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Summary:

Like it or not, the reality is that broadband is becoming an alternate video network, and the video traffic is going to keep increasing, putting the entire business model of cable companies at risk. By responding with bandwidth caps, however, they are trying to put the genie back in the broadband bottle, which in turn risks the entire innovation ecosystem. Continue Reading

It should come as no surprise: Incumbents are beginning to act like incumbents. But while the cable companies are the first ones to jump on the tiered broadband bandwagon, they won’t be the last. Their argument for limiting bandwidth and data transfers based on price sounds like a good idea, especially as a way to get bargain hunters to buy. In the long run, however, tiered broadband is a terrible idea that will bring the innovation inspired by flat-rate broadband to a screeching halt.

Flat-rate broadband – however cheap or expensive (depending on your point of view) it might be – inspired the formation of Skype, YouTube, Facebook, Apple’s iTunes and MySpace, amongst others. It allowed us to freely experiment, to embrace both the applications and the ideas they represented, such as VoIP, online video, digital downloads and social networking.

The emergence of these applications has, in turn, spurred demand for broadband in the U.S., much like the illegal version of Napster jump-started the demand for cable and DSL broadband in the late 1990s. And they’ve helped lift the number of broadband subscriptions to U.S. cable and DSL companies to 69 million by the end of 2007, subscriptions that have brought in enough cash to pay for the cable companies’ foray into voice and to help with their digital transition. Yet now these guys want to slaughter the golden goose. Why?

NO MORE THEIR VIDEO ON DEMAND

The answer is in my living room. Thanks to a fast connection from Covad, I now get my video fix over the broadband pipe. Apple’s iTunes, Jaman, MLB.com, Hulu.com, CBS and scores of other services make it possible from me to watch shows either on my laptop screen or, in some cases, on my big-screen TV via Apple TV.

I used to pay Comcast about $150 a month, but now I pay them zilch, instead forking over a mere $30 a month to Covad. Oops! In the future, the emergence of much higher-speed DOCSIS 3.0 and fiber-based broadband will make it even easier to download or stream videos, which scares the bejesus out of the phone companies. And that is one of the reasons they are introducing tiered broadband.

But consider the bandwidth caps. I asked some of my telecom sources to help me put into perspective the new tiered-pricing structure with which Time Warner Cable is experimenting. TWC’s lowest price tier – 768 kbps at $29.95 a month for 5 Gbytes and $1 per GB – may seem reasonable, but it isn’t.

If you assume that we’re pulling down data at a steady 20 kilobits per second for every second of the month, the total monthly transfer comes to about 6.8 gigabytes. At a higher speed of 768 kbps, that jumps to over 250 gigabytes, and at 1 megabits per second, the monthly download will hit 324 gigabytes. At first blush, those look like awfully generous numbers. After all, who uses their connections consistently?

WHY METERED ISN’T ENOUGH

However, if you take into account our average behavior online, data transfers start to add up really fast. Stacey crunched the numbers yesterday and came up with an interesting conclusion: If you bought the monthly 15 mbps/40 GB transfer option for about $56 a month, you’d get about 40 hours of standard definition video along with enough bandwidth for your normal browsing and surfing habits. That’s just over 75 minutes of SD Internet video every day – two or three shows at best – which means you might need to continue buying the “video connection” in order to watch more television. Sure you can slice and dice the data transfers with other online activities, but this is all about video.

From that perspective, you would think that Comcast’s proposal for 250 GB a month is pretty reasonable. Actually it’s not, especially if you factor in how quickly we’re moving towards HD downloads. With HD, each roughly 2-hour long movie is going to consume about 8 GB, while live sports events, etc., when watched in higher quality can take up some 13 GB. Remember we share our Internet connections with multiple people in a household. So Before you know it, that 250 GB isn’t enough.

Cable companies are trying to convince Wall Street that they need to upgrade their networks to DOCSIS 3.0 in order to compete with telecom operators, especially those with fiber connections. The idea of metered broadband makes the big spending on these networks more palatable for Wall Street.

As for consumers, the cable companies have evoked the P2P bogeyman. I spoke with Time Warner spokesperson Alex Dudley, who claimed that some 5 percent of its user base abuses its network through the use of P2P, causing problems for the remaining subscribers. “Video is the most bandwidth-intensive use right now, and it is not people that go to iTunes but instead it is P2P which sucks bandwidth in the system,” he said. There are some questions about that claim.

My biggest fear is that as these companies try and protect their video revenues, they are
doing more harm than good, and putting roadblocks in the way of interesting services
that make broadband worth having. When I asked Dudley if his company was putting innovation at risk by limiting flat-rate broadband — if they might be throwing the baby out with the bathwater — he noted that many of these startups and services are built on their infrastructure.

“You need to understand that the networks are going to be managed and we need to make profit,” he said. “We are trying to find a balance here, and it is too soon to say that we are throwing baby out of the bathwater.”

Dudley was, however, quick to point out that TWC’s experiment in Texas was just that – a test. If consumers don’t want it, the company is going to back away from it. “I think this is a trial and we are going to learn from this trial,” he said. If the results of our poll are any indication, they would be wise to back away from it — and soon.

  1. [...] bandwagon, they won??t be the last. Their argument for limiting bandwidth and data transfershttp://gigaom.com/2008/06/04/why-tiered-broadband-is-the-enemy-of-innovation/One teen arrested, another on the run in connection with Knoxville arson WVLT-TV KnoxvilleKnoxville [...]

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  2. The fundamental problem is that upgrading the infrastructure to support very high demand _all the time_ is a non trivial exercise. A node split esp. on a full plant is non-trivial exercise in expense, not to mention all that backhaul across expensive gear and up to the big I Internet. An 10GigE linecard or port, plus the router allocation, is not that cheap either. Might want to ping juniper or cisco for what that stuff costs. Assuming you can discount 50 points off list, it’s still real capital. A good example would be to look at the capital spending of public cable companies like Comcast, vs. their free cash flow. That exercise would be illuminating – I did a back of the envelope and the return from free cash flow if someone bought the company, would be over 30 years. Not very tempting. As a result, as usage spikes, and buildouts continue, someone somewhere is going to get the squeeze or their stock will go to zero very quickly. Tiered broadband is one way to push out usage before upgrades, or alternatively, get more money to finance those upgrades. It is entirely possible that the first mile is a natural monopoly, and while there are going to be a lot of folks shouting about how it doesn’t cost that much to build out broadband, to them I have only one thing to say – if it was that easy, get a business plan together, fund it, and profit!

