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Video Killed the Broadband Buffet

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Time Warner Cable this week said it will move away from the “buffet” model of broadband and start experimenting with a “metered” model. The cable operator is rolling out a trial program in Beaumont, Texas, in which customers will be charged based on the amount of bandwidth they use. Given the rise in bandwidth-sucking content, such as high-definition movies streamed over the Internet, the move is hardly a surprise. Of course before HD movies, the culprit was peer-to-peer file sharing and before that, gamers.

But HD streaming appeals to the masses, and that could be a problem for the cable industry, which is reluctant to spend when it comes to expanding network capacity. Comcast has already tried controversial methods to reduce bandwidth-sucking activity on their network; other providers have undisclosed bandwidth caps and disconnect those who exceed them. Time Warner (TWC) claims that 5 percent of its users occupy 50 percent of its network — and as more people start downloading video, those numbers will rise.

Time Warner can’t sustain a huge increase in power users on the current infrastructure; with a buffet model, such an increase would force it to either expand the network or force heavy users out of it altogether. Metered pricing, if it works, would allow them to do both. Depending on the pricing structure, some power users will have to reduce their usage, and in an ideal world money generated by the service would go toward network expansion.

Given that the U.S. is way behind other nations in terms of its broadband speeds (and users in many other countries pay less per megabit), I’m not a huge fan of metered pricing. But it’s really a symptom of the duopoly that exists in most communities when it comes to broadband access. And I’m not sure how to solve that problem, either.

42 Responses to “Video Killed the Broadband Buffet”

  1. Michael

    Oh…and since over 70% of the resources are being used by corporations……so called “Power Users” those statistics should be seperated from the home users for fairness.

    But be warned…if I have to start paying per MB…I will demand better service than I get now…low speeds…going as low as 732Kbps when testing….I WILL get what I pay for.

  2. Michaael

    Just another excuse by an oversized corporate structure to stick it to consumers. The pure fact is…if its a bandwidth issue..limit bandwidth speeds. I have tested my speeds a hundred times and have never gotten above 1.2Mbps…DSL goes faster. Ive heard “Its Your end” so dang often that it sickens me…Its not my computer(s). All 3 have been tested with the other two turned off…still no change.
    So stop making excuse TW and just own up…”We are switching so we can charge You higher prices per month for less.Our CEO and other corporate officers want new cars this year…their current ones are two years old now.”

  3. I’m not the first person to say that the cable companies are some of the most disoriented, consumer-averse in the country. They take full advantage of their tight control over the market to screw over everyone.

  4. Douglas, if anything the French power elite is even more clueless than US ones, and the French government had a vested interest against change as it was the majority owner of France Telecom. Circa 1998, the telecom regulator refused to even consider the possibility of unbundling.

    And now my friends there are being offered 100Mbps down/25Mbps up for the same price I pay for my 8Mbps down/512Mbps up “premium” DSL connection in San Francisco, and I hear the telco/cableco oligopolies shedding crocodile tears about how evil P2P users are taking the money from their children’s mouths unless they are allowed to gouge even more than today.

    Comparisons to electricity or water are fallacious. A better comparison would be local phone calls, which manage to be unlimited in the US, despite having a sub-population of users who talk their ears off.

  5. Douglas Frank

    Fazal, regarding the U.S. adopting new policies, you used the phrase “simply adopt the same policies,” which is perfectly ironic, as our policies are anything but simple to sway, even IF there were large lobbyists behind the issue. The government treads lightly these days regarding private corporation interference, and has a “hands off” private industry attitude. That attitude is an incredibly sharp double-edged sword.

    It also doesn’t help that the people in power (for the most part) haven’t yet rotated out, giving a more tech-savvy generation power.

  6. Douglas Frank

    Several comments and questions for the readers here:

    1. Has anyone seen any recent (2007) monetary loss studies or figures from the BB providers? We could have a much more robust discussion if we knew at what average vendor-promised customer bandwidth (CIR/Committed Information Rate) the providers start seeing losses. In other words, by how much have they “oversold” their pipes?

    2. Q dub, I don’t fully agree with your Public Utility metaphor. If a telco has a fiber network deployed, upgrades to handle higher usage are fixed-cost. Granted, for some areas and telcos that’s a BIG “if,” which is why they’re griping; They don’t want, or can’t afford line upgrades at the moment.

    3. In any service-oriented market, the natural market pattern progression is to START with a usage-based structure to defray costs until economies-of-scale are realized, at which point they announce fixed-fee services, customers cheer and migrate to the first vendor to make the announcement. In this case, several vendors had already undergone this process in 2004-2005, but now are forced to regress.

    Ultimately if all major telcos move to metered rates, ultimately the first one to perform major upgrades and revert to fixed-cost will gain a HUGE marketing advantage. The real question, and it’s a technical one, is WHEN endpoint and infrastructure technology will again hurdle consumer requirements, P2P included.

