Broadband metering experiment in the works in Texas?

by on January 16, 2008 · 32 comments

Well, I’m a bit scared to say this since I will almost certainly incur the wrath of Mike over at TechDirt as well as a host of others who oppose this concept, but I hope there is some truth to the rumor that Time Warner Cable (TWC) is considering a broadband metering experiment down in Texas. (Seriously, go easy on me Mike!)

According to a leaked internal memo posted over on DSL reports:

The introduction of Consumption Based Billing will enable TWC to charge customer based upon usage, impacting only 5% of subscribers who utilize over half of the total network bandwidth. The trial in the Beaumont, TX division will apply to new HSD customer only, will provide a destination for customer to track usage for each month and will enable customers to upgrade from one tier to the next to avoid payment of overage charges. Existing and new subscribers will have tracking capability, however only new subscribers will be charged incrementally for bandwidth usage above the cap. Following the trial, a determination will be made as to whether or not existing subscribers should be charged. Only residential subscribers will be impacted. Trial in Beaumont, TX will begin by Q1.

I don’t want to rehash the whole debate about the relative merits of metered bandwidth–for that, see this, this and this (+ all the comments)–rather, I just think it will be interesting to see the results of a small-market experiment. Will consumers revolt against the idea since it runs counter to the “all-you-can-eat” buffet-style pricing we’ve grown accustomed to? Or will they embrace metering as potential money-saving business model that helps lower monthly bills for light Net users.


Honestly, I have no idea how it will turn out, but I’m all for experimentation with new business models. I have suggested in my past essays that metering might be a good way to more fairly allocate costs across the network while also reducing the need for broadband companies to engage in traffic shaping techniques to conserve bandwidth. I already can hear Mike at TechDirt pounding away at his keyboard to post his next “bandwidth scarcity myth” essay! But even if he is right that current pipes aren’t as constrained as some fear, I don’t see why it would hurt to allow metering experiments to play out in the marketplace.

Then again, if Mike is wrong, and we see more of a capacity crunch in coming months and years because of growing traffic burdens, then metering might offer a constructive solution. Mike is always talking about the need for companies to consider innovative new business models to complex marketplace challenges. I think metering certainly counts as one. Of course, ongoing network upgrades and expansion is also part of the answer, as Mike and others suggest. But I don’t think it’s the only part of the answer. Network expansion requires significant ongoing investment and a steady revenue stream to pay for it. So where is that money going to come from? Is it written in stone that the we have some sort of God-given right to flat rate pricing forever more? More importantly, is flat-rate really the fairest way to price access for light users? I appreciate all the old grannies out there who are essentially cross-subsidizing my bandwidth usage every time I download massive HD movies on my Xbox 360, but is that really fair to them?

Damnit.. I said I wasn’t going to rehash the entire debate here and I’ve just gone and done so! Sorry. I eagerly await Mike’s “Adam-is-so-full-of-sh*t” response!

[P.S. Just noticed that Cynthia Brumfeld has some good coverage of this over at IP Democracy.]

  • http://enigmafoundry.wordpress.com eee_eff

    Well, do they have a choice in that market?

    Is there a robust market of many providers, so we can see if consumers can “vote with their feet”?

    Or do we have just one or 2 ADSL providers, in that market?

    In most areas of Saint Louis there is just one provider of DSL, and just one of cable, quite a few areas get only one (usually cable).

    So is this one of those examples of someone proposing a ‘market based’ solution where there is no market?

  • http://enigmafoundry.wordpress.com/ enigma_foundry

    Well, do they have a choice in that market?

    Is there a robust market of many providers, so we can see if consumers can “vote with their feet”?

    Or do we have just one or 2 ADSL providers, in that market?

    In most areas of Saint Louis there is just one provider of DSL, and just one of cable, quite a few areas get only one (usually cable).

    So is this one of those examples of someone proposing a ‘market based’ solution where there is no market?

  • http://enigmafoundry.wordpress.com eee_eff

    Well, do they have a choice in that market?

    Is there a robust market of many providers, so we can see if consumers can “vote with their feet”?

    Or do we have just one or 2 ADSL providers, in that market?

    In most areas of Saint Louis there is just one provider of DSL, and just one of cable, quite a few areas get only one (usually cable).

    So is this one of those examples of someone proposing a ‘market based’ solution where there is no market?

  • http://enigmafoundry.wordpress.com/ enigma_foundry

    Well, do they have a choice in that market?

