A pilot project set for later this year by the second-largest U.S. cable MSO offers further evidence that the days of an "all-you-can-eat" high-speed Internet service are heading toward extinction.
DSL Reports got its hands on an internal memo outlining plans by Time Warner Cable Inc. (NYSE: TWC) to try out a usage-based billing model for its Road Runner service in Beaumont, Texas, in the first half of the year.
A Time Warner spokesman confirmed that such a project is underway but passed Cable Digital News along to another official who did not return a call prior to publication of this story.
Between peer-to-peer downloads and the increased quantity and quality of streaming TV shows and movies, cable broadband networks can be taxed. Today, a small fraction of customers are the source of this "problem," but that pool of heavy users will certainly grow as more customers tap the Web as source for short- and long-form video, including massive files in bandwidth-gobbling hi-def format.
According to the memo cited by DSL Reports, the consumption-based model will attempt to generate additional revenue from "5 percent of subscribers who utilize over half of the total network bandwidth."
The trial, which apparently will put some new customers on the metered billing plan, could turn into a national offering if successful. The memo further indicates that customers who are part of the trial will be able to track consumption via the Web and, if needed, upgrade to a higher tier.
That some MSOs are considering consumption-based services is not a surprise. Rogers Communications Inc. (NYSE: RG; Toronto: RCI) of Canada is already applying a cap of about 90 gigabytes to its 18-Mbit/s speed tier.
Others have already argued that the current, flat-rate HSD model is not sustainable as Internet traffic grows 50 percent a year and the consumption of video over the Internet goes through the roof. That effect will become even more pronounced should services such as Hulu, Joost , the reshaped Apple Inc. (Nasdaq: AAPL) TV, and the new "unlimited" movie offering from Netflix Inc. gain in popularity. (See Apple TV: A New Channel for Movies.)
And even Time Warner Cable's coming trial has gained the attention of pressure groups.
In a statement issued Thursday afternoon, Ben Scott, policy director of Free Press, called TWC's metered approach "better" than impacting apps such as BitTorrent. "At least customers will know what they're getting into," he said.
"But," Scott warns, "metered prices may chill innovation in cutting-edge applications because consumers will have a disincentive to use them."
Scott suggests that a move toward metered pricing for broadband represents a "symptom of the deeper problems in our communications infrastructure."
Most MSOs have not outlined their deployment plans for Docsis 3.0, a new platform that promises shared speeds in excess of 100 Mbit/s, but Comcast has said it plans to have a Docsis 3.0 infrastructure in place in 20 percent of its footprint by year's end. Its PowerBoost system aims to provide faster bursts when there's latent capacity on the network. (See Comcast Closes In on 100 Mbit/s.)
It seems like the incumbents are missing out on an opportunity to capitalize on a content centric, service offering. Who really cares what the peak, sustained, constant, etc. bit rate is, if the app works well. Its only important if that's what your selling. With FTTx technology, they could package combinations of peak/sustained, with QoS and reliability to offer customized packages from low end web browsing to high end gaming and video conferencing. Edge aggregators manage the SLA's and concentrate the traffic. Maybe I've overestimated the dinosaur's ability to change direction, but the technology's there.
OZIP, one needn't look too far for the working example. The Power company.
The volume and speed are the analogs of kWh (energy usage) and kW (peak power usage, based on the line capacity). There are various pricing models and since the last mile is regulated, the itemization is clearly defined for the consumers. The reason this is not implemented is mainly the requirement to tie in things with "vertical integration". This is something that the great Rockefeller figured out 150 years back.
In a free market with competition, vertical integration reduces costs and improves efficieny. But in a monopolistic market, it has the effect of keeping the monopoly. Economics 101.
The ISPs at the very minimum should define the max bit rate and guarantee an average throughput rate which translates into volume data. The delay is much more difficult and comes under QoS but, the first two should be very easy to define based on the layout of infrastructure.
We need to stop making excuses for these monopolists.
OZ great post, but I would add one other measure of quality - Availability.
This has been improved over the last decade with fiber and smaller electronics (less power), but it will re-appear as a customer complaint as more conjestion appears and customers don't get instant 'response time' gratification by amplification of small network hits.
Be it right or wrong, the market is trained to equate quality with speed. An unfortunate turn of events because it has limited the ability for operators (in the USA) to offer a broader array of services that offer the consumer with a choice of speed (response time) and transfered volume. This has structured the market in an unnatural way where customers are not being charged for the service they use but for the service everyone uses. Many have taken advantage of this buy getting consumer broadband services for business applications. (Where the defination of business applications if the requirement for long periods of sustained throughput) My company is one of those companies who benefits from this market discontinuity and uses consumer broadband (cable) as our primary highspeed data service instead of more expense alternatives.
