Time Warner Cable Wants to Introduce Two-Tiered Internet Pricing

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Ed. Note: Time Warner Cable cannot put off investing in 21st Century business strategies — such as improving broadband deployment — if they want to remain comeptitive in the Austin market for years to come. Raising the price of internet access for Austin consumers is a band-aid solution to a complex problem — and it is one we cannot and will not support in its current form. However, there are some very plausible alternatives Time Warner Cable and the City of Austin can pursue moving forward that are better aligned with the city's economic, strategic, and cultural purpose.

I'm encouraged by the early response from both the Lee Leffingwell and Brewster McCracken campaigns, and hope to continue a smart, responsible conversation on the issue going forward. Austin has the opportunity to lead the way on this issue for all of Texas. In two years the Public Utility Commission will be up for sunset review, and the question of how to invest in broadband deployment will take center stage at the Texas Capitol. Now is the time for a smart and responsible dialogue that can generate big-vision strategies for our future. We cannot wait for two years — Austin can lead today.

Over the coming days, I will be facilitating a discussion about better possibilities for broadband deployment in Central Texas. We in the Burnt Orange Report community invite all voices — from Time Warner Cable, consumer advocacy groups, private sector businesses, and University academics — to participate in the conversation, because this is an issue that can significantly change the very purpose of our community — both offline and online — for decades to come.

On Tuesday, March 31, Business Week reported that Time Warner Cable is going to expand their internet usage pricing into the Austin and San Antonio areas. From the Business Week article:

In a strategy that's likely to rankle consumers but be copied by competitors, Time Warner Cable (TWC) is pressing ahead with a plan to charge Internet customers based on how much Web data they consume. Starting next month, the company will introduce tiered pricing in several markets. […]

Time Warner Cable had been testing a plan to meter Internet usage in Beaumont, Tex., since last year. By charging a premium to the heaviest broadband users, much the same way cell-phone providers collect fees from subscribers who exceed their allotted minutes, Time Warner would upend a longstanding pricing strategy among Internet service providers.

The Austin-American Statesman followed up with the story today:

Under the plan, customers will be charged on a tiered system based on the speed of their connection and how much they download. The tiers would start at 5 gigabytes a month and top out with a “super-tier” of 100 gigabytes per month. Customers will be asked to pay between $29.95 to $54.90 for up to 40 gigabytes, Dudley said. The $29.95 price would be lower than most Central Texas customers currently pay for the service.

The company says it has not yet figured out what it will charge for the “super-tier.”

Omar Gallaga — my new favorite reporter —  had a lot more details up yesterday, based on “conversations he had with Alex Dudley, vice president of public relations for Time Warner Cable.” From his post on Austin 360, TWC/Road Runner tiered Internet pricing coming to Austin/San Antonio:

  • No plans for rollover bandwidth from month to month. Use it or lose it.
  • “86 percent of our customers at least have nothing to worry about,” Dudley said, “That’s the percentage of customers that will be left unaffected by the trial.” I asked if that’s in comparison to Beaumont and whether that’s a very different market. He replied, “Internet usage is a lot like television viewing. It doesn’t vary from geographic area to geographic area.”
  • While this will affect customers in real dollars in San Antonio/Austin, this is still considered a trial in terms of whether it will continue to other TWC markets.
  • The three-month grace period will begin in early summer.
  • A gas-gauge-like Internet usage monitor will be on the TWC Web site. Customers will also get info on their usage in their monthly bills.
  • The 100-Gigagyte “super-tier” will be “significantly more expensive” than the $55/40 GB a month tier mentioned in the BusinessWeek article. However, “We haven’t settled on a price yet,” he said.
  • I’m waiting to hear back about customers under contract and how this will affect their terms. [Ed. note: Gallaga later reported that Time Warner Cable had not yet decided if customers can opt-out of their contracts when this change occurs].
  • Dudley cited bandwidth-hogging things like HD video and BitTorrent as reasons for the change. “It’s not about trying to limit anyone from doing anything. It’s trying to provide a business model that allows them to do what they want to do for the foreseeable future,” he said. [Emhasis added]
  • Final thoughts from Dudley: “We know we’re going to learn a lot in this trial. We will listen to feedback from our customers. We’ll make decisions based on what we learned.”

