Press Release
Free Press Debates the Cable Lobby on Internet Penalties
Contact: Timothy Karr, 201-533-8838
By Ben Scott, Policy Director, Free Press
We wanted to take this opportunity presented by our friends at the National Cable and Telecommunications Association to give more details about our position on Time Warner Cable’s new Internet pricing model.
It is true that the metered pricing schemes are in a trial phase -- and have been for some months (something about which we’ve been publicly skeptical about since they began). But Time Warner Cable’s announcement signaled an important change. When a major national Internet service provider expands a practice from a small trial to a big trial, it’s a serious enterprise. And we can reasonably expect it is the tip of the iceberg -- and that we’ll soon see other major ISPs follow. An expectation confirmed both by AT&T’s trial and by Insight CEO Michael Willner:
"I openly admit that most cable companies, including Insight, are closely following Time Warner launch of these plans. In my opinion, there will be other ISPs joining their ranks. Full disclosure -- here at Insight, we're among those monitoring these developments."
These kinds of industry practices have a tendency to roll out under the radar, establish themselves in the market, and then they are very difficult to undo. So it is not premature to call for an inquiry. Congress is the first port of call for citizens who want to see a major corporation’s behaviors scrutinized. We need only look at the banking sector to note that erring on the side of caution when it comes to congressional oversight is not a bad idea. Furthermore, a member of Congress has already called for legislation to address the practice -- so clearly the issue had not escaped the notice of legislators. Asking Congress for an inquiry is simply raising some red flags about a plan that has many troubling questions surrounding it.
First on the list is the question of whether cable has an interest in using strict caps and high metered prices to dissuade consumers from watching online video, a potential competitor to cable’s television offerings. The mere fact that cable is willing to offer Internet access does not inoculate cable. It is true that many cable operators have increased speeds over the years, enabling consumers to stream video. But the emergence of Boxee, Hulu, Roku and other online video platforms are all new. So it is only in the last year that online video has become a market phenomenon large enough to capture significant eyeballs and carve away pieces of the cable television revenue pie.
As the online video market has emerged, we have increasingly seen numerous reports of cable operators and content providers concerned about the possibility that consumers will one day opt to cancel cable and watch TV online. It’s not hyperbole to say that online video deeply threatens the traditional cable model. It’s a fact -- one that Time Warner Cable CEO Glen Britt pointed out on a recent earnings call" "I … predict that people will choose not to buy subscription video if they can get the same stuff for free. … I think the cable network business will suffer mightily if this trend continues.”
We’re not alone in seeing the anti-competitive threat. A recent Communications Daily article quotes Wachovia analyst Marci Ryvicker as saying, "We view usage-based billing, or bandwidth consumption caps, as a significant impediment to not only ZillionTV but also to true over-the-top video providers.” So when we argue that TWC’s new scheme appears to us to discourage online video consumption -- that’s not an idle or misdirected concern.
NCTA is right that we did indeed tell the FCC that metering would be a superior practice -- but only when compared to outright illegal blocking of Internet content and applications. We continue to hold that position. But calling the practice superior to unlawful activity is a rather low bar of “endorsement.” As for whether metering is fair -- it can be. But that is a question of whether the rates are fair in relation to the costs -- the same costs that TWC refuses to disclose.
We looked at the TWC pricing schemes, and we noticed that the cost appears to bear no relationship to the price at all. According to Time Warner Cable’s Securities & Exchange Commission filings: “High-speed data costs decreased for the three and nine months ended September 30, 2008 primarily due to a decrease in per-subscriber connectivity costs.” In Rochester, N.Y., Time Warner Cable currently charges consumers $44.90 for unlimited access to the Internet. But under the new pricing scheme, consumers would have to pay $150 -- over $100 more -- for the same access. If it is costing the company less to connect consumers, why are consumers being charged more to connect? There may be a good answer to this question -- but so far even tenacious reporters haven’t gotten it from Time Warner Cable.
The rationale being used to justify this large increase – an impending "exaflood" or Internet brownout -- is not supported by the data. In fact, the argument that bandwidth is somehow a scarce resource was refuted by Time Warner Cable’s own CTO Mike LaJoie, who quipped: "Cable is like the Federal Reserve of bandwidth. ... we can practically print the stuff!" LaJolie also commented that supplying consumers with more bandwidth is “basically free.”
On the whole, what we see is a major cable operator rolling out a new pricing model that looks like it has the scale to become a permanent system -- which is an appropriate moment to raise a red flag. We see a bandwidth cap that is very low compared to other industry players like Comcast -- and given the current rise of online video services, it isn’t unreasonable to suggest why this is happening and that it might be a problem. And we see a price that bears no relationship to cost. These things raise questions. And, when called on these questions by the media, the justifications TWC gave were weak obfuscations that just made it seem all the worse.
