On Testing Consumption-Based Pricing Models

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So, my friends at Free Press recently announced a petition to gather signatures to call on Congress to “investigate” plans by Time Warner Cable to conduct trials in four U.S. cities to test customer response to “consumption-based” billing for its high-speed Internet access service.

Great. Hundreds of billions of dollars have been and continue to be invested by our industry in the deployment of broadband and now the deployment of next generation broadband; speeds have doubled or tripled in just the last few years; new and spectacular applications keep getting launched; no anti-competitive conduct has remotely occurred; and, in fact, compared to many other industries, the Internet ecosystem seems to be one of the few really healthy, growing, and creative parts of our economy with continued investment and innovation taking place every day. At a time of economic and financial challenges for our country, I for one would rather Congress spend its time on real problems, not fictional ones.

Despite Free Press’s hyperbole, the facts are these: Time Warner Cable has merely suggested that they are interested in conducting a limited set of trials of a new pricing model – in a careful and transparent manner – that may serve the vast majority of their customers better by reflecting the growing reality that some consumers utilize far more high speed bandwidth than others. They have engaged in an open conversation with their customers and other interested parties about how they are thinking through their plans, and I would expect that only after gathering input would they announce more specific plans for what, where and how such tests would be conducted.

While it is certainly appropriate for all of us and anyone interested in the deployment and use of broadband technology to monitor the results of these and similar experiments, we should recognize the Free Press petition drive as the publicity stunt it so obviously is.

Let’s not forget that Free Press previously suggested that consumption-based billing could be an appropriate pricing model for network providers in a filing on network management at the FCC:

[T]hey could also charge by usage (emphasis mine), provide more bandwidth to all users, or actually offer high symmetric broadband speeds.

As well as to the media:

“I don’t quite see [metering] as an outrage, and in fact is probably the fairest system going — though of course the psychology of knowing that you’re paying for bandwidth may change behavior,” said Tim Wu, a law professor at Columbia University and chairman of the board of public advocacy group Free Press.

And, while they have every right to change their minds, what hasn’t changed is that it is entirely appropriate for any actor in the Internet eco-system to test and examine new ideas and approaches that promote consumer choice and enhance the Internet experience for broadband users before making any permanent decisions. The right approach, as Time Warner Cable has done, is to conduct such tests in a transparent way, with full notice and explanation to their customers.

I don’t hold a brief for or against any particular pricing model. I simply do not have all the data to make an informed judgment about consumption-based billing; nor, with all due respect, does anyone else. The whole point of tests, it seems to me, is to learn what works and what doesn’t, and the details matter a lot.

But the “shoot, ready, aim” mentality seems all too prevalent these days. For example, it is somewhat tiresome to have Free Press repeatedly assert that every effort by network providers to examine any new approach or idea in our or related industries is somehow designed to protect against the supposed “threat” of “Internet video.” This is so stale, and so at odds with the facts, that it really should not be necessary to point out the obvious:

  • Over the last few years, the use of broadband connections to view Internet video has grown at a faster rate than any other application. According to one estimate, traffic generated by YouTube video in 2008 alone was more than the sum of traffic crossing the Internet backbone in 2000.
  • Far from fearing online video, our industry is courting and exploring partnerships to bring Internet video to the television screen;
  • Our industry has worked — and continues to work — cooperatively with consumer electronics manufacturers to ensure TVs can receive Internet video by building in the necessary ports;
  • Our industry is the largest provider of broadband in America, and we view the health and growth of the Internet ecosystem as fundamental to our success, which means the applications and services on the Internet must thrive too;
  • Our industry is aggressively deploying next generation broadband across America in order to enable, not restrict, new applications.

Any one of these basic facts would have been evident simply by touring The Cable Show in Washington, D.C., earlier this month.

I would respectfully suggest that this is precisely the time in which we can and should test new ideas, especially when the evidence demonstrates that such tests are being planned with care and transparency.

  • Michael

    Let’s face it. The only reason for the absurdly low bandwidth caps proposed by Time Warner is to prevent the success of video streaming of long form content on the internet.

    Time Warner and the entire industry could probably stop any legislation from moving forward by either ditching the idea of bandwidth caps altogether, or at the very least providing caps that still allow consumers to take advantage of the wealth of legal quality content on the internet. As it stands, the consumer is going to revolt against these limits and Congress is going to score big brownie points for tackling an issue that will surely resonate strongly with their constituents.

  • Dan

    Right, the only thing they are doing is trying to gouge us and protect (or replace) their cable TV income by choking online video.

