April 18, 2009, 9:35 AM — Time Warner Cable's decision to back off from a usage-based pricing change for high-speed Internet subscribers in four cities demonstrates how politically fraught the governance of Internet access and pricing can be.
Time Warner's new CEO, Glenn Britt, issued a statement Thursday saying the company had shelved the pricing trials in Rochester, N.Y., Austin and San Antonio, Texas, and Gressnboro, N.C. Those trials, which started only two weeks earlier, charged subscribers for the amount of bandwidth they used. Time Warner calls it a "consumption-based" model.
Britt said he had heard the public outcry over the pricing change in reaching the decision to pull back. It was an outcry that got members of Congress involved, and at one point U.S. Sen. Charles Schumer, D-N.Y., even met with him to describe Rochester's "outrage" over the proposal, according to a statement Schumer issued.
Maybe Britt would have been better off to launch the trials in other cities where the political machinery is not as sophisticated, one Washington insider remarked.
But the real issues involved are much more difficult than counting the number of demonstrators, or finding a way to quiet them, say observers.
The reality is that data use on the Internet is exploding, primarily due to video and other multimedia. It's becoming commonplace to download entire movies.
While carriers complain that a small number of users, maybe less than 15%, are using so much Internet capacity that they are hurting efficient and reliable Internet access for average users, in a few years, the average user will be a bandwidth hog too.
Carriers complain that to keep up with this growing demand, they have to enlarge their networks quickly, and deploy more efficient technologies that increase capacity. It seems inevitable to all parties that Internet access will cost more, but making the transition to a new pricing scheme based on consumption can be done overnight.
"The problem is that Internet customers are holding current contracts that say they get unlimited bandwidth, so to come back with metering is basically the carrier saying, 'We didn't mean it,'" said analyst Jack Gold.
"Really that's like GM or Ford saying if you drive your car over 100,000 miles, we'll charge you more," Gold said.
One lobbyist, a Time Warner Cable rival who asked to not be named, said it was likely Time Warner and other carriers would be implementing metered pricing eventually.
Time Warner Cable said it was going to focus for now on making measurement tools available so consumers can learn how much bandwidth they consume.
Under the trial that was shelved, customers were asked to choose Internet usage plans that capped monthly uploads and downloads at 10GB, 20GB, 40GB or 60GB. Customers would pay US$1 per gigabyte if they went over those caps, with overage fees limited to $75.
Two additional pricing plans in Greensboro and Rochester allowed for a budget plan of 1 gigabyte of usage per month for $15 and another tier of 100 gigabytes for $75. Overage fees were also limited to $75.
No matter what Sen. Schumer and other lawmakers say, there are not many alternatives to charging for Internet service based on usage. Nobody has suggested anything else workable, and carriers have pointed to other countries, including Canada, where metering has worked.
At FreePress.net, a nonpartisan organizaton based in Washington, Time Warner Cable's decision to back off for now was welcomed, but organizers said the issue will continue.
"This metering approach will come up again," said Chris Riley, policy counsel for FreePress.net. "It's inevitable some other carrier will try it."
Riley said it is obvious that Internet data growth will require investment, but he said the alternative to metering is increasing competition for Internet services. Most customers have only the phone or cable company to choose from, but Riley said new technologies and providers are needed to expand choices and keep prices down.
The Federal Communications Commission and the Federal Trade commission need to find ways to increase competition, Riley added. While FreePress.net has not seen any legislation to do so, he said it is possible Congress could also act to prohibit metering approaches.
Even if metering is inevitable, analysts said it will not be welcomed by politicians, primarily because customers have grown to distrust the cable and phone companies due to overcharging for services.
"The ultimate question is, does the public trust the carriers to charge them fairly?" Gold said. "Without a lot of oversight, nobody will know."