    Is there a robust market of many providers, so we can see if consumers can “vote with their feet”?

    Or do we have just one or 2 ADSL providers, in that market?

    In most areas of Saint Louis there is just one provider of DSL, and just one of cable, quite a few areas get only one (usually cable).

    So is this one of those examples of someone proposing a ‘market based’ solution where there is no market?

  • jl

    I live in a market where Time Warner’s high speed data plan is the only internet service option. There are zero DSL companies that cover the area (2 miles outside of a medium city). I don’t have a choice when Time Warner constantly ups their rates. This solution will never lower prices. Time Warner needs to keep making the same amount of money, so if they charge 95% of ‘low bandwidth’ customer less, I can’t imagine how much more they will charge the other 5%.

  • jl

    I live in a market where Time Warner’s high speed data plan is the only internet service option. There are zero DSL companies that cover the area (2 miles outside of a medium city). I don’t have a choice when Time Warner constantly ups their rates. This solution will never lower prices. Time Warner needs to keep making the same amount of money, so if they charge 95% of ‘low bandwidth’ customer less, I can’t imagine how much more they will charge the other 5%.

  • dst

    The only problem is that you’re assuming that it will allow Time Warner to lower prices to the ‘lower-tier’ users. Unfortunately, given that there’s very little real competition in the ISP space in most areas, I have a feeling they’ll only be increasing costs for the higher tier users, and those using less bandwidth will still be paying the same amount.

  • dst

    The only problem is that you’re assuming that it will allow Time Warner to lower prices to the ‘lower-tier’ users. Unfortunately, given that there’s very little real competition in the ISP space in most areas, I have a feeling they’ll only be increasing costs for the higher tier users, and those using less bandwidth will still be paying the same amount.

  • anonymous

    in the article you said, “but I’m all for experimentation with new business models”. I’m thinking that charging for usage isn’t a new business model. It’s the old business model that makes us hate our cell phone providers. How about this business model: You pay a monthly fee for a certain rate of speed on your internet connection. If you download 24 hours a day or you download 12 emails once a week, you have access to that amount of bandwidth all the time and no more. Internet providers already have adopted the “let’s oversubsribe our lines like airlines overbook their seats” model. I don’t see why adding another negative component to their model (the cell phone usage model) is going to help.

  • anonymous

    in the article you said, “but I’m all for experimentation with new business models”. I’m thinking that charging for usage isn’t a new business model. It’s the old business model that makes us hate our cell phone providers. How about this business model: You pay a monthly fee for a certain rate of speed on your internet connection. If you download 24 hours a day or you download 12 emails once a week, you have access to that amount of bandwidth all the time and no more. Internet providers already have adopted the “let’s oversubsribe our lines like airlines overbook their seats” model. I don’t see why adding another negative component to their model (the cell phone usage model) is going to help.

  • Anonymous

    Great points, all. Hopefully competition WILL enter the market, at which point Darwin’s theory (which I think neatly applies to competitive markets) will take over. Result? Best competitors will provide ever better products to US!

  • Anonymous

    Great points, all. Hopefully competition WILL enter the market, at which point Darwin’s theory (which I think neatly applies to competitive markets) will take over. Result? Best competitors will provide ever better products to US!

  • http://kill-9.hobbiton.org chris

    you think a cable company is going to lower prices?

    are you freaking kidding me?

    cable companies and phone companies RAISE prices. they never lower them. ever.

    the business model is simple:

    1. become a monopoly

    2. over charge

    3. profit

    so, grandma may stop subsidizing your HD movie usage, since you will start paying out the wazoo, but i guarantee you she will not pay a dime less.

    this is simply a measure to push internet video out of business to protect their over priced “video on demand” market, pure and simple.

    once BT, you tube, netflix, and other services jack up your cable bill with shady overage charges, you will be more likely to use their on demand services since you will know the costs upfront.

    it’s the devil you know vs. the devil you don’t.

  • http://kill-9.hobbiton.org chris

    you think a cable company is going to lower prices?

    are you freaking kidding me?

    cable companies and phone companies RAISE prices. they never lower them. ever.

    the business model is simple:

    1. become a monopoly
    2. over charge
    3. profit

    so, grandma may stop subsidizing your HD movie usage, since you will start paying out the wazoo, but i guarantee you she will not pay a dime less.

    this is simply a measure to push internet video out of business to protect their over priced “video on demand” market, pure and simple.

    once BT, you tube, netflix, and other services jack up your cable bill with shady overage charges, you will be more likely to use their on demand services since you will know the costs upfront.

    it’s the devil you know vs. the devil you don’t.