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  3. Also, your platform doesn’t show comments in RSS readers for some reason, unlike techcrunch. And the thumbs up thumbs down links appear to be broken

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  4. Classic telco stuff. Someone does need to disrupt them again and force them to upgrade, otherwise there will be no further innovation.

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  5. If it is so costly to upgrade their networks to support greater bandwidth demands (which btw is still a fraction of Asian nations like Japan and Korea today), why do they insist on using their cash flow to buy back stock?!

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  6. @brian: because like I said, look at their free cash flow. if they just spent that on builds and not on buybacks, their stock would tank.

    @don jones: precisely, some one does need to disrupt them. Since it appears to be quite an easy job, I am eagerly awaiting the legions of business plans and associated funding.

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  7. An interesting observation is that core bandwidth (i.e. bandwidth that is guaranteed all the way to the backbone exchanges) only runs about $10-20 per Mbps-month for any decent sized network operation, and less if you are really big. Or to put it another way, it is costing the telcos on the order of $0.03-0.05 per GB for core, non-oversubscribed bandwidth. The rest is overhead and margin, and the installation charges are designed to cover the overhead; once a circuit is up the overhead is negligible, so the bandwidth billing becomes gravy.

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  8. To some extent I can understand why the cable companies are doing this.

    Netflix just unveiled a box to deliver video over your broadband connection. Essentially they are piggybacking on your provider’s bandwidth for nothing to provide a service that directly competes with the cable company’s video on demand service.

    I would probably try to protect my investment as well, unless Netflix was willing to cut me a slice of their box income.

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  9. Tiered pricing and complaints about how costly it is to build out infrastructure seems to give credence to the opinion that last-mile connectivity should be funded by the government, since it is too important to be left to the whims of Wall Street. These schemes just smell like someone trying to squeeze every last drop out before competition arrives.

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  10. I hate to see this being implemented throughout the nation. I’m for Net Neutrality. The United States is known for innovation. By having tiered services, that innovation will no longer exist. We need to upgrade the infrastructure, not squeeze every last drop of money out of the consumers. Oil companies are already trying to squeeze as much as they can from consumers and soon, those cable companies will become the new “oil companies” of next generation. If you look at South Korea’s infrastructure, they have one of the fastest residential broadband services worldwide, but that’s because their digital information infrastructure is superior to the United States. We need to take examples from South Korea and apply it to ourselves. I hope to pay $50 one day…for speeds as fast as T1, like in S. Korea, but with how things are looking, not sure if it’ll ever happen.

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  11. Right now we don’t have effective competition. We have artificial competition between regulated monopolies (Phone & Cable companies). Lets take away the regulation safety blanket from these guys and allow competition to regulate. This is the only really effective way to regulate this activity. If you misbehave and you have competition you will lose customers. Right now they don’t have to worry much because they know the other guy is just as much of schmuck as they are.

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  12. There is a huge danger with data limit. It will be a ‘backdoor’ way to get around net neutrality. ISP will tell Google and Apple to pay them money to stop data downloaded from being counted toward the cap. The fee will lock out anyone else coming into competition. Sites like Facebook and YouTube will never get off the ground.

    Getting a higher return on investment is fine. Controlling what user can see on the internet is not.

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  13. You mention “In the future, the emergence of much higher-speed DOCSIS 3.0 and fiber-based broadband will make it even easier to download or stream videos, which scares the bejesus out of the phone companies. And that is one of the reasons they are introducing tiered broadband.”

    But, this whole post is about cable companies. Have any phone companies introduced tiered bandwith caps? It seems that only CableCos have, not PhoneCos.

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  14. I reside outside of Philadelphia and have already been affected today by the illegal Comcast throttle. I’ve been downloading a single torrent and have watched it go from 100kbs to almost zero in a pattern. This is beyond annoying; their TV programming is awful, now they’re ruling over my download habits which I pay too much for…

    Please FCC, remove thy thumb from thy =asses= and freaking do something about this. Gas prices are being ignored, don’t let it spread to our way of communication…

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  15. @paul: What competition? Can you point me at some companies? Clearwire doesn’t count.

    @andrew: the core costs are on the order of $10-$20 per mbps depending on how much handwaving you can do with your books. The tough costs are in getting to the provisioned core, the last mile, and the capital needed to build out there

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  16. @Vijay — sort of my point. If carriers are introducing tiered services, that means they don’t fear any competition. Or they are milking customers until the other half of the duopoly arrives. So then the argument goes, time for government to step in.

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  17. vijay,

    why is it that you think broadband subscribers should be pleased to contribute to the obscene and excessive 40+% operating margins earned by the telco/cable duopoly? Both cable and telco have high fixed, low variable cost structures, so what’s with this charging a high varible price for service? That’s monopolistic abuse, plain and simple. Don’t give me all that bs about matching pricing to capital requirement. Cable cos are notoriously negligent at upgrading their plant – that’s not the subscriber’s fault, and the fact that cablecos now face large bills for their “deferred maintenance” is a risk their shareholders should appopriately bear with new sources of financing, not their customers via price increases. There is no free lunch – not even for cable cos.

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  18. Dimitrios Matsoulis Thursday, June 5, 2008

    Om I agree with you. Tiered 3G has led nowhere in Europe and the people that use it is those that have the bill paid by their employer. If that was introduced in landlines it would definitely make the Internet’s progress slower.
    http://electronrun.com/

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  19. Current prices for core internet access are largely a result of oversupply – remember the tech crash of the late ninety’s – early naughty’s? Billions were invested (and lost). You cant compare this with consumer access – while they are both fruits, apples are not oranges.