    Doug Frank

  7. Mike Allen

    “But it’s really a symptom of the duopoly that exists in most communities when it comes to broadband access. And I’m not sure how to solve that problem, either.”

    Answer – legally mandated unbundling of the copper loop and cable at low wholesale cost. As has taken place in France where one can get up to 25 Mbits/sec internet + free phone calls to 50 countries + free cable TV replacement, which can carry HDTV, all for EUR 30 per month. Some TV channels come at additional cost.

    The incumbents are busy rolling out fiber as a result. Traffic limits don’t exist in France. No minimum contract periods for most providers either.

  8. I really can’t comment on metered pricing without some hard numbers. I already pay Comcast $42 per month for broadband – how much data transfer is reasonable?

    “Buffet” is a good choice of words. Everybody pays the same but some eat a lot more (myself included!) – an easy way to tune into live internet television (and consume lots of bandwidth!)

  9. Surely, we don’t expect our electricity, heating, or water to be a “buffet” so why should bandwidth? The current model forces light users to subsidize heavy users. Metered pricing is an excellent alternative to traffic shaping: instead of discriminating by content type and distorting choice, let people choose with their wallets. Isn’t that how it works in most other markets?

  10. I call shenanigans. Countries like Japan and France manage to offer one magnitude higher bandwidth than US providers despite:

    1) having expensive workforces (someone has to pay for those high-quality healthcare systems)

    2) higher bandwidth costs (when a Euro/Asian ISP peers with a US ISP, it’s usually the non-US ISP that picks up the tab for the international transmission cable costs).

    This is just an example of TWC trying to abuse the oligopoly their lobbyists have obtained for them by capturing the FCC and exploiting the venality of Congress. Japan and France had far less competition than the US 10 years ago, yet somehow they managed to foster vibrant competition. We should simply adopt the exact same policies they used: force open the incumbents’ networks to competitors at true cost. It’s only the future of the US as an information economy that’s at stake.

  11. I live in Texas and have been considering dumping Time Warner for a while now — their HD DVR has issues, and their broadband has been spotty lately.

    I won’t wait around for them to slap on metered access. I’m dumping them now.

  12. buckpost

    I’m not sure why anyone is surprised by such a move. For ISPs, broadband is a golden goose. It’s a utility that people love to use and are willing to pay a premium for better/faster service. The ISPs look at this kind of demand, and figure it’s ripe for the introduction of tiered services to squeeze more out of the market. Simple supply and demand.

  13. Finally, metered pricing is the only model that makes sense for bandwidth because of the power law usage patterns. Now, of course there are grandmas who don’t know how many MBs those pictures of their grandkids take up so there should also be bandwidth-capped plans available for them. So the optimal approach is:

    1. multiple tiers of bandwidth-capped plans for those who know approximately what their usage is going to be each month and don’t want to worry about it (say 1 GB, 5 GB, 10 GB, 50 GB), with easy upsell to higher plans if you end up using more

    2. metered pricing for the heavy users who don’t fit into any of the tiers, or for people who are in a bandwidth-capped plan but temporarily exceed their cap in one month and don’t plan to do so in subsequent months so they don’t want to upsell to a higher bandwidth cap.

    The fact that it takes the dimwits at the telcos this long to figure this out tells you all you need to know about the industry. As for the duopoly that exists, all it would take is for congress to actually enforce the provisions in the telco act of 1996 that force them to open up their COs to all comers. Companies like Covad or Earthlink could then deploy their own equipment in all those communities. Also, congress could legislate a reversal of the shameful Brand X decision, that Scalia rightfully lambasted (his pizza analogy is hilarious). The twin reasons for the currently dismal state of broadband are the technical ignorance of congress (and the public that oversees them) and the millions of dollars that the telcos/cablecos have poured into lobbying to allow them to keep their monopolies.

  14. John Thacker

    Cornell University has had metered Internet access university wide for three or four years. Same sort of reasoning– file sharing services (including for video) was taking up lots of bandwidth. In the case of Cornell, it really did result in cheaper prices for average users (< 10 GB transferred per month from outside the university network), but more for people who transferred more.

    It also encouraged students to set up local file-sharing services, so that popular items would be obtained by only one or two students, and then shared across the campus network for free. From the university’s perspective, this was fine, as bandwidth was being used more efficiently.

  15. First reaction: #$%%#$$!!

    Now that we have that out of the way, my second reaction: This is a regressive move. Wonder what type of choices the people in Beaumont, Texas for broadband access. If it’s a duopoly of cable and DSL, then it’s not really a choice. Most people will be forced to continue service with Time Warner. Time Warner cannot then term the trial a success.

  16. Stacey Higginbotham

    impatient, both numbers will rise. A small increase in the power users will lead to a disproportionately larger increase in the amount of bandwidth they consume.

  17. Impatient

    “5 percent of its users occupy 50 percent of its network — and as more people start downloading video, those numbers will rise.”

    What is that supposed to mean? Both numbers will rise? The latter number will rise?