But Why Time Warner Cable’s Bandwidth Cap May Be A Good Thing. See How Complicated This Is?

So no sooner do I cast a very suspicious eye over AT&T Wireless’ new scheme to allow ap developers to pay the overage charges for users who exceed their 2 GB monthly cap when I see that Time Warner Cable (TWC) is now offering an “Internet Essentials” plan in some test markets in Texas. Customers who opt into the new 5GB/month metered plan will receive a discount. TWC also includes a meter so customers can monitor their use. Finally, customers in the metered plan can easily pay more to get more access.

While this is just a first reaction based on the TWC description, I have to say this is the kind of “metered usage” program I really like. In fact, this looks like an excellent product offering (albeit not for an ‘power user’ like myself.). I salute TWC for listening to its customers and offering something different and innovative.

So what’s so good about this metered program but I remain suspicious of other “usage based billing plans? I answer below . . .

Here are the things that make the TWC service offering worthy of praise, IMO:

1. Clear value to the customer: This isn’t just an effort to declare scarcity and monetize it. This is a genuinely new product offer that offers a clear value proposition to the customer: use less, pay less. ‘Unlimited’ (subject to any overall bandwidth cap) remains available for the power user or the user who wants freedom to experiment with new applications and services without fear of going over the limit. At the same time, the cost conscious user does not have to sacrifice speed to get a cheaper package. The subscriber that doesn’t stream video but does an occasional conference call on Skype can now get a cheaper package without worrying about call quality.

In other words, this is much more similar to the idea of buying buckets of minutes on wireless and other forms of genuine metered pricing (where consumers see a genuine benefit from using less of the service).

2. Tools to monitor usage: This does not appear to be an effort at bait and switch or to trick customers into overcharges. TWC promises to include a meter that will allow users to track their usage habits. Users that want to save money will be able to monitor their behavior, and users that find themselves going over the limit every now and then can buy more capacity.

3. User Internet experience remains the same: TWC’s lower capacity cap doesn’t change the user’s Internet experience. Wherever you go, whatever ap you run, whatever content you download or service you use, it will work the same for you as it does for anyone else (or, more accurately, TWC will not do anything to change it). The flip side of this is that TWC’s system does not create the competition concerns of AT&T’s “let third parties pay” system, and does not put non-commercial providers at a disadvantage with regard to larger commercial providers able to pay additional fees to access users.

It Adds Up To User Empowerment And Positive Product Differentiation

The end result of these differences is that TWC’s offering is actually a positive form of product differentiation that empowers users rather than exploits them. Until now, users could only buy differentiated packages based on speed. Slower packages were cheaper than faster packages. TWC’s offering provides a new way to differentiate the product, capacity, and let consumers find the right package for their needs. A person who downloads massive software updates or does occasional video conferencing still wants high speed, as does the person who only occasionally uploads or downloads video or who wants to be able to sample services. But that person doesn’t have the same need for overall capacity that another user may have.

The important take away is something that Scott Wallsten and James Riso at Technology Policy Institute  found in this research paper back in 2010. The use of plans with capacity caps can be positive for consumers, if they actually work to reduce prices and encourage differentiated product offerings. As I have said repeatedly, it’s not that usage based billing (or metering, or whatever we want to call it) is intrinsically good or intrinsically bad. But it is subject to abuse, especially in a market with information asymmetry problems and competition problems (such as switching costs). What is critical is that the FCC actually take some steps figure out what is really going on in the market, and how these changes and pricing plans impact our national broadband goals.

Stay tuned . . . .

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