    Up until the last few years existing copper lines and coax were largely sufficient to support consumer access – basic web browsing and email really aren’t all that demanding.

    Then the fundamental nature of the traffic changed – the design rules no longer apply. Huston we have a problem.

    It’s hardly surprising that these companies, responsible to their shareholders to *gasp* make money are weary of throwing it away in expensive upgrades for dubious incremental revenue.

    It seems to me that a user pays approach is a rational alternative to say deep packet inspection and P2P rate limiting, that just might allow someone to build a business case to upgrade the access to cope with what has been a fundamental shift in traffic behaviour.

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  20. @bostonwolf: If they really are doing this to inhibit competition from Netflix, that is just one more bit of justification for forcing a split between the business of communication provider and the business of application (in this case, televison) provider. (Not that I need any more justification, but some people might.)

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  21. Why don’t the telcos and cable companies take a look at the CDNs?

    Netflix, iTunes, Jaman, MLB.com, Hulu.com and CBS typically pay a CDN to deliver their content. Shouldn’t those CDNs share some of the fees with the ISPs over whose networks the content is delivered to the end user?

    Rather than punishing the end user for using the service they were sold, they should look at they guys who are dumping the traffic onto their networks in the first place…

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  22. We’ve always had implicitly tiered rates, and it hasn’t quashed innovation. There was a time, not that long ago, when many more people were on dial-up than on broadband, and those who were on broadband paid more for it. That’s a tiered rate structure in the market. And it didn’t quash innovation. If you force a single rate structure, then it will either be (a) too expensive for most people, or (b) too cheap to make it worth the providers’ while to provide it. If you allow tiering, then people who really want fast speeds will pay for it, and it will be worthwhile for providers to do the innovation they need to do to create faster speeds – not to mention create incentives for competitors like Covad to jump in.

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  23. John Thacker Thursday, June 5, 2008

    I don’t think your point is really about “tiered broadband.” “Tiered broadband” is simply paying different prices for different levels of speed, which is a separate issue (though some people do complain about that as well). What you seem to be complaining about is “metered” broadband versus unmetered– prices per GB. At least you do use “metered” elsewhere in the piece

    It’s certainly true that metered local phone calls kept countries outside of North America back when Internet access was mostly via modems. At the same time, the very expense of narrowband connections contributed to the rapid adoption of broadband in those countries, in comparison to the US where many people have decided that they would rather stick to dial-up, even in areas where broadband is available. In practice, people greater prefer unmetered access, so I’m have strong doubts that this will be effective.

    Incidentally, when I was at Cornell a few years back the University switched from a flat-rate price of around $50/month for campus connections to a plan similar to this– $20/month with 2GB of transfer free, pay per amount transferred after that, break even with the old price being around 20 or 30 GB per month. The only amount metered was from outside Cornell’s network; intranetwork transfers were free. Students responded by creating locally hosted P2P services for popular large downloads. Indeed; most students and users saw their monthly costs go down, as did the University’s bandwidth costs. The ability of students to form locally hosted P2P networks and the division between Cornell’s network and the outside made it fairly different from a typical consumer experience, though.

    Bryan said:
    I’m for Net Neutrality. The United States is known for innovation. … We need to take examples from South Korea and apply it to ourselves

    Oddly enough, South Korea doesn’t have Net Neutrality, neither legally nor in practices. The Big ISPs in South Korea all run their own websites and services, and have been repeatedly caught blatantly favoring their own traffic over that of competitors.

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  24. @ vijay gill about the comments in RSS…. Since we use WordPress.com for hosting our sites, we are limited by what we can do the feeds etc. But good point and I will put that forward to the WP team and see if they can help us out.

    @ vijay gill … regarding your other comments, while I understand that building networks isn’t cheap and costs a lot of money, but remind me, isn’t that cost of doing business if you sell broadband. I think you might have an interesting information on how this can be done :-)

    Randomly musing: I wonder why people at Free.fr or similar carriers in other countries don’t complain about the costs?

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  25. @ John Thacker…. Now that you bring it up…. You might be right. I should have called this “metered broadband” instead of tiered broadband. Now i need to figure out how to correct that…. :-D

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  26. broadband_fan Thursday, June 5, 2008

    Om.

    Why do you presume that metered broadband will quash innovation? Quite the contrary, I think if we value a resource more efficiently, users will become more innovative in its use. Perhaps forcing protocls and applications will to work more efficiently.

    I think smarter broadband pricing is coming whether we like it or not. As it stands today, a small number of users are consuming a disproportionate amount of capacity for a given price level. This needs to be reconciled somehow. In the end, an efficient price scheme allow everyone to pay for the capacity they consume.

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  27. Hello Om
    Maybe this is what they should do !
    I believe that they can’t put up with their customers with unlimited service.
    Nit tot only the U.S BUT ALSO in Canada and Australia the service have become limited !

    I still think it’s really bad

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  28. Martin Rijssel Thursday, June 5, 2008

    Om,
    you live in the lala land of people thinking all goods should be free. Why should innovation only work with plentiful resources and NOT under some constraints?

    Some commenters above talk about Facebook. How would they be affected by a metered internet?

    I agree with the statement above that current low ISP prices are due to the oversupply since the late 90s. In a more bandwidth-constrained market we must understand that broadcasting (over cable or DSL) is orders of magnitude more efficient than sending each video individually to each user. P2P reduces the cost of the websites at the expense of the ISPs, but doesn’t use bandwidth more efficiently.

    Now that’s a place for innovation — in a realistic environment.

    Give up your communism. Russia went down because actual cost was widely ignored, not because of the strength of the USA. Let the market win.

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  29. Martin Rijssel Thursday, June 5, 2008

    BTW don’t you think deep packet inspection is not an *innovation*?

    I hate it for privacy reasons, but technically it’s a bigger innovation than YouTube.

    It was created to manage the cable networks better — that was the initial market.

    But it sells well to the Chinese government…

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  30. [...] Mark Cuban has an exact opposite view of Tiered Broadband than mine. What can I say… I state my case here. [...]

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  31. [...] Why Tiered Broadband Is the Enemy of Innovation – GigaOMGreat primer on this potentially really bad situation. [...]

