOS from Qwest, because they don't have anti-competitive laws in place.

Clemenstation wrote:

I went with Rogers, the "better" choice, for high-speed and currently cap out at 60 GB. Also Rogers splices bandwidth warnings directly into your web browser.

And does so in a horribly undependable way. I usually get the warning that I exceeded the cap literally a few hours after the warning saying I reached 75% arrives. Also, between Xbox Live, ITunes, Steam, etc., I barely meet or exceed my cap every month. It sucks hard.

boogle wrote:
Poor Old Lu wrote:

Ya'know, a little competition would probably present a very quick solution. I've never understood why people put up with cable [i]monopolies.[/i]

Monopoly. One option.

But there could be a monopoly in New York, a different monopoly in Ontario, and so forth... a plurality of monopolies, all told!

kuddles wrote:
Clemenstation wrote:

I went with Rogers, the "better" choice, for high-speed and currently cap out at 60 GB. Also Rogers splices bandwidth warnings directly into your web browser.

And does so in a horribly undependable way. I usually get the warning that I exceeded the cap literally a few hours after the warning saying I reached 75% arrives. Also, between Xbox Live, ITunes, Steam, etc., I barely meet or exceed my cap every month. It sucks hard.

It does suck hard, because either a) Rogers annoys the Christ out of you with its bandwidth warnings, reminding you that your internet privacy is severely compromised, or b) you disable the warnings and then get smashed with a monster bandwidth excess fee at the end of the month because you haven't remembered to rein it in.

Also they renamed the Skydome the Rogers Center. Bastards!

By the way, I couldn't fit this in the article itself, but if you're looking to keep up on the latest news and info about internet caps, you can't find a better resource than Stop the Cap. Its author, Phil, is a one-man army of awesome. I don't think he ever sleeps.

Poor Old Lu wrote:

Ya'know, a little competition would probably present a very quick solution. I've never understood why people put up with cable monopolies.

Your quick solution would be grand, but how do we get from A to B without a new company knocking on my door every week ready to dig another trench in my front yard, street, wherever?

Is the end answer municipal/regional ownership of the transmission infrastructure, with competition taking place among providers of content? Would that ultimately be the best end-result for the consumer?

Good info...good read. Sounds like there's a new pink elephant in the Time-Warner conference room.

The modern-day reality is our world is becoming increasingly data driven, and it's not going to lessen, despite artificial attempts by the likes of Time Warner, et al. Figuratively, I hope (and predict) this move explodes in their face.

I smell some sort of antitrust action in the not-too-distant future when the Very Big Cable Companies Inc. try to expand these usage-limiting pricing practices to the broader market. It will be looked upon as highway robbery by other companies out there trying to sell products by means of digital delivery. "Foul!" will be cried. "Mommy!" (aka the FCC) will be summoned.

The author used her and her husband's data consumption as an example. What she detailed hardly seemed anything close to excessive, in my opinion. If anything, it seemed fairly typical in this day and age of iPods, streaming movies, web surfing, and so forth. If Time Warner truly thinks it's the "heaviest users" ruining for the rest of the crowd, you've got to wonder who's the stuffed shirt dictating the definition of "heavy usage." These 10GB and 20GB tiers seem almost silly to me in the year 2009. Maybe I could see a 20GB plan for grandma and grandpa who just sent their first e-mail yesterday, but for the mainstream? Come on!

Interesting choice of consumer markets in which they've decided to test their little theory. I'd guess they're all markets where there is little or no competition from other broadband providers? Guess we shouldn't be surprised; just another money grub. I sense a regulatory storm just over the horizon.

Found:
Way to kill the internet

Please contact Time Warner for more information

These sorts of corporate schemes should first be subject to a period of public question-and-answer sessions. Parents need not attend. Instead, they can send all their children who will be quite PISSED when mommy and daddy explain to them who is ultimately to blame for the curtailment of their Club Penguin and Webkinz addictions.

