Time Warner Goes Telco

Taking a page from the telco’s playbook, Time Warner starts to charge customers for bandwidth usage.

While the telcos are now facing very stiff competition from flat-fee services such as offered by cable companies using VOIP and cell phone carriers, Time Warner has begun charging customers in Rochester NY and Beaumont TX fees based on how much bandwidth they consume. The fee schedule is ludicrously low, with cap levels of 5, 10, 20, and 40 GB (also users may see a 100 MB plan as well) charging from $30 to $55. Users who exceed these caps then pay $1/GB when caps are exceeded.

While some studies suggest average usage is something like 2-6 GB/month, a hi-def movie will eat up something like 8 GB. These caps effectively turn users off to using the internet for anything more than email and some light browsing. Downloading music and photos kicks alone can push users over these caps quickly. Based on Time Warner’s usage trials in Beaumont TX, 14% of users exceeded their caps, paying an average of $19 for excess bandwidth. TW also found that the top 25% ate up 100 times more bandwidth than the bottom 25%.

The competitive response is quite varied – Comcast is trying usage caps of 250 GB and customers who exceed this are first warned, then if overage continues, they get kicked off. ATT appears to be riding on TW’s back, trialing usage fees in areas where TW has them. Thankfully Cablevision (which I use) has no plans to implement a metered services plan.

With more bandwidth-intensive services popping up, these metering plans are nothing short of constraints on new service offerings that could choke off such offerings. While TW says this is still in the “trial” stage, the door has opened on an ominous trend. If the cable guys go telco and jump on metered pricing, then the whole landscape changes on the economics of broadband services – to their detriment.

It is not all the clear whether TW’s motivation is the network or protecting their fee-based cable services. If users can get the TV programming they want from internet based TV streams, then the cable guys take a hit on cable programming fees. There is some anectdotal evidence to suggest that in fact this is happening and users are dropping cable for internet TV programming.

Fortunately in many of the larger markets there is enough bandwidth competition that will limit these throttling moves; typically in smaller markets there is less or no competition and the cable company is nothing short of a local monopoly. I can only hope that as bandwidth continues to drop in price that competition will choke off these efforts.