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  32. I don’t know, this setup (semi competition market, and heavily regulated) reminds me of our health care system and the mess we have created.

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  33. [...] competitive and poorly regulated market. Silicon Valley-based broadband blogger Om Malik would seem to agree, dissecting the numbers behind the caps TWC is considering, which range from 5GB for their 768kbps [...]

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  34. As has been pointed out in a few posts above, let’s not confuse innovation with free-riding. Many of the “innovators” Om points to took advantage of a distribution network they didn’t have to pay for. That’s not their fault but it is hardly an example of innovation.

    As soon as the operators of those “free” distribution networks started expressing some discomfort with things, the “innovators” rounded up the “lawyers” and headed off to the epicenter of anti-innovation, Washington DC. But that’s a story for another day.

    Nevertheless, I agree with Om that “metered” (not “tiered,” which we’ve had for years) broadband packages are ill-advised. And not because they will stifle innovation (er, free-riding), but rather because consumers don’t like them. Any business that foists products on its customers that they don’t want is bound to fail.

    A better approach, for all sides of the debate, would be to open up the pipes to any and all traffic. What will inevitably happen, in fact what is already happening, is that some traffic (like long-form, high-definition video) will perform poorly. Ditto VOIP. Ditto gaming. The broadband provider can then step in with quality of service (QOS) packages that enhance performance for select traffic flows…at a price.

    Everybody is happy. Consumers can get better QOS if they want. Innovators don’t have to pay for network access. No one is capped. And broadband operators develop new revenue streams that help pay for broadband upgrades.

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  35. I have web apps I have to use for work, I have vonage for my phone service, my kids play Xbox Live, I don’t use the phone book anymore, I use the internet for maps & directions, I email my friends, I sometimes use P2P, I research purchases on the internet or buy directly off the internet, I get my news from the internet, I watch video from Netflix and abc.com, I build websites where most of the “building” is done online, and I surf heavily.

    I’ve probably forgotten many things – the point is if metered bandwidth arrives I can kiss most of that goodbye. While metered bandwidth might introduce some new innovations (as a way to get around the meter) it is going to kill many, many more. Think about new technologies like Live Mesh or dozens of others.

    I have thought for sometime that what we need is not just ISP competition (we need that deperately) but maybe competition for the internet in general – something where the last mile can’t be controlled.

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  36. Europeans lagged behind the US in Internet use in the 1990s because the telcos in Europe were still “metering” – they charged by the minute for dial-up access. When I arrived in Amsterdam in late 1994, the incumbent operator, KPN, would charge by the minute even if you called a number in your area code. In the US, by contrast, you were not charged if you called a local number. As a result, Americans were spending a lot of time online and American Internet startups flourished. It took Europe a very long time to catch up and only because Europeans started getting flat-fee broadband (pay a monthly fee, surf as long as you like). I recall being very conscious about how much time I spent online using dial-up service in Amsterdam.

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  37. If Time Warner (or anyone) wants to charge $50 per GB I wouldn’t have a problem with it, as long as they weren’t receiving monopolistic guarantees by the Government. If it costs that much for them to compete with fiber access, then so be it, I’m happy to let the market decide.

    The problem is, that years of regulation has led to a playing field where broadband providers can strike exclusive deals with local governments and freeze out competition. In SF for example, Comcast charges $10 more per month for service, then if you get Comcast in Alameda which is just 2 miles away. The difference is that Alameda has their own cable and broadband provider to compete with them, so they can’t charge the monopolistic pricing that they do in SF and Oakland. In SF this exclusive deal netted them a couple million bucks to shore up a budget shortfall, but it’s costing their citizens tens of millions in higher fees each year. For a company like Time Warner to exploit these relationships is shameful. If they want to charge metered broadband, then any ISP should be allowed to provide service in any area where Time Warner operates. If you’ve got a choice between unmetered high speed fiber or meterered and throttled cable, it would force Time Warner to invest in new infrastructure like they should have 10 years ago because customers would leave them in a heartbeat. With their local monopolies though, they not only benefit from the natural monopoly of having all that coax cable already in the ground, but they are also protected from competition by being the only one allowed to provide broadband. (DSL really shouldn’t be counted as broadband) They can pin the blame on those pesky P2P users who they were happy to take early on, but this is clearly entirely about protecting their video products from the competition that their own broadband is driving.

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  38. Bob McConnell Thursday, June 5, 2008

    I get cable, phone and Internet from Time-Warner. If they decide to go with this, I will have to discontinue the cable service to pay for the Internet. So either way they end up up with the same amount of money. Or do they? I have basic cable, extended tier and HBO. That comes to about $55.00 per month. If I drop all of that, it should end up saving me money and I might be able to afford a DVD once in a while. Now where can I get a DVD without any commercials?

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  39. Internet is a huge engine of innovation: Skype, Bittorrent, Google Earth, YouTube or iTunes would not be what they are with a metered broadband.

    http://tech-talk.biz/2008/06/03/metered-broadband-pay-per-use-or-abuse/

    Usage based charging is adopted by utilities because they sell an scarce resource (water, electricity or gas). Broadband is closer to Pay-TV, you are charged on the capacity (bandwidth or number of TV channels) and not on usage (gigabytes or hours of watching TV). An extra bit of download or an extra hour of watching TV does not have a cost for the service provider.

    http://tech-talk.biz/2008/06/05/should-broadband-be-charged-as-an-utility/

    From a social point of view trying to limit electricity or water consumption is a benefit for all and for the environment. Trying to limit the amount of bits (communication) people exchange is a nonsense. Communications are to be encouraged not discouraged.

    Moore’s law applied to broadband technologies should help telco’s keep their profitability, and help innovation keep its pace.

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  40. [...] | Why Tiered Broadband Is the Enemy of Innovation - GigaOM Why Tiered Broadband Is the Enemy of Innovation – GigaOM: “I like the opening sentence” “Om Malik, Wednesday, June 4, 2008 — It [...]

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  41. [...] friend Om Malik, a long time industry journalist, would seem to agree. This morning he e-mailed me his piece dissecting the numbers behind the caps TWC is considering, [...]

