Time Warner Cable Chokes Its Customers

Time Warner (TWC) is testing throttled — severely throttled — tiered pricing for internet access, putting it at odds with its customers, with the media industry, and with the future of the internet. I’d like to discuss how they could think differently about their business and customers. What if, instead of a gatekeeper, they saw themselves as platforms or technology innovators or catalysts or enablers?

The AP reports (via PaidContent) that TW will charge subscribers in Beaumont, Texas $29.95 a month for slow service at 768 kilobits per second and a 5-gigabyte monthly cap up to $54.90 per month for 15 megabits per second and a 40-gigabyte cap; going over will cost them $1 per gig. For scale, the AP points out, a standard def movie is about 1.5 gigabytes and a high-definition movie is 6 to 8 gigs.

So Time Warner could end up charging customers more for watching a movie than the service selling the movie, whether that is iTunes or Netflix. I’m sure that’s quite on purpose. It is TW’s FU to the net neutrality debate: If we can’t gouge both ends of the pipe, we’ll doubly gouge the one that is stuck with us.

I happen to know that cable companies were making roughly 40 percent margins on the internet access a few years ago. Since then, bandwidth costs to them have been doing down but those savings have not been passed onto customers. Meanwhile, equipment and marketing costs are being amortized. So I’m betting the margins are only getting better. Their poor-mouthing is disingenuous at best. Still, they say that 5 percent of customers take up half their bandwidth and they say that’s not fair. So some cap may be reasonable. Note also that Comcast Corp.is considering a cap of 250 gigs/month. The problem to date has been that cable companies have not told customers their caps or their recourse (witness the throttling of Dave Winer by cutting him off).

TW’s cap is unreasonable and it is nonsensical as a business strategy.

Start with the basic lesson Tom Evslin taught us about internet usage. He, as I’ve pointed out here before, is the unsung hero who made the internet explode when he offered $19.95 flat-rate, all-you-can-eat dial-up access at AT&T Worldnet. Here is his view of subscription pricing and caps. From the AP story: “‘The metered Internet has been tried and tested and rejected by the consumers overwhelmingly since the days of AOL,’ information-technology consultant George Ou told the Federal Communications Commission at a hearing on ISP practices in April.”

We the customers don’t like worrying that we’re going to go over and so we use a metered service less and resent it more. It’s just not good for TW’s relationship with customers — all customers, not that 5 percent they hate — to make them all try not to use TW’s service. That is a conflict.

TW is also in a conflict with media models — and you’d think they’d understand that since they are coming out of a media company (though, believe me, having worked there, synergy is not a goal, it is treated as an evil; Warner fought TW Cable hard to try to stop them from using the Roadrunner brand). The essence of the media model is that you want your customers to consume more and more: more pageviews, more shows, more podcasts, more, more more. TW Cable is making itself the enemy of more.

So now both ends of the pipe will hate TW Cable, though TW cable won’t care because it is still a monopoly in most markets. But here comes competition from Verizon (VZ). And someday, I still hope that we’ll get mesh and mobile networks to compete with the duopolies. So the monopolistic screw-your-customer model is not a strategy for the future.

So what is a cable company to do?

For starters, it’s a hopeful sign that Comcast (CMCSK) is working with Bittorrent to figure out how peer-to-peer can be a friend, not an enemy. Comcast is still reportedly secretly throttling P2P and certain other classes of traffic; that’s evil. But if cable companies used P2P to make their networks more efficient, that’d only be smart.

It’d also be smart if they became technology innovators, bringing mesh networks to their own communities before new players bring in wireless competitors. What if I could get online anywhere in my town or my state thanks to my cable company? I’d have a deeper, more loyal relationship with them. But not if they tried to throttle my use of their service unfairly.

