As reported by Broadband Reports and now confirmed elsewhere, a Time Warner internal memo indicates Time Warner will pilot a program where it has an explicit bandwidth cap, and users that exceed the cap will pay additional explicit fees — rather like what happens now with your standard cell phone package where you buy a bundle of minutes and then pay for any overages. The pilot will include a website to allow customers to track their usage, moderate their behavior, or buy additional capacity if they wish.
I agree with Dave Isenberg that this is the best way for Time Warner to handle its network capacity constraints and address the supposed 5% of users gobbling 50% of the bandwidth. We can expect some heavy users to move to other networks without caps, but also expect that users that use much less capacity and frustrated by congestion caused by heavy use by others to prefer plans like Time Warner’s because it should produce a less congested pipe overall.
I would be remiss if I failed to note that I was just musing about this the other day, giving me a chance to do another Stephen Colbert I CALLED IT!!! dance.
O.K., shameless gloating over. Analysis below . . . .
As I have stated numerous times in the past, it is far better to be upfront about your network limitation problems than try to lie about them. Yes, it means admitting you built a crappier network than your rivals, but it will keep you from getting investigated by the FCC and will avoid pissing off your customers.
Unlike charging third parties to override user preferences (what I call Whitacre Tiering to avoid confusion with selling different service packages to the customer), this behavior at least links the problem (lack of capacity) with the cure. While it will to some degree encourage operators to ration scarcity, it also includes incentive to increase capacity to keep with up with demand (because users will only pay so much additional for use of capacity above their existing bundle). The cell phone network provides a reasonable example of this dynamic. By contrast, allowing providers to charge third parties to reach users creates a “two-sided” market where network operators have incentive to maintain scarcity and the capacity to capture monopoly/duopoly rents. (See this paper by Economedes and Tag for the proof.)
On the other hand, while I think this beats outright lying about your limitations, it’s not exactly a win-win for folks. As Ben Scott at Free Press observed, this highlights the overall crapiness of U.S. networks compared with other industrialized nations that offer faster, cheaper packages and don’t have to resort to metered pricing to address capacity issues. And while I hope this has a pro-competitive/shaming effect that will continue to spur investment upgrades and fiber to the home, it does allow network providers to forestall upgrades by incenting users to cut back on their own use.
Why is that a problem? Isn’t that more efficient and puts less strain on the network? Sure, but that has ripple impacts across the economy that suck for everyone else. Ecommerce is made possible in no small part because users have unlimited access. I can go online, browse, try stuff out, and stream or download content easily. I can view a teaser clip of a movie before deciding to buy it, or upload my video to Youtube, or watch someone else’s video, without worrying that I’m using “my minutes” (or, in this case, “my capacity”).
Switch to a metered pricing system and that calculus changes. Yes, networks will experience less congestion. But this isn’t like electric power, where conservation has benefits beyond dealing with network capacity. Conserving power has overall benefits for the environment by reducing consumption of fossil fuels and so forth. It also doesn’t have nearly the same ripple impact on the economy. Whether my thermostat is at 65 or 72 does not effect if I try a new service or go shopping for additional goods. By contrast, my willingness to spend time on line has a major impact on my willingness to engage in e-business or try new online services. At flat rate, I browse Ebay as much as I want. At metered, I only go when I am sure I want something. At flat rate, I can subscribe to Yahoo! Radio or similar services. At metered, I have to factor in the additional cost of the connection.
So while I like Time Warner’s approach better than Comcast, I don’t pretend it solves the real problem. I also suspect that the folks who hope to make money off the internet, whether it’s the Ebays and Yahoos and others that rely on users staying online, airlines or banks or others trying to shift certain operations to much cheaper online processes, or even average workers trying to telecommute, will find themselves unhappy. And, as we spiral into a recession caused by the collapse of the housing bubble and the ripple effects of the credit crunch, we really don’t need to see people retreat from their ecommerce activity because metered pricing encourages “more efficient” use.
The real solution, of course, is policies that build out more capacity so that it becomes “too cheap to meter.” I expect a rash of experts will tell me that such a thing is ridiculous, despite the fact that we see it happening in other countries. Of course, the same experts told me on Monday that the idea of moving to metered pricing with user-defined traffic shaping was impractical, so I shall continue to press for solutions that solve the real problem of capacity rather than solve the problem in a way that conforms to the chosen business model of the broadband access providers.
Stay tuned . . . .