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  42. [...] friend Om Malik, a long time industry journalist, would seem to agree. This morning he e-mailed me his piece dissecting the numbers behind the caps TWC is considering, [...]

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  43. Maybe this can spur innovation into new directions.

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  44. Bravo Mr. Malik, bravo! Here in Canada, the major Cable & DSL providers have also implemented unreasonable caps. Their prices continue to go up as well even though the service they provide has deteriorated.

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  45. “Give up your communism. Russia went down because actual cost was widely ignored, not because of the strength of the USA. Let the market win.”

    What market? This is a joke, right?

    I think the new rallying cry should be “UNBUNDLE THE LOCAL LOOP!” Then we’ll see that market you mentioned.

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  46. Sounds to me like there are a whole lot you out here that are just fine with the cost of YOUR internet connection being based on the extremely excessive utilization profile of an extreme minority of users.

    Why should my costs for my connection (at roughly 30-40GB a month of usage – and yes, I stream video, download games for the kids on Xbox/PS3 etc.) have to do anything with people that use in excess of 200GB (and terabytes in some cases…) a month? That is EXACTLY what happens when everyone pays a flat rate as we all pay for the excesses of a few – not just the few who are excessive.

    If usage allowances are implemented so they only impact the top <1% of abusers whose usage profiles are so far beyond what the rest of society consumes (and are adjusted over time for the definition of “what the rest of us do” means…), what is so wrong with that?

    Om – while you have some valid ideas – they are being completely clouded by irrational arguments made more on lack of information, speculation, and emotion than they are on reality.

    You should give the opposing side of this argument equal air time so folks can make an educated decision rather than just an emotional one. I’d be happy to do that if you are really interested in that perspective…

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  47. Has anyone ever found out what the average usage is per month per household. I use about 1.3 gigs a day am I normal. that’s a family of 3

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  48. [...] Om Malik eloquently makes the case against tiered broadband fro another reason, it stifles innovation and imposes a drag on our economy: It should come as no surprise: Incumbents are beginning to act like incumbents. But while the cable companies are the first ones to jump on the tiered broadband bandwagon, they won’t be the last. Their argument for limiting bandwidth and data transfers based on price sounds like a good idea, especially as a way to get bargain hunters to buy. In the long run, however, tiered broadband is a terrible idea that will bring the innovation inspired by flat-rate broadband to a screeching halt. [...]

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  49. 1.3GB/day is significantly more than ‘normal’ if ‘normal’ is defined as the average of all subscribers. Current *average* usage on several provider’s networks I’ve seen is <10GB/mo. but growing steadily (6-7% per month).

    When you realize that the usage allowances that most are talking about are up in the 40GB+ range on ~$40/mo plans (250GB in Comcast’s case) you can start to understand that this will not be a real issue (just perceived) for an overwhelming majority of society. If carriers over time try and just make this a revenue generating method (rather than excessive behavior modeling as it now is), customers will vote with their feet.

    The benefits of a free market.

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  50. Martin Rijssel Thursday, June 5, 2008

    “Trying to limit the amount of bits (communication) people exchange is a nonsense. Communications are to be encouraged not discouraged.”

    Another message from lala land, where the people with ADD live.

    If E-mail had a cost, we had no spam.
    If Twitter wouldn’t cover the cost, we had way less senseless SMS (“Just eating my breakfast cerials”).

    How is your work or family life getting better with excess communication?

    BTW you would never execeed any the caps discussed with “communication”. Effectively, the metering is only limiting video.

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  51. [...] Read the rest of this post Print all_things_di220:http://voices.allthingsd.com/20080606/why-tiered-broadband-is-the-enemy-of-innovation/ Sphere Comment Tagged: GigaOm, Om Malik, tiered broadband, flat-rate broadband, digital download, online video, Voices, social networking, iTunes, Apple, YouTube, MySpace, Skype, VOIP | permalink [...]

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  52. [...] so says Om Malik. The team at GigaOm has decoded what tiered pricing means for broadband users, and concluded that [...]

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  53. [...] in other words, go read what Alec Saunders and Om Malik have to say on the subject I talked about [...]

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  54. I don’t have any sympathy for the cable companies and their server infrastructure problems. They have long been gorging customers, both for cable and high-speed internet – and to cap the amount of surfing and downloading their customers can get for a certain dollar amount is absurd.

    We’ve been paying for more bandwidth for years now with their over-priced services, but instead of investing it back into their server networks, they’re greedily profiting and making us pay more for bandwidth? I don’t think so.

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  55. [...] Warner’s metered internet use trial. Om Malik says it’s the thin edge of the wedge. Calculations showed that the metered bandwidth was just enough to provide a non-compelling video [...]

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  56. [...] subscribers enjoy. I was not alone as most in the Tech world believe this will be a failure. GigOM provides a strong argument on why it will not work, while my favorite sports owner of all time, [...]

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  57. Can someone can clarify this for me, but I wasn’t aware that internet service of MSOs were regulated. I always understood in order to provide television service, you needed a local franchise right (the regulated-monopoly part) from the municipality/town. To foster a true free market, open the last mile “right-of-ways” the utility companies have for free. Allowing anyone with the capital, expertise, and willingness to expand infrastructure and provided internet service to do so.

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  58. i live east of albany, ny about 20-30 miles. i get charged $50 a month for 768kbps/256kbps tier and they get angry when you download too much. the company is FairPoint BTW. they charge $35 a month for 128kbps/128kbps and $100 a month for 1.5mbps/512kbps. these are residential plans. take into account the average income is $28k a year /person. so in a household where there are 2 parents your looking at $56k a year income. now in weschester (sp?) county the average income is $56 a year/person. so with 2 parents thats $112k a year income. they get their internet lowest tier 3.0mbps/512kbps-1mbps at a rate of $20 a month. a tier of 15mbps/1mbps for $30 and a 30mbps/1mbps for $60. tell me how this all makes sense? people in my area make less but they should pay more for internet… yes! its all stupid FairPoints fault. there is no competition and the NYS PSC doesn’t help at all.

    tiered broadband would kill us…. literally. b/c FairPoint would charge $10 per e-mail sent/recieved. knowing them…

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  59. [...] of the P2P bogeyman, at present, the largest bandwidth hog is actually streaming video. Clearly, the emergence of online video is something that cable video providers find very threatening and by capping off bandwidth usage, they’re effectively killing two birds with one stone; [...]

