Time Warner Cable has fired the first shot in the tiered bandwidth cap wars, but consumer groups and legislators are already preparing a strong response. Can service providers succeed this time in tying usage to revenue, or will public pressure force them to be unmetered dumb pipes?
Rochester, N.Y., is one of four markets where Time Warner Cable is expanding metered service trials, and residents are not happy.
The uproar even prompted U.S. Congressman Eric Massa, of the nearby 29th District and a former Esquire 100 recipient, to begin drafting a bill "to prohibit unfair tiered price structures from Internet providers."
Massa's bill tackles head-on the new terms Time Warner Cable has laid out for subscribers:
- $15 per month for up to 1 GB of bandwidth with speeds of 768 Kbps download.
- $75 per month for up to 100 GB, at 10 Mbps download.
- $1 per gigabyte past 100 GB, up until ...
- $150 per month for unlimited bandwidth.
Landel Hobbs, COO of Time Warner Cable, said in a statement that 30% of customers use less than a gigabyte, and the move will make the costs associated with access more equitable based on usage.
"According to industry analysts, the infrastructure may not be able to accommodate the explosion of online content by 2012.... It will take a lot of money to fix the problem," Hobbs said. "Rather than raising prices on all customers or limiting usage, we think the fairest approach is to move to a tiered model in which users pay more if they use more."
Time Warner Cable points to similar trials done by AT&T, and it says that such practices are the norm in Canada.
Telecom bandwidth caps vs. Net Neutrality?
Others dispute exactly how fair the policies are, however.
"If this is a monopoly that's going to abuse the American people like AIG did, then it's time to break it up," Massa said in a recent interview with MediaPost. In a separate statement, he singled out the plan as "an outrageous, job-killing initiative."
Is the telecom industry about to face the Net Neutrality debate redux? And can it afford to lose this time? Just last year, telecoms' efforts at traffic shaping stumbled on Net Neutrality initiatives. Comcast, which was the highest-profile traffic shaper, eventually abandoned the practice after major public relations snafus and the threat of FCC intervention. Now, tiered bandwidth caps are facing a similar consumer backlash.
With plummeting revenues-per-bit, however, something might have to give for the economics to work out on both ends. "The issue here is that all the [service providers] doing this are facing the same fundamental problem," said Tom Nolle, president of CIMI Corp. "Everybody knows that traffic growth is faster, by far, than revenue growth."
Metering opponents fear artificial telecom market controls
The profits posted by service providers are one of the main targets of bandwidth cap and meter opponents, but Nolle said it's unfair for people to say that a public company has a duty to provide a high return to shareholders while urging that the market be artificially controlled through legislation.
Besides, he added, while service providers are indeed giving a real return to their investors, the over-the-top competitors that rely on them, such as YouTube, Rocku and Hulu, have a much higher internal rate of return, even as they compete with the video services Time Warner Cable offers.
"If you look at Time Warner or some of the other cable companies, they may be profitable, but they're not profitable on broadband," Nolle said. "Take away the cable television business [and] there's not a single cable company in the world that would be in the broadband business." Without the cash on hand to invest in network improvements, he said, the necessary infrastructure simply won't be built.
Critics fear, however, that Internet caps could stifle the innovation on the Internet that has enabled the Web to change how the world works, plays and lives.
Customers argue price caps stifle innovation
Lee Drake, CEO of an IT company in Rochester, recently blogged that bandwidth caps could have a "chilling effect" on entrepreneurship in the Rochester area and even affect larger businesses as they try to recruit and attract young employees.
As a member of Rochester's Eyes on the Future committee, Drake has seen the area's major employers, Kodak and Xerox, fade away, replaced by smaller businesses such as bootstrapped startups that rely on unlimited Web access to draw in customers.
Being one of the first communities to have broadband cable helped Rochester foster an incredibly technical community, he said. But that is all endangered by the usage caps. "These bandwidth caps are tiny, and they're attached to charges. I'm getting charged a buck a gig," Drake said. "And most of the people in Rochester don't even know what a gig is."
Such a model discourages the more innovative uses of bandwidth in the area, such as remote workers using VPNs to telecommute, jewelry store owners remotely checking streaming security camera footage, and the region's large deaf community signing to one another via laptop webcam.
"All of those things are very innovative and very cool, and all of them are things that will fall by the wayside," Drake said. He points to Time Warner Cable's filings as evidence that the company is not in danger of going broke from the existing model.
"I think personally ... this is because they're afraid of broadband Internet cannibalizing their video," Drake said. "They've got Hulu, Roku and Netflix and ... that allows people to do what they've wanted to do for years, which is only watch, and only pay to watch, what they want to."
Instead, Drake said, service providers need to switch to other methods of services -- like tiered speeds -- that few consumers have a problem with, if they need to drive up revenue-per-bit.
The alternative is to drag down the Internet economy, which many see as critical to the U.S.'s economic recovery. Mom gets the bill at the end of the month and says, 'Holy crap, we spent an extra 20 bucks on the Internet.' And she starts saying you can only use the Internet for two hours a day, and you can't stream videos," Drake said. "They subtly change the Internet, and that change is a bad change in the eyes of most people in Rochester."
Until some alternative is worked out, Drake hopes to encourage competition to come to Rochester. He runs VerizonFiber.com, a site dedicated to drawing the FiOS provider into the area. He is also trying to help organize boycotts, even as Massa crafts legislative answers.
Nolle said such protests are futile, however. "You can't defy economic reality."