On the whole, I understand the challenge Dudley is articulating in the second to last bullet — that they are concerned about downloading. But that concern is a fundamental misconception of not only how data is transferred across servers, but of the exponential value of the power of the internet to increase the social network. Jacqui Cheng — writing for the esteemable site, Ars Technica — explains in an article titled, “Shooting yourself in the foot: Time Warner's usage caps”:

Instead of developing plans designed to discourage consumers from feeding at the bandwidth trough, cable companies would be better served in the long run by making investments in new technologies like DOCSIS 3.0 and the kind of infrastructure improvements necessary to meet bandwidth demands. Those kinds of expenditures can be unpopular with shareholders unwilling to see earnings suffer in the short term so that a company can better position themselves to compete in the long term. But it's a better alternative to positioning your company as the Dollar Store of broadband providers.

We'll have a more specific discussion about the possibilities for broadband deployment in the coming days. In the mean time, we encourage our readers to follow up on the resources below, become informed, and help us sustain a dialogue that helps Austin's business and consumer needs.

Resource: “Time Warner: Dominate the bandwidth? It'll cost more” (Statesman)
Resource: “TWC/Road Runner tiered Internet pricing coming to Austin/San Antonio (Austin 360)
: “Time Warner Cable Expands Internet Usage Pricing” (Business Week)
: “Japanese telco institutes upload caps… of 30GB… daily” (ars technica)
Resource: “Shooting yourself in the foot: Time Warner's usage caps” (ars technica)
Resource: “Why Tiered Broadband Is the Enemy of Innovation” (gigaom)

Lee Leffingwell released the following statement earlier today:

According to new reports today, Time Warner Cable is introducing a new pricing structure for Austin-area Internet users.  Under the new plan, consumers would be placed on a tiered and metered billing system, and charged for the amount of bandwidth they use.

This approach, and Time Warner’s specific plan, should be of grave concern to Austin.  Right now we need to be encouraging, rather than stifling, economic recovery and growth in Austin.  This plan moves us in the wrong direction.  It potentially puts Austin at a disadvantage as we compete against other communities to attract, retain, and grow prosperous businesses.

I’m obviously concerned about the impact this plan would have on individuals and families, who would have to begin to monitor their Internet use.  The new pricing system would have a significant impact on anybody who uses the Internet to watch videos, download music, movies, or television shows.

But I’m deeply concerned about the impact of the plan on business owners, especially those working in creative industries that require regular access to broadband Internet service.  Introducing an economic disincentive for Austin businesses to use the Internet to communicate, collaborate, innovate, and deliver services is very worrisome at best, and catastrophic at worst.

If Time Warner believes that is has no choice but to introduce usage caps, I would call on them to propose caps that are realistic and reasonable.  The usage caps proposed in their new plan are neither realistic nor reasonable.

For example, if a consumer downloads Season 1 of “Friday Night Lights” in high definition from iTunes, they will have used 30.86 gigabytes of transfer.  This one purchase would put that consumer over the limit of all but the most expensive tier that Time Warner is offering under the new plan.  It’s easy to see how the costs associated with the ongoing, high volumes of Internet use that many businesses require be could be astronomical.

Internet access should be expanded, not constrained.  Innovation and creativity should be unleashed by the Internet, not shackled by draconian usage caps.  This is vital to Austin’s economic recovery.  I hope that Time Warner will work with City officials and the community at large to reconsider this bad plan. 

UPDATE: Brewster McCracken has issued a statement as well. 

I recognize Time Warner’s legitimate concern about the viability of its business model, but the approach they are proposing is bad for Austin. By placing a tariff on the flow of information, Time Warner is also undermining the Internet’s fundamental values of openness and equality.

More than virtually any city, Austin is a center of innovation and creativity. That innovation and creativity increasingly is taking place through digital media, video games, independent film and social media.

For instance, digital independent filmmaking has empowered creative artists to make movies without the financial backing of corporate studios. When the city funded the upgrades to Austin Studios recently, we funded installation of terabytes of digital media bandwidth. This will empower the independent filmmakers and video game creators working at the studios to transmit their content over the Internet. Time Warner’s approach could make it so prohibitively expensive to produce films and video games using digital technologies that filmmakers would have to return to celluloid and projectors and video game producers would abandon multiplayer online games.