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  60. Australia has had metered broadband connections for many years now and it’s just not a big issue.

    Every now and again someone comes along with an unlimited service and all the P2P junkies churn to it. Sooner rather later, they either go broke or introduce limits.

    The limits are quite generous and most people have no problem making the price / quantity decision that’s right for them and sticking to it. If you can’t afford the $ just become more selective in how you use bandwidth. You want more, you pay more.

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  61. [...] The emergence of these applications has, in turn, spurred demand for broadband in the U.S., much like the illegal version of Napster jump-started the demand for cable and DSL broadband in the late 1990s. And they’ve helped lift the number of broadband subscriptions to U.S. cable and DSL companies to 69 million by the end of 2007, subscriptions that have brought in enough cash to pay for the cable companies’ foray into voice and to help with their digital transition. Yet now these guys want to slaughter the golden goose. Why? … Why Tiered Broadband Is the Enemy of Innovation – GigaOM [...]

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  62. Something to chew on:

    Before IP-convergence of TV+Phone+internet services, we more or less had tiered plans. The more you use, the more you pay (roughly, I didn’t say it was an elegant metered system). But as telco/cableco deliver faster and faster internet speeds, they only get to see their revenue-per-use shrink…to the internet bill. Of course they are scrambling to align usage with revenue…because that’s how it was before.

    Looking at operating margin is misleading, so is the claim that serving additional users has little variable cost. Every user contributes to peak traffic, which degrades the experience for everybody else, which in turn leads to churn.

    Lastly, I challenge what you define as “good innovation”. Good innovations deliver both good functionality at a reasonable cost in whatever resource it consumes. Bandwidth is not an unlimited resource, and truly innovative products are ones that both deliver and conserve at the same time. This is why RIM is so succesfull. Blackberry is not just a good device, but one that uses RIM’s intelligent traffic management solutions, and surely the carriers can appreciate that.

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  63. Brett Glass Monday, June 9, 2008

    It’s interesting that the same people who rail against flat rate pricing with restrictions (either on the amount downloaded or on what you can do — e.g. no BitTorrent) are now fussing about metered pricing. Apparently, they think that Internet backbone bandwidth is free and that their ISPs are withholding it from them due to sheer evil.

    The fact is that backbone bandwidth is quite expensive — especially for ISPs which are even a short distance outside urban areas. Small and independent ISPs pay between $100 and $300 per Mbps per month, and even cable companies which serve such areas pay through the nose to get it backhauled to them from urban centers. And in urban areas, overhead is high and the margins are low.

    Broadcast television, or any broadcast medium for that matter, is fantastically efficient at delivering data to a large number of people simultaneously. By contrast, IP is the most inefficient possible way to do it. Everyone gets an individual stream, and the signal must be reproduced perfectly because it’s digital. So, we’re talking MILLIONS of times more resources to deliver exactly the same product. It is no wonder that if you want to get your video via the most inefficient means in history — that is, over IP — it is going to cost more than if you stick an antenna on your roof and point it at a transmitting antenna that serves an entire metropolis at once.

    In short, the “problem” described above is a typical case of American gluttony. The author wants to be able to waste and squander resources without paying the piper (just as they would like to do — and have done for many years — with energy). Sorry, but someone has to pay to keep the lights on at your ISP’s network operations center, or you won’t have your Internet.

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  64. @Duncan:

    “Why should my costs for my connection … have to do anything with people that use in excess of 200GB …?

    If usage allowances are implemented so they only impact the top <1% of abusers whose usage profiles are so far beyond what the rest of society consumes (and are adjusted over time for the definition of “what the rest of us do” means…), what is so wrong with that?

    You should give the opposing side of this argument equal air time so folks can make an educated decision rather than just an emotional one.”

    You yourself admit that you use close to the limit yourself. The problem is, a 5 and 40 GB cap is going to hit far more than 1%. I have little problem with Comcast’s 200 GB cap.

    You want the positives? Okay:
    -The people who only use internet for email will not benefit at all. Wait, that’s not a positive.
    -People are free to switch to a competitor…once there is one. There’s always modems.
    -Time Warner’s profits will increase. Wait, this is about consumers, not shareholders.

    Need I go on?

    @Brett Glass:

    “It’s interesting that the same people who rail against flat rate pricing with restrictions … are now fussing about metered pricing. Apparently, they think that Internet backbone bandwidth is free and that their ISPs are withholding it from them due to sheer evil.”

    I kind of agree with you that consumers don’t like any solution that may disadvantage them, but what do you expect? Companies look out for themselves, and so do consumers. That’s how the world works. However, the companies that seem to be doing the most complaining are the biggest companies out there, which should be the most profitable by sheer volume alone.

    “Broadcast television, or any broadcast medium for that matter, is fantastically efficient at delivering data to a large number of people simultaneously. By contrast, IP is the most inefficient possible way to do it.”

    This is a perfectly valid argument. Though, ip has the advantage of being on demand, while only a small amount of regular TV is.

    “In short, the “problem” described above is a typical case of American gluttony. The author wants to be able to waste and squander resources without paying the piper”

    Because only America is gluttonous. You sound completely unbiased.
    The thing is, internet is not a finite resource. It’s a finite pathway.
    There is no limit to the amount of data that can be sent; the only limit is how much can be sent at once. A lot of the people who use BitTorrent leave it on overnight or while they are at work. The only time network congestion matters is a problem is in the evening. Yet these “solutions” the providers suggest don’t factor that in at all.

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  65. [...] Cisco: Avg. Home to Use 1.1 Terabytes by 2010 By 2010, an average household with 2 standard definition TVs, one HD TV and two computers will be using 1.1 terabyte of data a month, according to Ken Wirt, vice president of consumer marketing for Cisco Systems. Wirt was kind enough to chat with me about this statistic along with another eye-popping number about the coming wave of Internet video use (hint: exabytes, baby). Think Comcast and Time Warner will raise those caps? [...]