  • Andy B

    “Hopefully competition WILL enter the market”

    Right… hasn’t been a competitive marketplace since Alexander Graham Bell. I wouldn’t bet on it happening soon.

    The only foreseeable competition would be some sort of WiMax-ish or 802.11-based wireless ISPs. There is no business case for putting in parallel wires to people’s houses, so the owners of the lines that are there will always have the upper hand in that space.

  • Andy B

    “Hopefully competition WILL enter the market”

    Right… hasn’t been a competitive marketplace since Alexander Graham Bell. I wouldn’t bet on it happening soon.

    The only foreseeable competition would be some sort of WiMax-ish or 802.11-based wireless ISPs. There is no business case for putting in parallel wires to people’s houses, so the owners of the lines that are there will always have the upper hand in that space.

  • http://www.anaudienceofone.com Fayette

    TWC lowering prices is as likely as a terrorist using rubber nails with there bomb vest, or MS saying the next version of windows fit on a Floppy.

    The whole concept of TW Lowerign prices is laughable.

    Most likely they will say the costs are increasing for every one and the new plan will limmit how much they increase

  • http://www.anaudienceofone.com Fayette

    TWC lowering prices is as likely as a terrorist using rubber nails with there bomb vest, or MS saying the next version of windows fit on a Floppy.

    The whole concept of TW Lowerign prices is laughable.

    Most likely they will say the costs are increasing for every one and the new plan will limmit how much they increase

  • NeverHood

    I don’t think there is anything bad about metered broadband, except when companies sell it as “unlimited”.

    Just because you are allowed to rake up as high a bill as you want doesn’t make it “49.99* unlimited!!!!11″.

  • NeverHood

    I don’t think there is anything bad about metered broadband, except when companies sell it as “unlimited”.

    Just because you are allowed to rake up as high a bill as you want doesn’t make it “49.99* unlimited!!!!11″.

  • steven

    “Or will they embrace metering as potential money-saving business model that helps lower monthly bills for light Net users.”

    I’m not opposed to new models but there are no indications that this is metered service. With metered service people could control their costs by controlling their consumption. Everything we have heard, up to this point, suggests this will simply be flat fee for the vast majority with overage charges for heavy users. This isn’t metered service at all and it imposes the disadvantages of both metered and flat fee on the customers while giving the company the advantages of both. There is no reason to believe that any price decrease, for light users, is going to accompany this.
    It is no more metered service than if the electric companies started charging everyone a minimum of $100 a month for electricity with additional charges for those who use significantly more than average.

  • steven

    “Or will they embrace metering as potential money-saving business model that helps lower monthly bills for light Net users.”

    I’m not opposed to new models but there are no indications that this is metered service. With metered service people could control their costs by controlling their consumption. Everything we have heard, up to this point, suggests this will simply be flat fee for the vast majority with overage charges for heavy users. This isn’t metered service at all and it imposes the disadvantages of both metered and flat fee on the customers while giving the company the advantages of both. There is no reason to believe that any price decrease, for light users, is going to accompany this.
    It is no more metered service than if the electric companies started charging everyone a minimum of $100 a month for electricity with additional charges for those who use significantly more than average.

  • Adam Thierer

    Steven… Actually, what you are describing is exactly what I suggested as a model in a previous essay:

    What I think would be most efficient and pragmatic solution is what economists call a “Ramsey two-part tariff.” A two-part tariff (or price) would involve a flat fee for service up to a certain level and then a per-unit / metered fee over a certain level.

    I don’t know where the demarcation should be in terms of where the flat rate ends and the metering begins; that’s for market experimentation to sort out. But the clear advantage of this solution is that it preserves flat-rate, all-you-can-eat pricing for casual to moderate bandwidth users and only resorts to less popular metering pricing strategies when the usage is “excessive,” however that is defined.

    Yes, this model has been used in other contexts, including electricity and gas. And I believe that most economists believe it has been an effective way of constraining excessive use by some users and keeping prices in check at the lower end of the market. Do you have any evidence to suggest otherwise?

  • Adam Thierer

    Steven… Actually, what you are describing is exactly what I suggested as a model in a previous essay:

    What I think would be most efficient and pragmatic solution is what economists call a “Ramsey two-part tariff.” A two-part tariff (or price) would involve a flat fee for service up to a certain level and then a per-unit / metered fee over a certain level.