It isn’t just filmmakers and video game creators. Musicians and social media innovators are developing new distribution models that rely on Internet streaming and downloading to achieve new independence from the old corporate studio and label model.

That’s why Time Warner’s information tariff proposal negatively impacts our efforts to position Austin as a leader in independent film, music and creative media.

The Time Warner proposal also undermines political expression and organization. President Obama, for instance, used the Internet and social media tools to empower new voters and create new ways for political campaigns to organize. This increased voter turnout, particularly among younger voters.

Finally, everyday customers are increasingly saving money, accessing new products and information and better connecting with each other through video streaming, music downloading and social media networks.

As a community, we need to be concerned about the impact that Time Warner’s actions will have on the local economy and on community values.

This proposal will make it more expensive to innovate. It will increase costs for local businesses. The very people who would carry the brunt of this tariff are the people who the Internet has empowered to connect and create without having to turn to large corporations to fund their efforts.

Time Warner’s information tariff proposal is inherently constricting to the local economy. This business model also severely hinders the potential of the Internet. It is not good for Austin. It is bad for the principle of an open Internet. It undermines the public interest.


About Author

Phillip Martin

Currently the Research and Policy Director for Progress Texas and the Texas Research Institute, Phillip Martin writes occasional long-form pieces for BOR that promote focused analysis and insight into Texas politics. Born and raised in Austin, Phillip started working in politics in 2003 and started writing on BOR in the summer of 2005. Phillip has worked for the Texas Democratic Trust, the Texas Legislative Study Group, and now the Progress Texas family. He is a lifelong Houston Astros fan, a loyal Longhorn, and loves swimming at Barton Springs Pool.


      • Unfortunately…
        AT&T is testing the exact same system for U-verse.  No announced plans to roll it out yet, but I imagine it's coming sooner rather than later.

        I will be cancelling my Time Warner account the instant this goes into effect.  Not because I would hit the caps, but because I believe it is deeply antithetical to a free and open internet and the advance of technology, for primarily the reasons Leffingwell lays out in his surprisingly dead-on letter.

        There are going to be lots of angry people this summer – they may see this information now and brush it off, thinking, “Oh, I don't do anything like what they're trying to stop.”  But they're going to receive their bills, see the massive overages charged at $1/GB, and be livid because they weren't doing anything other than using standard present-day Internet services entirely legally.

        I guess I'll be giving Grande a try unless Verizon rolls out FiOS more quickly than they have been…

  1. If anyone wants to switch to Grande contact me…
    I work here and I can get you a good deal if you are in San Marcos or Austin.  We do not plan on capping bandwidth now or in the future.  

    Our 12.0 internet with unlimited bandwidth is only 49.95 a month.   Runs a lot quicker then Time Warner's more expensive equivalent.  I am a gamer so I can attest to the speed difference.  

          • It is predominantly in East Austin…
            We have some spots west of 35 going up to terry town.  Easiest way to find out if you are serviceable is to let me have an address to check.

          • Please have Grande expand their coverage area!

            I hope they realize that this tiered pricing will push many, MANY customers away. I use a PS3, Wii, and download movies from iTunes and NetFlix. I use WELL over 40 GB a month, and I won't be paying the exorbitant prices for Time Warner. This is Austin in the 21st Century- We're not Beaumont. We're the tech capital of the state, let alone one of the tech leaders in the nation. This backwards plan will upset more than just a few customers.

            I would LOVE to have Grande cable. I used to live in East Austin with Grande and you guys are awesome, a great value compared to Time Warner's fleecing of customers. I live off of MoPac and Parmer now, and unfortunately, we only have Time Warner now. Luckily for me, I have a price-lock guarantee in the contract right now, so they can't bump me up until 2010, but that's still pretty soon.

          • I feel your pain….
            I hear from customers all the time when are you going to expand.  🙁

  2. Time-Warner Standards
    I'm pretty much a captive customer, putting up with incredibly screwed up billing practices, regular interruption of cable programs and occasional loss of my land-line. Their new on-cable marketing is so bad that it makes preteen garage bands seem sophisticated.  

    In short, it's not a well-managed company, so I'm not surprised that it looks to boost fees.

    I'm with Leffingwell on this one!

