Whether you agree or disagree with recent moves by U.S. cable operators toward consumption-based Internet business models, it's becoming clear the genie is out of the bottle.
BendBroadband , a smaller operator in Oregon, has introduced a usage allowance of 100 gigabytes per month, charging $1.50 per gigabyte beyond that limit. Insight Communications Co. Inc. , meanwhile, has no current plans to deploy a usage-based model but has left the door open, according to a recent blog entry by Insight's CEO, Michael Wilner.
But if you're wondering which North American cable operator is leading the way, look no further than Canada's largest MSO, Rogers Communications Inc. (NYSE: RG; Toronto: RCI). As other operators develop models of their own, it's likely that they'll study the Rogers model closely and even steal an idea or two.
Rogers, which has about 1.5 million cable modem subs, initially launched an "additional use" policy (a cap of 90 gigabytes, and $1.25 per gigabyte after that) more than a year ago for its high-end, 18-Mbit/s Extreme Plus tier.
In July, following a three-month grace period, the MSO will begin enforcing a new consumption-based model across its entire high-speed Internet customer base, with different data volume caps and charges for its various Internet access packages. That new model includes a small rise in the usage limit for the MSO's Extreme Plus users, who will be able to consume 95 gigabytes of data as part of their monthly subscription package.
Although Rogers will charge its broadband users for any bandwidth consumed beyond their allotted threshold, the operator has built in a $25-per-month limit for additional payments.
"We are moving quickly from one tier and from a concept to full implementation across the entire base," says Phil Hartling, the MSO's consumer market VP. "It's a natural evolution of the [service] category, and one that treats customers fairly. It's a critical step for ISPs."
The table below outlines the new Rogers policy and how it stacks up for most of its customers.
Table 1: 'Additional use' rates for live billing*
Tier
Allowance
GB Rate
Ceiling
Extreme Plus
95 GB
$1.25
$25.00
Extreme
95 GB
$1.50
$25.00
Express
60 GB
$2.00
$25.00
Lite
25 GB
$2.50
$25.00
Grandfathered** Lite
60 GB
$2.50
Unlimited
Ultra Lite
2 GB
$5.00
$25.00
Grandfathered** Ultra Lite
60 GB
$5.00
Unlimited
* Starting July 3, 2008
**Customer qualifies if signed on prior to Jan. 14, 2008
Source: Rogers Communications
Customers who signed up for the operator's "Lite" or "Ultra Lite" cable modem service tiers before January 14, 2008, are "grandfathered" into the MSO's initial consumption levels. That means that they are given a higher threshold than those who have signed up since January 14. Those "grandfathered" customers will have a larger allowance, but won't get the benefit of the $25 ceiling.
re: "I was not big into cell phones in the late 90s, but I remember it was incredibly expensive to get plans with a reasonable amount of minutes and then it was painfully expensive when you went over. And back then no one thought they would displace a POTS line to the home. Take a look at what competition has done today."
Well, this analysis is very poor and the claim that competition has driven mobile prices lower is completely wrong. What caused mobile prices to decrease is that providers are motivated to maximize their profits. In a cellular network the marginal cost vs. marginal revenues drives the decision making and not competition.
http://en.wikipedia.org/wiki/Profit_maximization
For each unit sold, marginal profit equals marginal revenue minus marginal cost. Then, if marginal revenue is greater than marginal cost, marginal profit is positive, and if marginal revenue is less than marginal cost, marginal profit is negative. When marginal revenue equals marginal cost, marginal profit is zero. Since total profit increases when marginal profit is positive and total profit decreases when marginal profit is negative, it must reach a maximum where marginal profit is zero - or where marginal cost equals marginal revenue.
Since the marginal costs to add a new subscriber is very small and marginal revenue significantly larger (and the early adopters paid for the build out) the perceived price decreases were not related to competition in anyway but rather to the economics described above. It's also what has driven consolidation of the industry. (Note: competition drives profits to zero which hasn't been the case at all.)
I was not big into cell phones in the late 90s, but I remember it was incredibly expensive to get plans with a reasonable amount of minutes and then it was painfully expensive when you went over. And back then no one thought they would displace a POTS line to the home. Take a look at what competition has done today. Operators are offering more minutes for less, roll over minutes, and now the first unlimited minutes plans are coming out. A lot of people no longer have a POTS line at the house, or it was an after thought in some package deal. Back to my Yahoo analogy, I remember when it was 10M storage limit for about 6 years when suddenly GMAIL trials came along with a much higher limit. Even while it was in limited user beta trials, Yahoo started raising their limits to stay competitive, and now it is 1G plus. Same thing will happen with these caps. The $/G cap will become a differentiator and with mobile operators trying to get a piece of the pie, it will force network upgrades and cap increases.
