[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
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!)