Time Warner Cable, the second-largest U.S. cable operator, has initiated a modem lease fee of $3.95 per month that will be applied across its footprint over the next month or two, a company spokesman confirmed. Customers can avoid the fee by purchasing supported modem models at retail.
About 275,000 broadband customers who have signed on since the start of the year are already paying the new fee, according to Investor's Business Daily.
ISI Group Inc. analyst Vijay Jayant estimates in a research note that 90 percent of TW Cable's 10.77 million existing cable modem subs will be affected by the new fee, which isn't being applied to customers who take some of the MSO's lower-end tiers and premium service packages. Jayant's estimates also assume that 10 percent of TW Cable's customers already own their modems, and that 15 percent will do the same once the new plan takes hold.
It represents a big change in policy for TW Cable, which generally has not been charging for the equipment, but the operator says it's too early to determine how customers will react. "We do not have any information regarding how many customers will choose to continue leasing our Modems vs. purchasing their own Modem from a third party retailer," a spokesman said, in a statement.
Customers who opt for the new leasing fee will end up paying an extra $47.40 over a 12-month period. Among some Motorola Mobility modems presently available for purchase at BestBuy.com, a stand-alone Docsis 2.0 modem sells for $59.99, a 3.0 version sells for $99.99; and a Docsis 3.0 wireless gateway with 802.11n on board fetches $149.99.
Why this matters
U.S. cable operators continue to be strong in the broadband category as video subscriber losses mount, but the introduction of modem fees will enable them to bump their average revenue per unit (ARPU) in the category by implementing what could be considered a form of a rate increase. And it's a growing trend for operators that already charge leasing fees for set-top boxes. Cox Communications Inc. and Comcast Corp. (Nasdaq: CMCSA, CMCSK), for example, already charge as much as $7 per month for modem leases, according to Jayant.
TW Cable's ARPU for high-speed data was $39.12 in the second quarter of 2012, up from $38.26 in the year-ago quarter. The operator added 59,000 new cable modem subs in the second quarter.
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— Jeff Baumgartner, Site Editor, Light Reading Cable