    A quick look at their Securities and Exchange Commission 10-Q filing and the fact that the rest is all lies and shadow play gets clear real quick. Bandwidth use is going us sure enough, and so is their number of subscribers, but *so are their profits* even as their expenses fall. THAT part they forgot to tell us.

    http://blog.wired.com/business/2009/04/time-warner-cab.html

    Odd thing about technology. I paid about the same for my first computer back in the late 80s as I did for my last one fairly recently. For all the improvements in capacity and speed the cost does NOT always have to go us if technology supports those increases without it and this looks an awful lot to me like one of those cases, it works the same with bandwidth costs and we’ve already been paying though monthly instead of lump sum.

    Their income is climbing, their expenses falling, and their excuses are wearing thin. Cash grab and nothing more, the rest is just lies to try to make it go down better.

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  • Michael Turk

    Comparing current costs to future pricing – especially when everyone has already acknowledged the long term growth of Internet delivered applications – is precisely the problem. Declaring that today’s costs will meet tomorrow’s needs, while simultaneously accepting the fact that tomorrow’s needs will be significantly higher doesn’t ring true.

    Time Warner is conducting these trials to determine a fair model for pricing anticipating the consumption patterns among consumers which are changing dramatically. They have been very upfront about the tests they’re running.

    Businesses must plan for long term profitability while balancing customer satisfaction. It’s a delicate balancing act, and businesses will make adjustments as they hear from customers. However, declaring something a failure before it is even tried is not in the customer’s long term interest as it hamstrings their provider. It’s certainly not in a company’s long term interest as it locks them into a business model that may not meet their needs as markets and technology change.

    As Kyle said, is it the right answer? We don’t know. But businesses should be free to examine new models.

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  • Ben Katz

    “Far from fearing online video, our industry is courting and exploring partnerships to bring Internet video to the television screen;”

    That doesn’t make sense. If your industry is looking to metered bandwidth, FEW customers could actually take advantage of such a service without paying double their current bill, because- (duh) they’d reach their bandwidth cap by using it!

    I’m sorry, but only fools are actually being fooled here. I can’t imagine any other industry changing their pricing and upping the monthly bill 3x’s the current amt without adding a whole slew of new services. If I wake up tomorrow and my electric bill goes up 300%, you can be sure I’ll have little choice but to cut the cable to the electric company.

    Your business model is broken. Few customers will tolerate such increases, especially when you guys keep citing a figure of perhaps 10% of users who cause any network degradation. If only 10% of users cause any issue, how does that justify a move to metered broadband?

    And forget new technologies. No company with any sense is going to spend money to come up with exciting new technologies (that will inherently require more bandwidth usage) if no one will be able to use the services because of a cap.

  • Michael

    Time Warner Backs Off Metered Billing In Rochester

    According to local Rochester, NY ABC affiliate WHAM, Senator Chuck Schumer spoke in Rochester today. While it was simply expected he’d be speaking out against Time Warner Cable’s metered billing trial, the Senator announced that he’d spoken with the carrier, and that Time Warner Cable would be backing away from caps and overages in response to unprecedented consumer outrage in the market. Schumer’s appearance in the market was coordinated by Stop The Cap.com, a blog created by Broadband Reports user Dampier in response to a growing push toward metered billing.

    http://www.cabletechtalk.com/tech-discussions/2009/04/15/on-testing-consumption-based-pricing-models/#comments

  • Michael
  • Akleos

    This was originally posted by null on 04/16/2009 on another site. I thought it was relevant
    “Here is the problem though, there is no bandwidth shortage other then the fact that companies like time warner refuse to spend the money to upgrade to Docsis 3 throughout the network, at a cost of $20-$100 a subscriber. Backbone bandwidth is plentiful and cheap and it’s price keeps dropping each year, which is why Time Warners cost for network upkeep was down last year and profits were up. This is nothing but a money grab and a way to keep people signing up for digital cable packages that cost way too much. It costs them 1/27th of the total revenue they bring in to run the network and somehow this isn’t enough and justifies the highway robbery of rates they want to charge?”

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  • Dan

    Michael Turk states the following:

    “Comparing current costs to future pricing – especially when everyone has already acknowledged the long term growth of Internet delivered applications – is precisely the problem. Declaring that today’s costs will meet tomorrow’s needs, while simultaneously accepting the fact that tomorrow’s needs will be significantly higher doesn’t ring true.”

    While that may be the case it’s also true that given their record of climbing revenues, decreasing costs, and their claims for several years now that we’re up against a bandwidth wall which never seemed to materialize, asking us to take them at their word this time doesn’t ring true either. Sure, they can toss around some unrelated numbers about theoretical costs but they can’t manage to reflect that in their own bottom line and show a NEED rather than a want for more income.

