Technology

Time Warner's Net-Metering Precedent


The cable company's plan to charge customers based on bandwidth consumption is drawing widespread criticism—except from competitors

The decision by Time Warner Cable (TWC) to charge some Internet customers based on how much information they download was greeted with disdain by consumer groups and bloggers. Critics said the new pricing plan, to be tested in Beaumont, Tex., would discourage data usage and even stifle innovation. But Time Warner's trial wasn't universally reviled. Other providers of Internet access said they would watch it closely and didn't rule out the prospect that they, too, might experiment with charges based on bandwith consumption.

Comcast (CMCSA), the largest U.S. cable company, said it's evaluating "a variety of models, including consumption-based billing." Verizon Communications (VZ) said it also sees the potential value of billing customers based on the volume of their Web use.

Could It Dampen Web innovation?

The long-anticipated trial (BusinessWeek.com, 1/18/2008) gets under way June 5, when Time Warner Cable begins charging subscribers based on how much data they upload and download. Currently, the company charges customers a flat monthly fee that varies based on download speeds rather than bandwidth usage. A Time Warner Cable spokesman confirmed an Associated Press report that the company will charge customers between $29.95 a month and $54.90 a month based on their data consumption and desired connection speed. Customers will be charged $1 for each gigabyte (GB) over their plan limit.

The purpose of the new pricing structure is to relieve strain on the network caused by a small number of heavy users, says Time Warner spokesman Alex Dudley. The 5% of heavy users consume so much data in the form of multimedia downloads and the like that they slow down the network for the average subscriber, he says. Time Warner believes usage-based pricing could result in more users surfing the Web at faster speeds by forcing the most avid downloaders to curb usage or pay a premium that could then be invested in upgrading the network. "The goal is to make sure that everyone's experience is as good as it can be," Dudley says. "And what we have is a very small number of users who use a disproportionate amount of the network's capacity."

Sure, cable companies could just banish bandwidth hogs (BusinessWeek.com, 2/26/08). "The worst case is people are just kicked off," says Art Brodsky, communications director at Public Knowledge, a consumer advocacy group in Washington. Still, rigid data caps and fees for each GB over those limits could hamper Internet growth and Web innovation, Brodsky says. Worried about high overages, some consumers may choose not to participate on multimedia sites, download movies and music files, watch Web TV, or engage in other new online experiences. That could be disastrous for companies developing new media features for the Web. "Many new startups, particularly those focused on video and online gaming, rely on their customers having access to high-bandwidth, all-you-can-eat connections," tech blogger Michael Arrington wrote on his widely read blog.

A Bandwidth Bandwagon?

Users may exceed limits even with Time Warner Cable's most expensive offering, $54.90 for 15 megabytes of data transfer and a 40GB cap, Brodsky reckons. "An HD movie is 8GB or so, three movies is more than half your allowance for a month, and heaven knows what else you might want to watch," Brodsky says. "This is not a relieving congestion scheme as much as it is a rationing scheme. All it does is protect an inadequate infrastructure from the cable company."

Time Warner set the tiers believing that the vast majority of users who pay $49.95 for the company's Roadrunner high-speed service would not see an impact, since their data usage already falls within the 20GB-per-month limit, Dudley says. As the network is upgraded to handle more capacity, it would adjust the caps to reflect users' changing Internet habits, he adds. So if, say, HD movie downloads became commonplace, the plan targeting the average user would have a much higher monthly GB limit.

Comcast, which charges its 14.1 million customers based on connection speed, says it is evaluating whether to implement a 250GB cap on Internet use for all subscribers. AT&T (T), the largest U.S. telephone company, is "always evaluating our broadband offers," the company said in a statement. As bandwidth demands increase and usage patterns change, "providers need the freedom to try a variety of approaches to find out what consumers prefer." (Cablevision (CVC) says in a statement it has no plans for a consumption-based billing system with usage caps and has "no plans to test or implement such an approach," according to a statement.)

Verizon, which is rolling out a new high-speed Internet service, sees a day when a consumption-based model could have value. "If you get into very large file-sharing you can have a few customers using an awful lot of your capacity, and that has to be managed somehow," says Verizon spokesman Eric Rabe. "I don't think we have the same capacity issues that the cable guys have, but that is not to say that at some point it is not necessary to do something."

Holahan is a writer for BusinessWeek.com in New York.

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