Usage Based Billing - Time Warner Cable Latest Attempt to Increase Prices

Time Warner Cable's announced intention to expand its usage based billing for broadband has recently received a little media attention. The company currently uses tiers for customers in parts of Texas, allowing customers to sign on to a plan which limits the amount of usage per month. If they come in under the plan amount (currently 5 gigabytes), they get a $5 dscount. If they go over, they are charged $1 per gigabyte over the tier limit.

One commentary we find particularly insightful is from Susan Crawford, "The Sledgehammer of usage-based billing." Crawford not only addresses TWC's billing change, but critiques New York Times' "Sweeping Effects as Bradband Moves To Meters" by Brian Stelter.

Crawford points out several statements in Stelter's article that sound rational on paper, but are actually "holes" in the fabric of reality. Based on what we have seen from companies like Time Warner Cable, we concur.

Stelter justifies Time Warner's decision to shift to usage-based billing based on the fact that its competitors are doing it. Crawford points out that:

Time Warner does not have competitors among cable companies – if by competition you mean a cable distributor that could constrain Time Warner’s pricing or ability to manage its pipe for its own purposes. Time Warner’s DOCSIS 3.0 services do compete with Verizon’s FiOS, but FiOS is available in just a tiny part of Time Warner’s footprint. The major cable distributors long ago divided up the country among themselves.

The Stelter article raises the issue of high usage and congestion, their connections to the usage tier billing model, and claims that there is no other way to handle high usage. Crawford calls out this error as it relates to the new billing plan:

Cable distributors have a choice: They could maintain the 90+ % margins they enjoy for data services and the astonishing levels of dividends and buybacks their stock produces, or they could rearchitect their networks to serve obvious consumer demand. But they are in harvesting mode, not expansion mode. And no competitor is pressuring them to expand.

Stelter quotes Comcast when it tried to defend the new billing program:

Last spring, David L. Cohen, Comcast executive stated “Our network is not an infinite resource, and it is expensive to expand it,”

To which Crawford replies:

There is no empirical connection between any of the pricing involved in this story – the monthly prices, the overage prices, any of it – and the cost of actually providing data service and responding to consumer demand. The major cable distributors can charge whatever they want, however they want, for whatever services they define. There is no oversight of any of this and no visibility into what is actually going on.

Christopher Mitchell discussed this very subject last week on an impressive panel of Internet experts that discussed this issue for an hour:

Will charging extra for downloading an extra movie solve the problem of congestion? No, it will just let TWC profit from a hot consumer trend - viewing content online. Will TWC and Comcast use that profit to expand? Maybe, but history shows that those 90+% margins are not typically directed toward for expansion of any kind.

A significant chunk of that money, however, is dedicated to lobbyists and legislators who help TWC and Comcast maintain their de facto monopolies and escape regulation. These companies have already spent at least $9 million in DC to ensure policymakers are paying more attention to their desires and our needs. Crawford points to the North Carolina Law revoking local authority to build a network and we add South Carolina to that ever expanding list. The list of state legislators who bend to giant cable company whims continues to grow.

When considering the environment, Crawford reminds us to look at the forest, not only the trees:

The cable operators have a built in, giant conflict of interest. They want to make sure that only their own premium video products are successful, and they can twist all the dials to make sure that happens. They can re-define services (calling their own content “specialized” and exempting it from caps or usage-based billing), they can withhold programming (particularly sports and live specials and first-run premium content) in concert with their colleagues, or charge so much for it that it won’t make sense to compete with them online, they can treat the bits coming from non-partners badly through their control over in-home devices as well as the pipe itself…endless endless ways to control.

Some commentary has been favorable of the new pricing, arguing that people should not have to pay for unlimited usage if they don't need or want it. Yet, if people were actually able to pay something that actually corresponded to the cost of their usage, their bills would drop dramatically. Time Warner Cable is trying to increase the amount many pay, far above the cost of their usage.

Stacey Higgenbotham pointed out another problem. Tiered usage based billing reinforces the concept that efficient, unlimited online access is a luxury. Such an approach is contrary to what the internet is becoming all around the world (a human right) except in the U.S. Continuing this attitude will continue to drag us down as the rest of the world advances.

One piece of wisdom from the Stelter article came from Nicholas Longo, the director of Geekdom, a new collaborative work space for small companies in San Antonio:

“It’s like locking the doors to the library.”

Or, like letting you stay in the library for a long time, if you pay extra,and making you leave if you don't have sufficiently deep pockets.

If this is an issue you want to learn more about, we strongly recommend checking in on Stop the Cap!.