  3. Kedron Touvell on

    broadband possibilities
    In Austin, we basically have the following options for internet service:

    • Dialup: Slow
    • Time Warner: Cable modem, near ubiquitous coverage, moving to tiered pricing, poor customer service
    • Grande: Cable modem, spotty coverage
    • Earthlink: DSL service, cheap, medium speed
    • ATT DSL: DSL service, cheap, medium speed
    • ATT UVerse: fiber, fast service, cheaper than TWC, moving to tiered pricing, horrible customer service
    • City Wifi network: Spotty Coverage, slow, but free.
    • Cellular networks: expensive, speed depends on service

    • Steal your neighbor's wifi: illegal, slow, but free

    Our future options are:

    • BOPL: We did a pilot project on this a few years back.  It worked, but the city has no plans to commercialize it and this technology seems like a commercial dead-end
    • Citywide wifi mesh: slow, expensive capital investment, no political will, aging technology that doesn't work very well at a municipal level
    • Wimax: Sprint/Clearwire is rolling out across the country, but not in Austin till at least 2011/2012
    • Cellular: Wireless companies continue to roll out greater speeds, though the price will always be high.  We do have empty spectrum that could go to a new provider, but nobody in this economy would invest that much capital.
    • Work with incumbent providers to improve their service: Unfortunately, I don't see what leverage we have here.  We have no regulatory authority over internet service, and we're losing our cable TV regulatory authority in 2011.  I also don't see the political will to offer subsidies at the city level.

    • Obama Stimulus money: Obama included $7 billion as part of the BTOPS program.  It'd be nice to get a chunk of that money, though it's supposed to go towards bridging the digital divide, not subsidizing the middle class (will there be a middle class in 6 months?).

    I see no clear options moving forward, other than begging more providers to enter the market.  We basically have an oligopoly and lack the regulatory authority to reign them in.  The only way to fix that is to get the regulatory authority (Federal level) or bring in enough providers to ensure adequate competition.  

    Or we can try to beat up TWC enough on the PR front to get them to cave.  It might work, but I think long-term they're going to do what they want to do.

    I will mention that tiered pricing isn't necessarily a bad thing, if as Lee mentions, the tiers are set up so that they don't unduly constrain power users (and thus hamper the development of new internet economies).  Time Warner is currently not offering a “cheap” service to those who can't afford $45/month.  DSL and UVerse do offer tiered services currently, but it's done by burst speed rather than cumulative usage.  We also do this same tiered pricing system with cellular service.  I think it would be reasonable to have a $60 unlimited, $40 midrange, $20 low-end split if that would allow TWC to recoup their bandwidth costs.

    • more possibilities
      Two additional options:

      Earthlink broadband over TWC cable

      AOL broadband over TWC cable

      As a condition of the AOL/Time-Warner merger, TWC was required to open their broadband network to competitors. I subscribe to Earthlink broadband. It's serviced and billed but TWC, but it's an ELN product. I don't know if ELN (or AOL) will be pressured to follow TWC pricing, but for now they haven't given any indication they will.

      As far as alternatives, I think wireless is a complete non-starter. It's shared bandwidth in the neighborhood, and no way are you going to get high-bitrate streaming applications that are the future.

      Here are two possible solutions:

      1. Municipal wholesale broadband. A city could build a broadband network as a utility service, but leave it up to private providers to deliver end-user services. You could, for instance, buy HBO thru Time-Warner delivered across this muni network. This, unfortunately, is currently prohibited by Texas state laws.

      2. Divestiture. Split telcos and cablecos so that access provisioning is provided by a different entitity than content and services. Right now access providers have an economic incentive to favor their own services. Divestiture would ensure access providers have an economic incentive to provide the best service.

      • Kedron Touvell on

        thanks for weighing in
        policy gets kind of lonely in the middle of all this politics. 🙂

        completely agree that wireless (as in wifi) is a non-starter. Cellular/Wimax has promise but will likely never scale bandwidth or cost-wise to ubiquity.

        1. politically unviable (can you imagine trying to take bond money away from affordable housing or environmental protection for this?), capital intensive, prohibited by state law.  strike 3.

        2. A similar idea to privatized electricity service, which hasn't worked too well and would also require state and/or Federal legislation. Plus, we don't “own” the infrastructure anymore like we did with the power companies.