    I don’t know where the demarcation should be in terms of where the flat rate ends and the metering begins; that’s for market experimentation to sort out. But the clear advantage of this solution is that it preserves flat-rate, all-you-can-eat pricing for casual to moderate bandwidth users and only resorts to less popular metering pricing strategies when the usage is “excessive,” however that is defined.

    Yes, this model has been used in other contexts, including electricity and gas. And I believe that most economists believe it has been an effective way of constraining excessive use by some users and keeping prices in check at the lower end of the market. Do you have any evidence to suggest otherwise?

  • steven

    “Do you have any evidence to suggest otherwise?”

    No, I certainly don’t. This is a situation where the devil is very much in the details and we run the risk of lumping together significantly different things which likely have significantly different outcomes.

    To go back to electricity. I pay $7.5 a month (for billing costs and so on) and 5 to 8 cents a kwh(depending on time of year). I would consider this true metered service. If I shut down the house I would pay $7.5 a month. If I crank the heat up in winter I might pay $150 a month. Water use is similar. No water use, no cost. Cost related to amount consumed.

    If the company decided to start charging $100 minimum, regardless of use and 20c per khw above 2000kwh a month this might also be classified as a two part tariff but I hope we would agree that it is a drastically different approach and probably would lead to quite different outcomes. Suddenly the vast majority of people no longer have any real control over their costs. If I upgrade the insulation in the house there is no cost benefit. If I reduce consumption by turning back the thermostat in winter or replace appliances with more efficient models, there is no cost benefit. Neither behavioral changes nor infrastructure spending reduces cost(unless I was really squandering energy before) even though it reduces my energy consumption. In fact, as far as I can see I have no incentive to do anything other than waste energy up to the flat fee limit.

    Is this the way markets are supposed to work? Aren’t we disrupting some important signals here?

    The reason I posted was because I like the idea of metered service but I see a lot of people not making distinctions between what seem to be quite different approaches. I think it is a mistake to support this time warner experiment just because one supports metered service.

  • steven

    “Do you have any evidence to suggest otherwise?”

    No, I certainly don’t. This is a situation where the devil is very much in the details and we run the risk of lumping together significantly different things which likely have significantly different outcomes.

    To go back to electricity. I pay $7.5 a month (for billing costs and so on) and 5 to 8 cents a kwh(depending on time of year). I would consider this true metered service. If I shut down the house I would pay $7.5 a month. If I crank the heat up in winter I might pay $150 a month. Water use is similar. No water use, no cost. Cost related to amount consumed.

    If the company decided to start charging $100 minimum, regardless of use and 20c per khw above 2000kwh a month this might also be classified as a two part tariff but I hope we would agree that it is a drastically different approach and probably would lead to quite different outcomes. Suddenly the vast majority of people no longer have any real control over their costs. If I upgrade the insulation in the house there is no cost benefit. If I reduce consumption by turning back the thermostat in winter or replace appliances with more efficient models, there is no cost benefit. Neither behavioral changes nor infrastructure spending reduces cost(unless I was really squandering energy before) even though it reduces my energy consumption. In fact, as far as I can see I have no incentive to do anything other than waste energy up to the flat fee limit.

    Is this the way markets are supposed to work? Aren’t we disrupting some important signals here?

    The reason I posted was because I like the idea of metered service but I see a lot of people not making distinctions between what seem to be quite different approaches. I think it is a mistake to support this time warner experiment just because one supports metered service.

  • H Cook

    I have know issue paying for metered service if light bandwidth users actually see a savings. If the minimum cost is the same as everyone now pays, then this is a new revenue scheme for the service providers. A minimum charge of say $10 plus $? per gigabyte may make some sense. The providers need to measure actual usage and determine a revenue neutral rate. I do not believe that this is what will happen. They always want more $s.

    Also, every commercial they put on TV / radio states how their broadband connection allows fast download of movies, pictures, music, etc. They want to claim how good it is / how cheap their service is – a flat fee. Now when it is used, they complain. Why did they market it this way for years. They should have seen this coming.

  • H Cook

    I have know issue paying for metered service if light bandwidth users actually see a savings. If the minimum cost is the same as everyone now pays, then this is a new revenue scheme for the service providers. A minimum charge of say $10 plus $? per gigabyte may make some sense. The providers need to measure actual usage and determine a revenue neutral rate. I do not believe that this is what will happen. They always want more $s.