Most of the people who react to usage caps equate volume with quality (not to say they dont care about response time) and therefore they will probably be impacted. (that may well include me!) However, there is a larger group of consumers who equate response time with quality.
As consumers, we will all need to learn about the new choices we need to make regarding speed/volume. Choice is always a good thing and the market will decide what sustainable pricing is. In the medium term the option jumping between providers to avoid caps will go away. Just ask those users who have jumped from cable to DSL because they have been threatened with termination for high use, only to be bounced from DSL and re-appear back on cable.
The providers who win this next round will need to understand how their customers use their service and their costs so they can get their service tier right, but more importantly will need to be able to clearly explain/educate their customers regarding the services they deliver.
Assume a separate provider carrying bits from last mile to the ISP and assume for simplicity that the ISP is co-located with the central office.
We have two services here, one is last mile, and the other is the ISP. Take the example of a POTS 64kbps phone line. It is been paid for many times over by the taxpayers and the only cost is the operational cost and a small profit of the twisted pair (itemize it). Note that the twisted pair can operate for 24hrs non-stop.
Now the limitation may be set by the ISP whose routers cannot process the heavy load of bits because they are way over subscribed. If this happens to be the case, then the ISP SHOULD itemize the cost and have it on the books for clear review.
The way business is done right now is to obfuscate things so that nobody knows the itemized costs. They thrive on this.
This separation has been achieved in the power sector. The power distribution company (what we generically refer to as the power company) is like the last mile access and the generation company is the equivalent of ISP processing the request for power. The distribution company does not say that the consumer cannot use the line for 24hrs. After all the consumer is paying for this very service, namely connectivity to the power generator. If there is a blackout/brownout it occurs at the generation level.
Bottomline, if the ISPs cannot handle the traffic and they are misrepresenting and hiding the true cost of bit routing, then they should say so and increase the price appropriately and let the free markets and competition take its course. If it is not true, free markets and competition will eat their lunch. The ISPs will compete and they will focus on their core competency of routing bits.
What the incumbents (ILECS and MSOs) are trying to do is to prevent the ISPs from having access to the last mile. This prevents the ISPs from having a fair and free market by restricting competition.
Time Warner is just the first one, rest assured that the rest will follow. Time Warner urgently needs to curtail the download model Neflix, HBO, iPod, because they do realize that consumer actually prefers the a la carte model. Imagine their nightmare, people just paying $50 a month for access to internet (which is what I do!)
fj is right that there is more than access costs and they are significant. So there may have to be cost for 24 hr transmissions. (cell phone model cost per G/m) But rj is right in that I too get very frustrated by the deceptive marketing that makes the customer assumption of unlimited use with very hidden disclaimers or 'right to change' without notice. But they count on most customers not noticing.
If they advertise different service levels maybe the customers will become aware.
On cable, the last mile upstream may be the problem; downstream is usually much larger. On DSL, the loop isn't the bottleneck but the DSLAM has a shared link to the rest of the world. So the net effect is similar. But in both cases, the middle mile is a huge cost for rural and remote-town providers. Look up the Special Access tariffs (DS3 usually around $250/mile/month) to see, noting that higher speeds are no longer even tariffed (the tariffs are void), and it's all negotiated. If the ILEC has a monopoly on the route, which often applies, it's a tight squeeze on anyone who competes with them.
FG, most routers and switches are designed based on throughput and peak capacity. Throughput is expected to be much lower than the peak capacity due to statistical muxing of the ports.
As regards the pricing of various lines, it is the last mile (access) which is the bottleneck and notice that the monopolies use their pricing power to get what they want .... there is no excuse why a port should not be running 24 hrs a day for access.
Keeping the consumers confused with false marketing is what gets my goat. In a "free" market a last mile provider non-monopolist should be able to price things as he wishes. The consumers are free to take it or leave it. There is no need for misrepresentation.
There is no standard agreed upon definition of broadband. Maybe someone out there knows if there is anything defined by FCC.
If one is charging by bit, then the numbers are as mentioned. If one is charging by peak capacity and not aggregate throughput, then it should be so defined. Apples to apples comparison is what is required to avoid misrepresentation and confusion.
One thing is quite clear though ... if you want to download media, you are better off having two pots lines and running them 24 hrs to get your download.
-RJS
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