Cables Fishing For Added Gigabyte Revenue

If I wore a pacemaker it would have beeped in alarm mode upon reading David Lazarus’s column in The Los Angeles Times that my cable company may charge me as much as $150 a month for online access.

By coincidence, an hour earlier I ripped an $82.66 check to Time Warner for Internet and basic cable television access. This monthly ransom note amounts to about 7% of my gross monthly income. For sheer entertainment value, I’m willing to pay the price. Certainly, almost doubling the cost will not offer twice the pleasure.

“The sky-high charge is part of a new ‘consumption-based billing’ system that Time Warner will test this summer to address what it says is the possibility of “brownouts” on the Net within three years because of soaring usage,” Lazarus writes.

Oh, my gosh. I’m surfing the Internet six hours a day. Searching for gems to write about. Straining the innards of my computer until it flashes a warning it’s losing its memory capacity.

I really worked up a lather when Lazarus reports the basic problem are video outfits such as Netflix. Yikes! I got Netflix. And then he gently lets me off the hook. It’s the downloading of these videos that stretch the resources of the cable operators.

Whew! I don’t download movies. Or songs. None of those mega kilobytes or whatever some geek named them in the basement of his parent’s home. Who the hell wants to watch a movie on his computer screen when he can relax in a recliner watching the same flick on the TV set? Then, by definition, I’m no contributor to brownouts.

Let me digress here a moment. Only once in my entire life have I been called by a national consumer survey pollster asking my product preferences. After dropping the phone as a result of convulsive laughter, I told the guy I make up my mind what I want, go to the store, find the proper display shelf, buy it and promptly leave. He agreed. I’m a lousy shopper. That’s how I must have been put on the national survey no-call list.

My habits with the Net are no different. I have to arm wrestle my firewall to access even the safest websites on cyberspace. And, when the computer flashes me a warning that a particular site or program is unsecured, visions of viruses and worms crawl through my brain.

But Lazarus, God bless him, put my mind to rest. He quotes an authority who claims all Time Warner and the other operators are trying to do is gouge the consumer.

He quotes Karl Bode, editor of BroadBandReports.com: “The cable companies argue that they can’t handle this demand, but if you look more closely, the growth of the Internet is manageable through reasonable equipment upgrades… By charging a ridiculous amount for Internet viewing, they hope you’ll scale back online and go back to watching things on cable.”

Finally, Lazarus offers a happy conclusion to all of us:

As it happens, an “under new management” sign is up at the Federal Communications Commission. And President Obama’s pick to serve as the agency’s chairman, Julius Genachowski, has a background in the online world and is said to be a strong believer that everyone deserves affordable broadband Internet access.

One of the FCC’s next steps should be to determine how much the Net really costs on a per-gigabyte basis, and to ensure that access providers charge a fair price.

Heavy Net users should pay more. But not that much more.

Cross posted on The Remmers Report

         

Author: JERRY K. REMMERS, TMV Columnist

Jerry Remmers worked 26 years in the newspaper business. His last 23 years was with the Evening Tribune in San Diego where assignments included reporter, assistant city editor, county and politics editor.

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8 Comments

  1. To the point about Netflix and watching movies on your computer, Netflix is implementing several ways to use its service on your television already. Certain Tivo boxes can stream movies from your Netflix account, as well as the Microsoft Xbox 360. I believe they also sell a box themselves, which allows you to stream to your television. I currently watch more Netflix movies through the application on my Xbox, than I do with the actual dvd service now. All signs point to this being the future for Netflix, not actual dvds.

    And this is important to note, because while I can understand the basic principle that heavy internet users should pay a higher usage fee like we do with basically any other service (electricity, gas, water, etc.), I do believe Time Warner sees the online video market being a dredge on its existing business model. You certainly never hear them complain about the pay-per-view movies that they stream to customers and how those tax the system, or will into the future. Time Warner has put a lot of money into the on-demand market themselves over the past few years, because this is where television is heading, but somehow this is a non-factor in the discussion.

    So on one hand, yes, they have a point, but on the other hand, they're trying to use that point to protect their other business models as well.

  2. Cable is fishing for an end to their monopoly and increased competition from telecoms that offer similar services without the caps. I know that if Time Warner Cable institutes the caps in my area, I will switch to Verizon DSL (FiOS if it's available) in a heartbeat.

    We'll only run into trouble if all these companies decide to institute caps at the same time. If so they should all be immediately hit with legal charges of collusion.

  3. Virtually all ISP's (Verizon, Comcast, TW Cable, AT&T, etc.) are at least considering these caps if not testing them if not already applying them. They're doing that because something has to be done to prevent the minority of super-high bandwidth users from harming the experience of moderate to low-bandwidth users. In fact, some of the same groups currently criticizing TW Cable were the same groups that previously suggested an approach like the one TWC is currently testing would be an equitable way to deal with the very real, and ever-present network management issues that all ISP's have to wrestle with. It's also important to keep in mind that TWC is only “testing” the concept, not implementing it nationwide. Consider this look at the issue, which is admittedly from a party with a vested interest: http://www.cabletechtalk.com/tech-discussions/2….

    Also note that I have a vested interest in the issue, since my day job is with a company in the ISP space. I promise you we are not trying to foist evil on the world, but look for a fair way to balance what are often conflicting demands.