I know this goes against the grain, but I would rather have a slower speed connection and no cap versus a higher speed and a cap. I supposedly have a 6M download speed, but I am lucky if I hit a 1/2M now because something in the middle or at the far end (such as a "free" slow download vs. paid download service) throttles the connection. Providers need to get away from this nickel and dime airline model and price the service accordingly.
And RJ, as far as illegal downloads go, they are not going to stop. If anything, people will start trying to work out ways of defeating the monitoring software. No matter how hard you try to protect something, there will always be a few people who will attempt (and probably succeed) in defeating that protection just for the bragging rights. It is an endless cycle that will not change. Just ask Microsoft.
Comrades, Not sure how mobile data is marketed in the US, but one of the more popular services in the UK is from Vodafone, and they're very clear that there are download limits. Specifically it's 3GB per month for 15 pounds, and 5GB for 25 pounds.
I use this service when I'm on the road and it's pretty good. 3G access is common in the major cities around Europe, so I get 3Mbps or even 7Mbps. This is fine for email and "normal" web browsing.
>It is odd Internet providers are going in the opposite direction of mobile operators...
Are they? Mobile guys look like they might end up with caps too:
"...several operators have now capped usage at 5 GBytes a month. Why? Because the “tail” of the subscriber load ...is now in the tens of gigabytes a month for some users, or, for more wacky users, even north of 50 GB a month."
re: "One last question: how long before TWC starts losing customers to the local Baby Bell who does not currently have a cap?"
If the customers that are defecting are free loaders and intellectual property thieves maybe it's not a big loss to a media conglomerate? Baby Bells will effectively be out of the media distribution business unless they can guarantee things like broadcasting rights. It's really not much different than the evolution of over the air radio and TV where, at the end of the day, rights were enforced and only then did a viable business model find it's equilibrium.
We've had caps for quite some time in Canada. Bell was the only one holding out, but that was mainly because they had slow DSL lines and needed a differentiator, but even at 1-3Mb/s they started to feel the pain of 24/7 transfer. They have moved to a capped model recently.
Reality is that it's inevitable. For those holding out hope that the cellular providers are coming to your rescue, consider that they use the fixed networks for their backhaul, so it will not get any cheaper than 1.50/GB anytime soon. Those wireless unlimited plans, mostly come with some 'reasonable limit' which in the case of Vodafone's 7.2 Mb/s service is 5GB/month.
Sprint has an unlimited plan and yes they have a few subscribers that are costing them thousands dollars / month in back haul costs. You can expect that to change in line with the other cellular providers and 5GB seems to be the number which is significantly less than the ~100GB you get with your fixed subscription. http://www.intomobile.com/2008/01/11/att-to-limit-unlimited-data-plans-to-5gb-a-month.html
and for those south of the border wondering what it is like to be a subscriber of Rogers, a quick browse here should incite the right 'feelings'... http://wirelessnorth.ca/2008/06/05/data-pricing-from-rogers-actually-gets-worse/
How upset are customers really going to get? 99% of them are not going to hit their caps. I think it will hit those MSOs when signing up new subscribers who have the choice between a simple plan and one that's a little difficult to understand (I couldn't tell you how much I download in a billing period)
I don't see mobile providers' behavior to be a good indication of what an MSO should do. Mobile providers don't have the same network issues -- telephony bandwidth is well understood and well constrained [1 phone will never use more than 1 DS0 of voice bandwidth], and a cell phone is hardly a reasonable platform to download a hi-def netflix video to. Also, very few consumers consider mobile internet to be a viable alternative to a broadband landline.
I think upload limits are probably more helpful than download limits for a cable shop, due to the way those networks run, but I disagree with the UPS analogy -- the internet is essentially a system where the end user pulls data from network servers. Since end user nodes can get assigned floating domain names, a server push model is not very practical.
you bring up a good point, wireless providers have been improving there networks, and if they continue to do so they could offer an unlimited plan and pull customers away from the big MSOs.
if the current big providers do not watch there step they could end up alienating there customers; and that is never a good thing for a business.....
It is odd Internet providers are going in the opposite direction of mobile operators (and for that matter email providers like Yahoo, MSN and Google). While the mobile operators are busy trying to provide you more minutes/data access, ISPs are trying to cap it. How long are these caps really going to last? If people can turn to mobile networks for unlimited data transfer, don't you think the local Baby Bell and the local cable provider will have to react to avoid losing customers?
One last question: how long before TWC starts losing customers to the local Baby Bell who does not currently have a cap?
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