    Also, every commercial they put on TV / radio states how their broadband connection allows fast download of movies, pictures, music, etc. They want to claim how good it is / how cheap their service is – a flat fee. Now when it is used, they complain. Why did they market it this way for years. They should have seen this coming.

  • puerterbed

    Seems the answer here is easier than everyone wants to think. Show me on my bill my monthly data throughput. Offer metered service at a rate lower than the current unlimited accounts, and let me make the decision to save money on my own, or even… based on current customer data consumption, cold-call me to offer me a cheaper, metered pagkage that the company feels would serve the customer better.

    TWC has already rolled out several different packages in my area surrounding my current service (the lite and turbo versions of the service). I will just have to start looking at DSL alternatives in my area . I think that TWC can easily hurt themselves here if they dont watch how they go about doing this. Consumers need to empower themselves, and hold TWC accountable when their service is not as fast as advertised.

    All in all… The idea of charging for high useage goes against the high volume marketing ads I see on TV in my area every day… “Always on. Always Ready. Always Fast! RoadRunner.” And the folks in the ads dont seem to be worried about bandwidth useage, nor do the commercials give anyone the feeling they should.

  • puerterbed

    Seems the answer here is easier than everyone wants to think. Show me on my bill my monthly data throughput. Offer metered service at a rate lower than the current unlimited accounts, and let me make the decision to save money on my own, or even… based on current customer data consumption, cold-call me to offer me a cheaper, metered pagkage that the company feels would serve the customer better.

    TWC has already rolled out several different packages in my area surrounding my current service (the lite and turbo versions of the service). I will just have to start looking at DSL alternatives in my area . I think that TWC can easily hurt themselves here if they dont watch how they go about doing this. Consumers need to empower themselves, and hold TWC accountable when their service is not as fast as advertised.

    All in all… The idea of charging for high useage goes against the high volume marketing ads I see on TV in my area every day… “Always on. Always Ready. Always Fast! RoadRunner.” And the folks in the ads dont seem to be worried about bandwidth useage, nor do the commercials give anyone the feeling they should.

  • Keith

    “But I don’t think it’s the only part of the answer. Network expansion requires significant ongoing investment and a steady revenue stream to pay for it. So where is that money going to come from?”

    Let’s see.

    100 million potential customers…
    at 50$ a month…
    that’s 5 billion$ in potential revenue every month from purely internet-based revenue.

    Gee, where ever could that money come from. Yeah, the telecomms are totally destitute, what with all the money we gave them to build infrastructure in the 90′s they’re now charging us to use at cartel-rates.

    Please, this is the most ridiculous crap. They’re blatantly creating a scarce good on purpose. They’ll have zero incentive to create more infrastructure, because doing so devalues their good in the longrun. Come on, econ 101– this is infrastructure, not goods. This shouldn’t be left to a cartel-based free market because, much like roads and bridges, it doesn’t belong there.

    Sad, sad, sad. Shocking they’ve been able to convince as many people as they have that this makes any sense at all.

    If only some towns would take it on themselves to build their own network infrastructure– oh wait, the Telecos made that illegal..

    If only we could build wireless networks and piggy-back off each other to– oh wait, the Telecos are making that illegal.

    Um.
    ..um…

    oh noes.

  • Keith

    “But I don’t think it’s the only part of the answer. Network expansion requires significant ongoing investment and a steady revenue stream to pay for it. So where is that money going to come from?”

    Let’s see.

    100 million potential customers…
    at 50$ a month…
    that’s 5 billion$ in potential revenue every month from purely internet-based revenue.

    Gee, where ever could that money come from. Yeah, the telecomms are totally destitute, what with all the money we gave them to build infrastructure in the 90′s they’re now charging us to use at cartel-rates.

    Please, this is the most ridiculous crap. They’re blatantly creating a scarce good on purpose. They’ll have zero incentive to create more infrastructure, because doing so devalues their good in the longrun. Come on, econ 101– this is infrastructure, not goods. This shouldn’t be left to a cartel-based free market because, much like roads and bridges, it doesn’t belong there.

    Sad, sad, sad. Shocking they’ve been able to convince as many people as they have that this makes any sense at all.

    If only some towns would take it on themselves to build their own network infrastructure– oh wait, the Telecos made that illegal..

    If only we could build wireless networks and piggy-back off each other to– oh wait, the Telecos are making that illegal.

    Um.
    ..um…

    oh noes.

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