Yeah.

I guess the article is inherently political so it's not too bad, but Net Neutrality legislation would solve this problem fairly well. With Net Neutrality, preferred service agreements would be illegal, so Time Warner could set whatever caps they want, but their own internet video services have to apply to them like they do with Hulu.

This is one of the scenarios Net Neutrality was designed to fix, actually. So if you want this to go away, support Net Neutrality.

kuddles wrote:
Clemenstation wrote:

I went with Rogers, the "better" choice, for high-speed and currently cap out at 60 GB. Also Rogers splices bandwidth warnings directly into your web browser.

And does so in a horribly undependable way. I usually get the warning that I exceeded the cap literally a few hours after the warning saying I reached 75% arrives. Also, between Xbox Live, ITunes, Steam, etc., I barely meet or exceed my cap every month. It sucks hard.

Switch to Teksavvy. I'm rolling a 200GB cap for 40$ a month. Great connection, great company. I know PA feels the same way.

Here's my "alternative" to Time-Warner's effective monopoly in this area:

IMAGE(http://idisk.me.com/rangerick/Public/Pictures/Skitch/My__Alternative__to_Time-Warner-20090407-155031.png)

On the bright side, it would be physically impossible to go over Time-Warner's bandwidth limits.

Are those bandwidth caps for computers or for cell phones? Those have to be some of the most ridiculous numbers I've ever seen.

Also, what's with the 5, 10 and 20 GB bandwidth cap prices? They charge $1/GB for every GB you go over, yet the 10 GB cap is $10 more than the 5 GB cap? It would be cheaper to go with the lower one and pay the fee! The only plan level that is cheaper than going with the 5GB and paying the overage fees is the 40 GB one. I'd like to meet the geniuses at Time Warner that put this one together.

Jack Random wrote:

There's this awesome policy in most US cities where the city will actually give a region of the city to a particular provider and then actively forbid all competition. it's awesome for consumers!

note: TWC wouldn't be able to try this sort of thing if the government didn't enforce non-competitive behavior.

Well, you're right that this is a consumer burden in the worst sense, but the reason it's there is historical. It's just like phone companies: especially in the early days, the government basically had to make a deal with providers to cover ALL of a region, not just the urban areas where you make the most profit. Most cable companies couldn't turn a profit, at least not in any short-term sense, by installing cable in rural and far-flung suburban areas, so if left to their own devices, they would stick to high population density areas, leaving the far-out people in the cold. So, the government agreed to stop competition if they kept their rates at a certain approved level and agreed to cover everyone in an area, not just urban areas.

Of course, times have changed, and now the barrier to entry is much lower for data transmission companies, so a lifting of this legislation might be in order.

Comcast has a 250 gb cap at the moment. The fact that the Time Warner caps start at 5 gigs is like a slap in the face. I've seen some ads for satellite hookups. Could be an option to use if you want to stick it to the TW man.

These cable companies are just a joke. They have been greedily sucking up our money without doing anything to upgrade their networks for years. Now that everyone is streaming and downloading they are panicing. Whose to blame? Not us, they say. It's those filthy consumers who are streaming and downloading. I pray to the fiber optic angels every night that they will come and spread some of their magic on my neighborhood.

EDIT: I just looked up Sat internet speeds. It's not a viable option for most of us, I'd think.

Guh. Good thing there's heady competition for my internet dollar in D/FW.

Now if those AT&T ashhats ever decide to wire my neigborhood, I'll be happily moving over to Uverse and sending a letter of protest to Time Warner for my brothers without a choice telling them why a loyal customer of theirs for years decided to switch over.

Funny note, I went to my local AT&T store (these things are Starbucks-esque in their overlapping store coverage)to get my new cell phone and they had advertisements for Uverse at the counter, yet the store doesn't even get the service there. Brilliant. The chick at the counter said that they're wiring up our neigborhood now... whatever that really means.

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