Not surprisingly, Time Warner Cable has decided to put its consumption-based billing trials on hold:
Time Warner Cable Chief Executive Officer Glenn Britt said, â€œIt is clear from the public response over the last two weeks that there is a great deal of misunderstanding about our plans to roll out additional tests
on consumption based billing. As a result, we will not proceed with implementation of additional tests until further consultation with our customers and other interested parties, ensuring that community needs are being met. While we continue to believe that consumption based billing may be the best pricing plan for consumers, we want to do everything we can to inform our customers of our plans and have the benefit of their views as part of our testing process.â€
Time Warner Cable also announced that it is working to make measurement tools available as quickly as possible. These tools will help customers understand how much bandwidth they consume and aid in the dialog going forward.
The public response was somewhat less public than it may appear, as most of it was ginned-up by a few activist bloggers and the interest groups that are generally in the middle of these things, such as Free Press’ “Save the Internet” blog. In this case, the Internet was saved from a plan that Free Press’ chairman Tim Wu had previously lauded for its fairness in allocating network resources:
â€œI donâ€™t quite see [metering] as an outrage, and in fact is probably the fairest system going â€” though of course the psychology of knowing that youâ€™re paying for bandwidth may change behavior,â€ said Tim Wu, a law professor at Columbia University and chairman of the board of public advocacy group Free Press.
Of course, the “psychology of knowing that you’re paying for bandwidth” is actually meant to change behavior.
Free Press is now crowing that the postponement of the trial signals a great victory for the Internet:
“We’re glad to see Time Warner Cable’s price-gouging scheme collapse in the face of consumer opposition. Let this be a lesson to other Internet service providers looking to head down a similar path. Consumers are not going to stand idly by as companies try to squeeze their use of the Internet.
The Freeps should have chosen their words a bit more carefully. The dilemma that TWC faces does indeed relate to “squeezing,” but that doesn’t actually originate exclusively (or even primarily) at the cable company’s end of the bargain. TWC’s consumption per user has been increasing roughly 40% per year, and there’s no reason to assume it will do anything but increase as more HDTV content becomes available on the web, people connect more devices, and video calling becomes more popular. TWC’s capital expenditures are 20% of income, and the company lost $7.3 billion in the course of spinning out from Time Warner, Inc. last year. Some of TWC’s critics have charged that their bandwidth is free (or nearly so,) citing “high speed data costs of $146 million.” In reality, TWC pays six times that much for the interest on its capital expenditures alone ($923M.)
Heavy users squeeze light users by leaving less bandwidth on the table, and the flat-rate pricing system squeezes them even more by making them pay a larger share of the costs of bandwidth upgrades than those who actually use them. No fair-minded and rational person can look at the costs of operating a network and conclude that flat-rate pricing for a single Quality of Service level is the best we can do.
Continuous upgrades are a fact of life in the broadband business, and aligning their costs with the revenues carriers collect is one of the keys to creating an economically sustainable broadband ecosystem. We’ll take that up in another post.
UPDATE: Dig into the comments for some discussion of transit and peering prices.