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  66. [...] Malik, in a GigaOm article last week, suggests that, while newly introduced tiered broadband pricing schemes appear to be a [...]

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  67. [...] hear about some BS that telco companies are trying to put bandwidth restrictions (caps) in place [READ HERE, and HERE].  My personal fav is the second link.  I mean, WTF are these people thinking.  COME [...]

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  68. [...] hear about some BS that telco companies are trying to put bandwidth restrictions (caps) in place [READ HERE, and HERE].  My personal fav is the second link.  I mean, WTF are these people thinking.  COME [...]

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  69. On a side note, i’m always astonished by the price you pay for broadband in the US. I have a fairly reliable 30 Mbps link for 30 euros a month. Of course, distance is an issue in the US, but if i can get that in France,why do you guys have to pay that much ?

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  70. [...] these services have no influence over the availability of residential broadband internet. Recently, Om Malik reports that multiple broadband providers are considering terminating their unlimited plans. In fact, [...]

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  71. [...] Sony. But those films will be delivered via broadband, so the cable ISPs could just charge more by metering access. At the same time, Sony is in bed with the cable companies by committing to the tru2way initiative [...]

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  72. [...] to a lazy 768 kilobytes per second (but, hey, that’s up from 200 kilobytes per second) and lamenting our coming bandwidth caps, the Brits are prepping for a broadband [...]

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  73. [...] well for me, others have reported bigger bandwidth issues. Plus I’m not interested in Comcast jacking up my ISP fees for using the Internet to get movies instead of its VOD [...]

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  74. [...] – but there’s a lot of speculation these same cablecos will stop this in its tracks with tiered broadband.  We don’t even have this service yet in Canada and we might not soon, not only because of [...]

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  75. [...] the scheme even more devious and clever is that it saves the service providers’ video franchises. I had earlier pointed out that most of these carriers have spent billions of dollars to upgrade their video networks [...]

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  76. [...] PM PT Comments (28) We’ve talked before that metered access is a boneheaded idea that is bad for innovation, bad for Microsoft and Google, and ultimately bad for you. Until today, the idea seemed like an [...]

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  77. [...] Here’s the rub: The P2P apps ISPs point to as pillaging their networks are increasingly a nonexistant bogeyman. Video is now the actual bandwidth monster, and it’s only getting hungrier and hungrier. [...]

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  78. [...] Here’s the rub: The P2P apps ISPs point to as pillaging their networks are increasingly a nonexistant bogeyman. Video is now the actual bandwidth monster, and it’s only getting hungrier and hungrier. [...]

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  79. [...] Here’s the rub: The P2P apps ISPs point to as pillaging their networks are increasingly a nonexistant bogeyman. Video is now the actual bandwidth monster, and it’s only getting hungrier and hungrier. [...]

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  80. [...] Speculation that bandwidth caps may also have to do with limiting the amount of streaming video that consumers watch have also been offered as a reason for providers adding caps to their Internet service. [...]

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  81. [...] and they can continue to sell their video-on-demand services. It was a point I made when I wrote, Why Tiered Broadband Is The Enemy of Innovation. I will say this again: this is to stymie services like Hulu, NetFlix and Amazon [...]

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  82. When the internet was young, and bandwidth was inherently limited, smart people brought us compression algorithms that launched an entire industry. So, limited bandwidth doesn’t have to squelch innovation – it can spur it.

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  83. [...] better to have a solution come from the marketplace rather than government regulators. And while Om Malik and others have criticized the idea of tiered broadband, I believe some version of tiered pricing is the best solution to the bandwidth [...]

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  84. [...] and they can continue to sell their video-on-demand services. It was a point I made when I wrote, Why Tiered Broadband Is The Enemy of Innovation. I will say this again: this is to stymie services like Hulu, NetFlix and Amazon On-Demand. [...]

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  85. [...] A 250 GB cap won’t affect many people today, but anything making people think twice about delivering or downloading broadband services could have a negative impact on innovation. [...]

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  86. [...] some heartening information about the ISP’s stated 250 GB per month cap on bandwidth. Om’s not a huge fan of caps because he believes they stifle innovation in the long run, but Douglas says that the cap [...]

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  87. [...] criticism from the blogosphere including the “Metering will limit Innovation” post at GigaOm. Comcast is not the only company that is unleashing this approach on the users. Time Warner Cable [...]

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  88. [...] you agree or disagree with recent moves by U.S. cable operators toward consumption-based Internet business models, it’s [...]

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  89. [...] Why Tiered Broadband Is the Enemy of Innovation [...]

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  90. [...] Why Tiered Broadband Is the Enemy of Innovation [...]

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  91. [...] the U.S., we started to see the asphyxiation of unlimited broadband. Limited by imagination and slowing growth prospects, and with their video franchises threatened, newly independent Time [...]

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  92. [...] does give us some hope — especially with regard to net neutrality and understanding the benefits of a fat pipe into the home to push web content. His willingness to assure consumer privacy on the web is a bit doubtful given [...]

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  93. [...] enables is exactly what we need to get people excited about public service again. Metered broadband could not only halt innovation, but also civic [...]

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  94. [...] Stifle new innovation and market entrants; and [...]

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  95. [...] Time Warner and Comcast have moved or are gravitating toward pricing services based on the amount of bandwidth individuals use. Theoretically, the plans could unlock the internet door to low-income users. But we suspect the [...]

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  96. [...] aprovechando que la demanda de ancho de banda no hace más que crecer. Además, Om Malik razona en Why Tiered Broadband Is the Enemy of Innovation que precisamente el disponer de conexiones con tarifa plana y sin límite de tráfico ha sido un [...]

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  97. [...] this subscriber any further information, I’ll share it with you guys. Meanwhile, consider Austin innovation to be on the verge of being stifled. AT&T is the other major player in this market, and is working on its own tiers. [...]

