Time Warner Cable & Usage-Based Pricing, Take Two

by on February 28, 2012 · 0 comments

Time Warner Cable (TWC) has announced it will once again attempt an experiment with usage-based pricing (UBP) for its broadband services. (News coverage here, here, and here.) The company gave UBP a shot a few years ago and some consumers, regulatory advocates, and lawmakers howled in protest. The radical activist group Free Press called for immediate policy action and former Rep. Eric Massa’s (D-NY) was happy to oblige with his proposed “Broadband Internet Fairness Act,” which would have let the FCC decide whether such pricing plans were permissible.

For their latest UBP experiment, TWC goes out of its way to avoid controversy, primarily by making it clear the plan is entirely optional. Here’s what their consumers are offered as part of what is being labelled it’s “Value Edition” plan:

  • Up to 5GB/month of data transmission for a $5/month discount from one’s current monthly bill. All Standard, Basic and Lite broadband customers will be eligible. Turbo, Extreme and Wideband customers will continue as always, with access to unlimited broadband and no optional tiered plan or discounts.
  • The ability to opt-in and opt-out of a tiered package at any time.
  • A “meter” that tracks usage on a daily, monthly, weekly or even hourly basis, enabling customers to accurately gauge usage. Below is an example of the hourly meter:
  • A 60 day/2 billing-cycle grace period to allow customers to adjust usage patterns. During this time we will notify customers of overages but won’t charge for them.
  • Overages will cost $1 per GB, not to exceed a maximum of $25/month.

It’s hard to see how anyone could be against this and I was pleased to see that Harold Feld of Public Knowledge didn’t automatically dismiss it and, in fact, had some rather favorable things to say about it. Nonetheless, as UBP schemes begin to multiply — and they will — we can expect some of the same old concerns and criticisms to surface. Many folks hate the sound of differential pricing / price discrimination, believing it to be annoying at best or unfair at worst. But price discrimination and UBP techniques are all around us in the real world.

The important thing to keep in mind here is that pricing experimentation is good, not only because it can save consumers money and more fairly allocate costs, but because it helps pay for future investments and innovations in high fixed cost / low marginal cost industries like broadband. I won’t go into all the details about why I’m particularly fond of a “Ramsey pricing” (a two-part charge that would involve a flat fee for service up to a certain level and then a per-unit or metered fee over a certain level of use) approach because I’ve said it all here before. See:

While I think some variant of UBP makes a great deal of sense for broadband (whether its wired or wireless), I believe it is essential that public policy remains agnostic regarding which pricing techniques are optimal and instead lets ongoing marketplace experimentation figure that out for us. It may be that different companies devise different pricing schemes in an attempt to differentiate themselves from competitors or potential new entrants. Let the experiments continue! I look forward to watching the Time Warner Cable experiment and others like it.

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Adam Thierer

Adam Thierer / Senior Fellow in Technology & Innovation at the R Street Institute in Washington, DC. Formerly a senior research fellow at the Mercatus Center at George Mason University, President of the Progress & Freedom Foundation, Director of Telecommunications Studies at the Cato Institute, and a Fellow in Economic Policy at the Heritage Foundation.

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