        We need a Hugo Chavez-like figure to win the Governorship and nationalize (Texasize?) all the robber baron capitalist enterprises in our midst. 🙂

        • maybe, maybe not
          Why are you willing to rule out #1 so quickly?

          If the bonds were issued by a newly created enterprise department (or an existing enterprise department), wouldn't that solve the funds competition problem?

          As far as state law, at some point even the Texas legislature has to recognize that being a 17th rate nation for broadband service has its drawbacks. Even if they don't, there is some talk of overturning at the federal level. (I believe Rep. Rick Boucher has offered such legislation before.)

          As far as #2, I was thinking more along the lines of the way the bell splitup happened, except draw the lines a little better, and ensure safeguards are in place so the beast doesn't reassemble. 🙂

          I still prefer #1. It's a good fit for providing raw broadband access as a commodity utility service, yet maintains a competitive, private marketplace for the value-added services (dialtone, IP, video, alarm monitoring, whatever).

          • Kedron Touvell on

            I like #1 too
            but the problem is with your 3rd paragraph.  Texas is still arguing about 150-year-old science and the bad guys are winning that argument at the Lege.  Federal legislation would be good, but if we get anything, I bet it takes the form of subsidies for incumbents who promise a level of investment or for mom-and-pop rural providers.

            I don't think bonding by an enterprise dept. would completely solve the problem of raising capital.  Modern Telecomm service is a fast-moving, risky business (where there's competition).  I don't have the faith that the city could give the incumbent providers such a large head start and offer a competitive product.  If we were starting from a level playing field, I'd be more optimistic.  Plus, excessive bonding in our enterprise dept. on speculative ventures would have an impact on our overall credit rating.

            We'd also surely be subject to never-ending lawsuits and injunctions that would delay our build-out indefinitely.  See ample precedent from entrepreneurial municipalities the last few years.

            Nationalizing the infrastructure and then investing in upgrading it would work.  Not sure if we can clear that political hurdle, though.  Plus, it would introduce other problems.

            Anyway, I wish Lessig had actually ran for Congress last year so we could have someone with techie chops influencing things. Or, at least Al Gore. 🙂

  4. Test Market
    I don't know what everyone is up-in-arms about! They test marketed this pricing scheme in Beaumont!! They are like Austin's twin city we are so similar.  Like a hybrid and a Ford 350 Turbo, we are just peas and carrots with our Golden Triangle brothers.  Whatever works for them will most certainly work for Austin.

  5. examining basic fairness, similar practices, quality of service potential and looking at the ISP side
    I would argue that the real issue should be fairness in the pricing.

    I'd like to play the devil's advocate for just a bit.  🙂  If users are not completely capped (in other words, reasonable overage fees are applied but users can continuing transferring data), then there is a case for the ISP.  The ISP has upstream costs to support internet access, and the more bandwidth used by customers the more resources it must both have on hand and/or use.  Customers who use highly varying amounts of data transfer may tend to cost the provider similarly to a customer using a high amount all the time.  This is somewhat mitigated by the fact that many customers don't hit their peak usage at exactly the same time, but cost is still a potential issue.

    Commit vs. overage rates are common in certain types of higher end commercial solutions both in data center and for commercial grade fiber connections.

    The advantages to charging customers based on what they use could be that (1) customers using the least could actually be charged less and (2) ISPs can potentially provide higher overall quality of service.  ISPs would be taking on less risk as they spend money in other areas and do things right.  ISPs will have more freedom to go with more expensive upstream providers and behind the scenes infrastructure if they're certain to be paid for the service that's actually consumed.  This all of course assumes ISPs have competitors and reasons to strive to provide consumers they best service they can deliver at attractive pricing.

    I disagree with complete hard caps with no way to exceed them unless they're set at very high levels where the stability of the network or extreme cost to the provider is at stake.  However, if it's costing the ISP money it's only fair to pay for it.

    For background on the commercial side of things, I've posted in a bit more detail on my blog:


    Broadband is critical to Austin.  I would like to see us get even faster and more reliable services than what commonly are available now.  Let's figure out pricing structures that are fair and viable.  Let's encourage more providers to enter the space and allow more customer choice.

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