    Think about it this way: Let’s say most people use less than 50 gallons of water each month. But there are a few people who use more than 200 gallons each month. The only fair solution is to ask those who use less than 50 gallons to pay one price, and those who use more than 200 gallons to pay a higher price. That’s essentially what ISP are trying to do. Like water, Internet usage, or “bandwidth,” is a limited resource and the ISP's have a legitimate interest in making sure there’s plenty of bandwidth for all their customers and that the few customers who use very large amounts pay their fair share, so prices don't go up for every body.

    Ultimately, I'm not trying to defend TWC or say that their previously announced plans are the “ideal” way to go. I do believe, however, that current bandwidth consumption trends require one of two alternatives: Either the days of “all you can eat” on the Internet come to an end, or the minority (2-5%) of superbandwidth users eventually, negatively impact the 95-98% of moderate to low bandwidth users. And please don't respond by saying all the “greedy ISP's” have to do is build bigger pipes. There's not enough money in anybody's world to build pipes big enough to continue to support an “all you can eat” paradigm. Again, there has to be a balance between ongoing investments in bigger pipes, cost, and the interests of the 95-98% of people who will never even notice bandwidth caps.

  4. Pete,
    A couple of points…

    a) ISPs can terminate the accounts of users who clog the network on a regular basis. It's in the agreement I signed, so why not actually enforce it?

    b) The cost per gigabyte of transfer is going down not up, so why are we suddenly going to see a big spike in fees?

    c) Why are the Time Warner caps so absurdly low? Why aren't they tied to peak and off hours, like cell phone minutes? Does it really cost $1 per gigabyte transferred?

    It all boils down to TWC charging more money for less service. That usually doesn't work out well in the marketplace, but we might be saddled with it because of an oligopoly/monopoly.

  5. The US already suffers from lackluster broadband. And broadband is the future. What a pity we're going to back off on providing it, rather than advancing it.

    “there's simply not enough money in anybody's world to build pipes big enough”

    Apparently, there is enough in the worlds of Korea, Japan and India, but not here. So let me get this straight. Comcast will charge me to play a Netflix movie through their cable, because that's too much bandwidth for me, but they'll be glad to broadcast the same movie to me on their pay per view. This is the problem with monopolies. If there was another cable company in my neighborhood, “the market” could favor the better competitor.

    Chris mentions DSL, but in my town DSL tops out at 1.5 Mbps, while cable tops at 30 Mbps. That's 20X. That's a pretty pitiful competitor, so why shouldn't Comcast gouge me for every dime they can? Because our city only let one company dig up the streets and put in cable, hence it is a government granted monopoly. It's ridiculous to suggest that they should or could allow 5 other companies dig them up in order to “compete”.

    How badly is our monopoly driven model working for us?

    “American residents and businesses now pay two to three times as much for slower and poorer quality service than countries like South Korea or Japan. Since 2001, according to the International Telecommunications Union, the United States has fallen from fourth to 16th in the world in broadband penetration. Thomas Bleha recently argued in Foreign Affairs that what passes for broadband in the United States is “the slowest, most expensive and least reliable in the developed world.”

    Please, read it all: http://www.washingtonmonthly.com/features/2006/

  6. GreenDreams,
    DSL speeds are definitely slower than cable. But I don't want to support TWCs new business model.

    At the very least, I will cancel my TV subscription.

  7. Chris, I know what you're saying. Just want to point this out as an example in which market forces have not and will not make us competitive in the 21st century. More from the linked article:

    “Those countries that achieve universal broadband are going to hold significant advantages over those who don't. And so far, the United States is poised to be a follower–not a leader–in the broadband economy.”

    How far back are we?

    “While about 60 percent of U.S. households do not subscribe to broadband because it is either unavailable where they live or they cannot afford it, most Japanese citizens can access a high-speed connection that's more than 10 times faster than what's available here for just $22 a month. (Japan is now rolling out ultra-high speed access at more than 500 times what the Federal Communications Commission considers to be “broadband” in this country.)”

  8. Chris — thanks for the constructive reply. Some responses:

    (a) Setting limits helps enforce user agreements; in fact, many of our heaviest users have told us that if we'd simply publish limits, they'd live within them; they want definition. That said, see my response to point (c), below.

    (b) I can't speak to others, but we don't plan a big spike in fees. In fact, as I recall, in the test market we're considering, if the less than 1% of customers who use more than 150G per month were to upgrade one tier (for about $10 extra per month), they'd get much faster speeds, more usage, and we'd be left with only a couple people (literally) who were still using more than the highest allowance. Those couple people are likely commercial users posing as residential users anyway, at which point they could be upgraded to a commercial account with no cap. Problem solved. Everyone pays a fair share, we make a little more but not much (not on less than 1% of customers), and the little more we do make can be set aside for upgrades, because we know over time usage will continue to grow and we'll probably need to increase the allowances over time

    (c) I can't speak to that. But I can tell you the “caps” we're considering are generally much higher than what I saw TWC announce. In fact, our goal is to impact as few customers as possible, plus provide some space between floor and ceiling to account for increased usage trend over the next 3 years.

    Bottomline: As I said before, my goal is not to defend TWC. I think there is a balance to be struck here, and they may not have struck it in their original plan, which is why they're adjusting, and probably will continue to adjust. Net: Devil's in the details, but some mixture of limits will need to be imposed at some point — and then likely adjusted (raised) over time. You mentioned cell phone minutes; that's a good parallel.

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