So yes, we will ask Congress to look into this. Thank you for asking us for more details about why we’ve decided to give our attention to this issue.
We wanted to take this opportunity presented by our friends at the National Cable and Telecommunications Association to give more details about our position on Time Warner Cable’s new Internet pricing model.
It is true that the metered pricing schemes are in a trial phase -- and have been for some months (something about which we’ve been publicly skeptical about since they began). But Time Warner Cable’s announcement signaled an important change. When a major national Internet service provider expands a practice from a small trial to a big trial, it’s a serious enterprise. And we can reasonably expect it is the tip of the iceberg -- and that we’ll soon see other major ISPs follow. An expectation confirmed both by AT&T’s trial and by Insight CEO Michael Willner:
"I openly admit that most cable companies, including Insight, are closely following Time Warner launch of these plans. In my opinion, there will be other ISPs joining their ranks. Full disclosure -- here at Insight, we're among those monitoring these developments."
These kinds of industry practices have a tendency to roll out under the radar, establish themselves in the market, and then they are very difficult to undo. So it is not premature to call for an inquiry. Congress is the first port of call for citizens who want to see a major corporation’s behaviors scrutinized. We need only look at the banking sector to note that erring on the side of caution when it comes to congressional oversight is not a bad idea. Furthermore, a member of Congress has already called for legislation to address the practice -- so clearly the issue had not escaped the notice of legislators. Asking Congress for an inquiry is simply raising some red flags about a plan that has many troubling questions surrounding it.
First on the list is the question of whether cable has an interest in using strict caps and high metered prices to dissuade consumers from watching online video, a potential competitor to cable’s television offerings. The mere fact that cable is willing to offer Internet access does not inoculate cable. It is true that many cable operators have increased speeds over the years, enabling consumers to stream video. But the emergence of Boxee, Hulu, Roku and other online video platforms are all new. So it is only in the last year that online video has become a market phenomenon large enough to capture significant eyeballs and carve away pieces of the cable television revenue pie.
As the online video market has emerged, we have increasingly seen numerous reports of cable operators and content providers concerned about the possibility that consumers will one day opt to cancel cable and watch TV online. It’s not hyperbole to say that online video deeply threatens the traditional cable model. It’s a fact -- one that Time Warner Cable CEO Glen Britt pointed out on a recent earnings call" "I … predict that people will choose not to buy subscription video if they can get the same stuff for free. … I think the cable network business will suffer mightily if this trend continues.”
We’re not alone in seeing the anti-competitive threat. A recent Communications Daily article quotes Wachovia analyst Marci Ryvicker as saying, "We view usage-based billing, or bandwidth consumption caps, as a significant impediment to not only ZillionTV but also to true over-the-top video providers.” So when we argue that TWC’s new scheme appears to us to discourage online video consumption -- that’s not an idle or misdirected concern.
NCTA is right that we did indeed tell the FCC that metering would be a superior practice -- but only when compared to outright illegal blocking of Internet content and applications. We continue to hold that position. But calling the practice superior to unlawful activity is a rather low bar of “endorsement.” As for whether metering is fair -- it can be. But that is a question of whether the rates are fair in relation to the costs -- the same costs that TWC refuses to disclose.
We looked at the TWC pricing schemes, and we noticed that the cost appears to bear no relationship to the price at all. According to Time Warner Cable’s Securities & Exchange Commission filings: “High-speed data costs decreased for the three and nine months ended September 30, 2008 primarily due to a decrease in per-subscriber connectivity costs.” In Rochester, N.Y., Time Warner Cable currently charges consumers $44.90 for unlimited access to the Internet. But under the new pricing scheme, consumers would have to pay $150 -- over $100 more -- for the same access. If it is costing the company less to connect consumers, why are consumers being charged more to connect? There may be a good answer to this question -- but so far even tenacious reporters haven’t gotten it from Time Warner Cable.
The rationale being used to justify this large increase – an impending "exaflood" or Internet brownout -- is not supported by the data. In fact, the argument that bandwidth is somehow a scarce resource was refuted by Time Warner Cable’s own CTO Mike LaJoie, who quipped: "Cable is like the Federal Reserve of bandwidth. ... we can practically print the stuff!" LaJolie also commented that supplying consumers with more bandwidth is “basically free.”
On the whole, what we see is a major cable operator rolling out a new pricing model that looks like it has the scale to become a permanent system -- which is an appropriate moment to raise a red flag. We see a bandwidth cap that is very low compared to other industry players like Comcast -- and given the current rise of online video services, it isn’t unreasonable to suggest why this is happening and that it might be a problem. And we see a price that bears no relationship to cost. These things raise questions. And, when called on these questions by the media, the justifications TWC gave were weak obfuscations that just made it seem all the worse.
So yes, we will ask Congress to look into this. Thank you for asking us for more details about why we’ve decided to give our attention to this issue.
