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Why Tiered Broadband Is the Enemy of Innovation

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. [digg=]

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?


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,,, 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?


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.

123 Responses to “Why Tiered Broadband Is the Enemy of Innovation”

  1. Derrick

    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.

  2. 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.

  3. 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 ?

  4. Tiber


    “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.

  5. Brett Glass

    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.

  6. 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.

  7. 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.

  8. 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…

  9. david.h

    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.

  10. 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.

  11. Martin Rijssel

    “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.

  12. duncan

    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.

  13. Mr Mushroom

    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

  14. Duncan

    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…

  15. “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.

  16. 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.

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

    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.

    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.

  18. Bob McConnell

    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?

  19. 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.

  20. 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.

  21. 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, 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.