Next, if cable companies thought of themselves as platforms for local content creation and media, they’d increase usage and under their current business logic, that would be bad. But if they were built to take advantage of local media, it would be good. What if they encouraged and enabled churches, schools, clubs, sports teams to broadcast over their network? What if the cable company sold local advertising on that? What if they shared revenue with the locals to encourage them to do more? The cable company would explode uploads and downloads, but they would make new money on that traffic and build a stronger relationship with customers and the community. That’s a different way to think about the cost or the benefit of traffic.

What if the cable company became a host for media and content created in the community? They could charge me a reasonable rate for storage and bandwidth or, again, they could monetize my media and make us both money. Why haven’t cable companies been thinking like Amazon and now Google have to create the means to enable people to build content, services, and businesses atop their services? Because cable companies think like closed, monopolistic utilities and not platforms.

Now I look at my cable operator as the company that tells me what I can’t do, that has a bunch of rules and is always breathing down my neck to stop me from doing what I want to do, that is trying to nickel-and-dime me at every turn and charge me for things I don’t want.

What if, instead, I looked upon my cable company as a platform: a platform that helped me create content and benefit from that, a platform that connected the community better, a platform that served local businesses in new ways (beating newspapers and radio stations to the punch), a platform that kept me connected all the time, anywhere, easily? What if?

Disclosure: No positions

Comments

[zenalgorithm]

Ouch, I used to average 500MB+/day just using 56K dial-up many years ago. I probably average 2 gigs/day now. If one has a virus, a trojan or spyware on their computer, you could possibly be using 100s of gigs/day.

[count_zero]

I have an idea... let's highly regulate the industry since they won't regulate themselves. Obama will help us.

[brianswilson]

TW is the only high speed ISP where my parents live. TW advertises single service high speed internet for $19.99; but there is no way to actually signup for the service. Calls to the company lead to a run around before they finally admit the price is not for single service; but is for combined service (video, telephony). If ever there was an company/industry that screamed for regulation, this is it. TW and the phone companies cherry pick their customers and are careful to ensure their monopoly status is never challenged.

[drmalaka]

I do not love the cable companies but there is a legitimate thought to this. The numbers on internet usage are not even, I am not positive but it is something as lopsided as 10% of users use 90% of the bandwidth.

So the truth is why should regular internet users subsidize people who watch movies every day on the internet? Granted we are used to this with cable companies, my mom has been paying for ESPN on her basic cable bill for years and never watches it. That is over $3 a month that ESPN charges the cable companies for each subscriber that is shared by all subscribers even though a majority do not use it. Is there a reason my mom should subsidize sports fanatics to the tune of almost $40 a year?

Why is flat pricing any different than gas subsidies. As long as the 10% of heaviest users are bing subsidized on the net they will not limit their usage. I do not like pricing per gig as that is annoying but why not have a three or four tiered structure with different levels of usage.

[Skjellifetti]

I do not want a "platform" from TW. I want one thing: bandwidth. I have several choices for ISP (TW, WOW, Verizon, ATT, and several DSL resellers). I buy based on some combo of fastest and least clogged pipe (er, I mean tubes), fewest rules (I run my own web and email servers in my basement), reliability, and lowest cost.

[Jacomo]

TW & MSO in general main problems are that they have very poor upload speeds, no QoS capability and horrible Latency issues. All of which contribute to their problem of delivering real world customer demands for serious Broadband upload speeds.
Not sure what ComCast will be able to do anything with P2P activity since these functions all require high bandwidth UPLOADs.
Unless waiting until DOCSIS3.0 is out is an option.
If they encourage local entities to develop content/apps these same entities would have limited abiity to upload contend to the TW Servers etc.


Jim

[matt...]

I don't like the cap idea, but I'm all for tiered pricing. I don't game on-line and rarely download anything larger than a PDF. I want a faster and more reliable connection than 56k, but shouldn't have to buy a huge pipe to subsidize all the heavier users.

And the platform idea is stupid. AOL is dead, Yahoo is dying; platforms are short-lived... And people aren't going to watch movies on their computer, that's why NetFlix spent the money to design a set-top box. Everything is going back to the TV once they get ethernet plugs and hard-drives, which should be very soon.