We hop on-line now with a carefree attitude enjoying the world-wide-web. Our usage may soon be curbed with talk of Internet-use pricing that will cap your use under the proposed plan.
Apparently several companies are running tests in various markets and I found the following about Time Warner’s attempt in the Rochester, New York area (see below). They aren’t alone, with Comcast and AT&T thinking of similar plans. Apparently for them it’s not economic to continue the unlimited Internet plans because of the high costs behind developing and maintaining the infrastructure required to meet the needs of customers. Hey, I hear the argument but it’s been unlimited for as long as I can remember.
Changing the rules after so many years of unlimited service sounds like an unfair rule change. It’s like playing three quarters of basketball and in the forth quarter you suddenly learn that the other team will now get five points per basket, while you’ll only receive one point per basket. Really?! Can you just claim that the costs are too high and then start to impose new fees? (SIDE BAR: In tough economic times it seems like various companies are changing their terms of service. Kodak recently announced that their online photo gallery will now come with a minimum order per year in order to protect photos from being deleted from their site.)
It doesn’t seem fair. The new fees will definitely start causing folks to be more conscious about how much bandwidth they are using or seek alternative service providers. This may end up hurting companies like Time Warner more.
Apparently the Time Warner test will look at customer reaction as one of the determining factors on whether they will expand the program in their other service areas. Other Internet service providers are also paying close attention to those results. I can tell you right now that the plan sucks without doing any research.
This piece appeared in Rochester New York’s Democrat and Chronicle.
Time Warner not alone in Internet-use pricing
By Kate Perry
Time Warner Cable Inc.'s decision to ditch a flat monthly fee for Rochester-area Internet subscribers and replace it with usage-based pricing may be a forerunner of a historic change in the way Internet service providers do business.
AT&T Inc. also is testing usage-based pricing in two markets, and Comcast Corp., another big provider, is considering alternatives to the flat-rate/unlimited-usage model that has been the industry norm.
Despite the moves, industry experts don't foresee all Internet providers adopting a consumption-based model, even though it could be more profitable. They say competition and customer reaction will be factors in determining which companies change the way they charge.
Time Warner Cable's new system, which is to take effect in September, will force big gigabyte consumers to pay more, and all customers who exceed the gigabyte limit for the plan in which they're enrolled will pay a $1-per-gig overage charge.
With the advent and growing popularity of video-heavy sites such as Netflix.com, YouTube.com, Hulu.com, online gaming systems and file sharing networks, Internet service providers have seen a spike in usage, and they're all struggling with the best way to manage the increase in traffic and data consumption, said Dave McClure, president and chief executive of the U.S. Internet Industry Association.
His organization primarily advocates for better, faster and cheaper Internet service, but McClure said the flat-rate fee isn't working as well for the industry as it did in the days of dial-up service. Back then, so-called all-you-can-eat plans worked, and no one dreamed of consuming bandwidth the way we do in 2009.
Now, service providers are required to invest more in system upgrades to keep up with customers' demands.
"Everyone is watching the (Time Warner Cable) model very carefully to see what the level of consumer acceptance will be," McClure said. "We won't know whether this model will work or not, or whether the company will adopt it (nationwide).
"We just know we need to find a more acceptable model."
Role of competition
If customers stick with Time Warner Cable in the markets where the company either has changed its billing method or plans to - Rochester, three Texas cities and one in North Carolina - other providers could be emboldened to try it. If subscribers flee, the switch to usage-based pricing might be short-circuited. Mark Cooper, director of research for the Consumer Federation of America, said competition also will play a role. Time Warner Cable, he asserted, is introducing usage-based pricing in communities such as Rochester where it is the dominant high-speed Internet provider. Knowing the policy will irritate customers, companies won't try it in cities where there is an easy alternative, he said.
Time Warner Cable spokesman Alex Dudley said the trial cities were chosen because they represent a diverse collection of customers.
Like McClure, Cooper said consumer reaction will be a key in determining whether the new pricing model becomes the new norm. If this does mark a sea change for the industry, it will be a slow one.
"Time Warner has been dribbling it out, and there is a good reason for that," Cooper said.
In Rochester, the reaction last week when Time Warner Cable's plan was disclosed was marked by anger and suspicion among many consumers.
Some resented the idea of having to monitor their Internet use the way they do their cell phone minutes, while others worried that online pastimes such as watching movies and playing video games - or even their business and academic pursuits - could put a serious dent in their budgets.
Some accused the New York City-based company of greed, but Time Warner Cable said it simply is looking for a way to fairly bill customers who are gobbling up huge portions of bandwidth. The company's new plan calls for five tiers of usage, ranging from $29.99 a month for a 5-gigabyte cap to $54.90 for a 40-GB cap and an as-yet-undetermined fee for 100 gigabytes.
Similar move
AT&T, which offers only wireless Internet access in Rochester, is testing consumer reaction to a similarly tiered plan in Reno, Nev., and Beaumont, Texas, the latter also a Time Warner Cable test site. AT&T is looking for a more equitable way to bill customers whose usages vary widely, said Kate MacKinnon, a spokeswoman for the Dallas-based company.
Philadelphia-based Comcast said it continuously explores pricing options, including a consumption-based plan. But another industry giant, Verizon Communications Inc., said it has no plans to move to such pricing. Neither offers Internet service in Rochester.
Frontier Communications Corp., which does provide Internet service to the Rochester market, also said it has no plans to institute a new pricing model.
Frontier monitors customer usage and, like Time Warner Cable and AT&T, has a small portion of users consuming large portions of bandwidth. Last year Frontier clarified language in its usage policy to state that 5 gigabytes is "acceptable use" for a standard residential Internet package. However, the company doesn't charge any overages if a customer exceeds 5 gigabytes.
Ann Burr, chairman and general manager of Frontier in Rochester, said that customers are looking for value, especially in the current economic climate, so Frontier won't be considering any usage-based plans. However, she said she understands why other companies are trying it.
"We invest more than $30 million a year in our infrastructure in Rochester to keep pace with user demands and this growth in broadband consumption," Burr said.
Cooper, the consumer watchdog, isn't convinced that it's about infrastructure. He said the pricing switch is about Time Warner Cable flexing its market muscle to reap higher profits. But McClure, from the industry organization, said that's a low blow. "It's very easy for some policy wonk at a consumer organization to say they should just give (Internet away) for free," McClure said. "They don't have to keep the lights on. Our members do."