    To us they say we’re up against a wall and they’ve told us that for years, to their investors though things are going great and they’ve got plans for increased income, that increasing income and dropping costs reflected through the same years they cried “suffering company” to the public. One of them is being lied to. Care to place any best on if it’s the investors, or if it’s us? Try reading their most current yearly statement to the SEC (their 10-K) and see what you make of it.

    http://investing.businessweek.com/research/stocks/financials/secfilings.asp?symbol=TWC

  • West

    How about tiered pricing for cable TV based on “exactly” the channels I want and the amount of time I spend watching them? TWC makes a fat profit charging people for channels that they never watch.

  • Ben Katz

    How about a model where we don’t get charged a premium for HD? The FCC mandate to switch over to digital are, no doubt, forcing most channels to go ahead and switch to not only digital but to HD as well. The cable companies keep telling us that ALL HD is the future…yet, they stifle the desire to upgrade because they charge you for the SD channel then charge you again for the HD version of the same channel. I realize HD content adds to the overall costs for the cable co, but it just seems odd to add a premium to HD. HD will never be fully implemented until they stop acting as if they’re giving us a premium service, when in fact it’s just a transition to a new format that will end SD one day.

    It’d also help if companies like Insight would quit claiming they charge ZERO to access HD, when in fact they charge a $5 premium for an HD STB and $11.95 for their only HD tier package. I’ve gotten so many flyers lately from them that scream “FREE” in massive letters all over them, yet last I checked another $16 on top of $90 is hardly free.

  • Geo

    I used to wonder how people like Kyle can sleep at night, much less live with themselves, but all that lobbying capitol can buy souls…just look at the modern business model for evidence; there is really only one and all the others are off-shoots. Kyle, your rhetoric is as cheesy and transparent as blocking copying text from your blog is…and so are the reasons behind it.

    There is nothing new about what is being done here. Don’t whine to us about how much is being spent to implement broadband or the next generation of squat. The US (as usual) pioneers the technology, and the rest of the planet with its newer Internet infrastructure implements the latest and best from the get-go, and enjoys the benefits cheaply.

    Back home in the US, where most of the technology games and apps are developed, where the greatest bandwidth is demanded and needed, we have the lowest available bandwidth. Just ask the throngs of gamers who’ve stopped playing online due to the constant latency issues. We also get screwed harder than anyone except for maybe the Japanese.

    US business, richer than it has ever been, whines about how hard it has they have it. I love clever wording like, “merely suggesting”, and “looking into new ideas and possibilities.” The Internet Ecosystem truly is healthy…with threat upon threat upon threat, the latest of which now comes from the Internet Providers themselves. Yes, unfair practice and stealing are threats. We won’t even touch dead, archaic ideals like fair-play, honesty or justice as your lobbyist dollars slaughtered all of those long ago.

    Get it through your head…there can be only one ‘true, ultimately evil yet purely legal because it can buy its way into or out of anything’ criminal organization on the planet, and the position has already been filled by the petroleum industry (with the legal system leeched to its belly like a Remora).

    The citizens of our country really cannot afford to bend over for you as well. But though no one could possibly believe the spew flowing from between your lips, all of this will come to pass because the US citizen is now powerless…though most of them don’t know if yet.

    Your dollar will rule, and soon only businesses will be able to afford any more bandwidth than email requires…attachments will be extra. Tell the damned truth, that you want to monitor, to control, to rule, and to charge, charge, charge, because you’d sell your Auntie for an extra tenth of a point’s profit.

    It is all going to happen and nothing can or will stop it. This is as pathetic as any modern political campaign. It’s just not as colorful or entertaining.

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  • I don’t know why I continue to read comments from posters to a blog such as this. For the authors it must be frustrating to get constantly reamed by their readership.

    But logic is not a strong suit for the people who see the cable industry as evil. Confusingly, as evil and hateful as the industry is, they continue to purchase their products. Admittedly, there is the problem of legally-imposed monopolies. This is wrong, but no one ever argues against it.

    McSlarrow points out a very salient argument for why the cable industry embraces broadband and streaming video. Yet, the conspiracy theorists will have none of it. “Oh, the cable companies only want you to get video through their video channels.”

    TWC’s only source of income is delivering content made by other people. Why then would they want to limit the channels by which their customers could get this content? It would be like a retailer that doesn’t offer an online ordering system because they fear it would reduce sales at their stores. It might, but they’d still be making sales.

    While mistakes are made by the cable companies, one should not assume that this means they are purely evil. They are dealing with a changing marketplace and because they have long been innovators rather than reactionaries they are taking steps to embrace change. Just because the RIAA tried to ostrich themselves to technology doesn’t mean cable will.

    – Mike

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