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  98. [...] cable guys are a little better, though not by much. On principle, I don’t use Comcast, especially since they instituted metered broadband. Of course I could [...]

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  99. [...] what they want. Changing the rules of the game now does a disservice to everyone, from consumers to innovation to companies such as Amazon, Google and Microsoft, which stand to lose if consumption-based [...]

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  100. [...] bandwidth-pricing schemes are anything other than pricing gouging (LA Times), an attempt to discourage Internet-video usage (GigaOm), or [...]

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  101. [...] June 2008, Time Warner spokesman Alex Dudleywas interviewed for Gigaom, an online publication.  In that interview, he stated that the bandwidth capping trials in [...]

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  102. [...] June 2008, Time Warner spokesman Alex Dudleywas interviewed for Gigaom, an online publication.  In that interview, he stated that the bandwidth capping trials in [...]

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  103. [...] June 2008, Time Warner spokesman Alex Dudleywas interviewed for Gigaom, an online publication.  In that interview, he stated that the bandwidth capping trials in [...]

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  104. [...] Dudley argues that the usage cap issue is not a foregone conclusion at Time Warner.   Dudley toldGigaOmthat TWC’s experiment in Texas was just that “a [...]

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  105. [...] Dudley argues that the usage cap issue is not a foregone conclusion at Time Warner.   Dudley toldGigaOmthat TWC’s experiment in Texas was just that “a [...]

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  106. [...] Dudley argues that the usage cap issue is not a foregone conclusion at Time Warner.   Dudley toldGigaOmthat TWC’s experiment in Texas was just that “a [...]

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  107. [...] mismo modo que Internet no despegó de verdad hasta que tuvimos tarifas planas, la aplicación de bandwidth caps puede suponer un freno total al desarrollo de la sociedad de la inf…, algo que cualquier país acabará pagando en términos de generación de PIB si se acaba [...]

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  108. [...] and they can continue to sell their video-on-demand services. It was a point I made when I wrote, Why Tiered Broadband Is The Enemy of Innovation. I will say this again: this is to stymie services like Hulu, NetFlix and Amazon [...]

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  109. [...] have argued that such caps deter innovation by raising the cost of broadband, and are the result of a lack of real competition in many U.S. [...]

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  110. [...] deal makes it painfully obvious that everything cable companies do — including introducing the draconian metered broadband policies — is done to save their video [...]

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  111. [...] many cable companies are also ISPs, and rolling out metered broadband or broadband caps, limiting (or charging extra) for the amount of video you consume [...]

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  112. [...] many cable companies are also ISPs, and rolling out metered broadband or broadband caps, limiting (or charging extra) for the amount of video you consume [...]

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  113. [...] Time Warner and Comcast have moved or are gravitating toward pricing services based on the amount of bandwidth individuals use. Theoretically, the plans could unlock the internet door to low-income users. But we suspect the [...]

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  114. [...] adding a meter to Internet time will reduce people’s propensity to try out new stuff online—killing innovation on the world’s most innovative communications [...]

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  115. But there is a need to disrupt them again and force them to upgrade, otherwise there will be no further innovation.

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  116. [...] the web will break under the weight of network neutrality, or how the ISPs needs to raise prices or implement tiered pricing plans because some consumers are using too many resources. What we don’t have is the data showing [...]

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  117. [...] the web will break under the weight of network neutrality, or how the ISPs needs to raise prices or implement tiered pricing plans because some consumers are using too many resources. What we don’t have is the data showing [...]

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  118. If the stupid Cable companies like Xfinity once known as Comcast and other major land based broadband providers would just use their brains and think in terms of consumer opinion, you know…us people who pay the money for these services. Maybe they would realize they are making a HUGE MISTAKE, and one that will be costly in the end in terms customer base.

    Let’s look at what Time Warner Cable is doing. They thank goodness are one company that is actually thinking about their Consumers, not about the money necessarily. They initiated a trial based on Consumer opinion, mainly of their own subscribers down in Texas. And look at the results of their feedback…..100% NEGATIVE.

    Gee..maybe that ought be a wake up call to major Cable Companies and Fiber based broadband providers that, hey maybe we shouldn’t do this, our customers don’t like it.

    Unfortunately, its too little, too late. We are looking at the end of unlimited Broadband and it won’t ever be back again. Thanks to poor decision making of the Cable companies who in the beginning set out to give High Speed its Value and its worth it once was. Not anymore, we can all kiss it goodbye…..Metered Broadband Caps are now the future of Broadband and the Internet.

    So what does this mean for us the Consumer. No more Video downloads, No More Software Downloads, No More Streaming Music, No More Streaming Video, No More VOIP Services and the ultimate end of online Entertainment that we all once enjoyed the way it was meant to be, free, open and unlimited.

    Way to go you screw ball Broadband providers.

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  119. [...] are concerned about how that traffic may affect their networks. On wireline networks, caps, tiered pricing plans and network management tactics that slow broadband during times of congestion or during certain [...]

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  120. [...] that’s starting to change, as some providers have begun offering tiered broadband plans to subscribers — and this is where the company’s streaming service is vulnerable to [...]

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  121. [...] Lamont said that 98 percent of Charter’s 5.2 million customers will be unaffected by the decision to enforce the caps (Charter actually first included caps in its acceptable usage policy in February 2009). However, demand for broadband is increasing every week as folks use more online applications and consumer video from the web. For example, streaming a movie on Netflix uses about 1 GB per hour, so that equates to about 100 hours of Netflix streaming video each month. Services such as Netflix and Hulu Plus that involve high-quality video streams are only becoming more popular and pervasive as more consumers connect their televisions to the web. We made this argument back in 2008 when Comcast implemented its 250 GB per month cap and continue to believe that such caps could act as a threat to innovation. [...]

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  122. [...] it was an issue that was roundly criticized by consumer organizations and those in Silicon Valley (including GigaOM) as anti-consumer and anti-innovation. In a press conference after Genachowski’s speech, FCC [...]

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  123. [...] gullies tends to keep them from sampling some of the latest applications and services, thus harming innovation. For example, in 2008 the video live streams from the Olympics contained this warning: Since the [...]

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