Here in South Texas, Time Warner Cable customers have been given the online equivalent of a scale in the bathroom, a “usage tracker” that adds up all the household’s Facebooking and YouTubing. Customers who sign up for a light plan of 5 gigabytes of broadband — that’s the equivalent of two high-definition movie downloads — are rewarded with a $5 discount each month if they don’t go over. If they do, they pay $1 for every additional gigabyte.
“We’re moving away from one-size-fits-all,” said Jon Gary Herrera, a Texas spokesman for the cable company, which now tends to call itself a broadband company instead.
Some of Time Warner Cable’s competitors are moving the same way, slowly but surely, toward tiers of pricing for higher speeds and bigger amounts of broadband at home, mimicking the wireless industry’s much-maligned pricing plans. The strategy, called usage-based billing, is advantageous for the companies that control the digital pipelines. But it may be detrimental for customers who are watching more and more video on the Web every month, as well as companies like Netflix that distribute it. Some fear that as customers become more aware of how much broadband they’re using each month, they’ll start to use less of it, and in that way, protect traditional forms of entertainment distribution and discourage new Internet services.
Executives at cable and broadband providers dispute that by saying it is in their interest to make broadband a must-have product. “The exploding growth of online video usage undercuts any argument that cable is standing in the way of this business,” said Brian Dietz, a spokesman for the National Cable and Telecommunications Association, the industry’s trade group.
But some government officials aren’t so sure. The Justice Department’s antitrust lawyers are conducting an investigation into the cable industry’s treatment of online video companies with an eye toward deterring anticompetitive behavior. Some analysts say the investigation could, perhaps counterintuitively, accelerate the move to usage-based billing.
As online video use soars, customers just want faster and better broadband service, and they complain (online, naturally) when Web pages or videos take too long to load. Kate Miller, a Time Warner Cable customer in Utica, N.Y., said her 2-year-old daughter Jane has already learned the word “buffering.”
“Elmo,” Ms. Miller said, “was never meant to buffer.”
There’s a clash between what users expect from broadband service and what is actually delivered to them, said Chris Balfe, the president of Glenn Beck’s media company, which created an online TV channel nearly a year ago. He has noticed sluggishness at home when trying to view YouTube videos. “As a broadband video provider it’s frustrating, but as a user it’s absolutely infuriating,” he said.
Usage-based billing is seen by some as a fairer alternative to broadband caps, a term most closely associated with Comcast, which had been enforcing a limit of 250 gigabytes per Internet customer per month. Although only a small minority of customers ever exceeded the cap, it became a lightning rod for competitors like Netflix, which accused Comcast of unfairly favoring its own services.
Comcast said this spring that it would start to test usage-based billing. “Our network is not an infinite resource, and it is expensive to expand it,” David L. Cohen, a Comcast executive, said at the time.
Along with news and entertainment, the futures of entire industries — commerce, health care and transportation — are being built atop a broadband foundation. Companies big and small are coming up with ways to get faster broadband to more people; many people believe that broadband speeds will inevitably improve as time goes on, just as computer chip speeds have.
But others say that the marketplace lacks sufficient competition, which keeps the price of broadband — a high-margin product — higher than it otherwise would be. They wonder whether strategies like usage-based billing will worsen what is already an economic barrier for some Americans. “It’s like locking the doors to the library,” said Nicholas Longo, the director of Geekdom, a new collaborative work space for small companies in San Antonio.
Geekdom will pay almost any price for reliable broadband — that’s a critical piece of what it sells to start-ups that pay for work space. But some of the start-ups fear that changes to broadband pricing will tamp down consumer demand for the new products they’re conceiving and testing.
“If we had an unlimited pipe, there’s so much more we could do,” said Yuri Zapuchlak, a co-founder of Vidmaker, a video editing tool that exists “in the cloud,” meaning that the videos are uploaded and downloaded from the Internet in real time. For now, the Vidmaker software works around the limits of wireless and wired Internet access by breaking off the chunks of video that are going to be edited and uploading only those chunks.
Time Warner Cable started testing usage-based billing in San Antonio four months ago by offering the $5 discount to lighter users. Customer service representatives at a suburban call center are now trained to ask new customers about how they use the Web; once uses (listed on a work sheet) like “Internet gaming,” “watching TV/movie clips” or “video chat” are mentioned, callers are steered toward a pricing plan with unlimited bandwidth.
For now, unlike the 5-gigabyte plan, the unlimited plans have no overage charges. But the provider, and others like it, could change the pricing plans if many people begin to drop cable TV— essentially making up for losses on the television side by making broadband more expensive.
Such changes to pricing, if they occur, would happen gradually and carefully, executives say privately. But they are already working to change consumer expectations. Suddenlink, a home broadband provider in 18 states, sells usage-based plans tied to speeds, so customers who choose faster, pricier broadband speeds also have more bandwidth to use. The company calls them “allowance plans.”
One of Comcast’s tests will be structured that way. In another test, customers will get a monthly allotment of 300 gigabytes a month (enough for roughly 100 movies) and will pay more for additional “blocks.”
The Netflixes of the world are wary of these moves, though there may be little they can do. Concerns about both caps and usage-based billing have already caused one would-be online video competitor, Sony, to rethink its plan to sell a bundle of cable channels over the Internet.
Dish Network and other companies have been preparing plans for similar bundles, which could help cause the so-called unbundling of television that consumer advocates have dreamed about for decades. But “these guys have the pipe and the bandwidth,” said a Sony Network Entertainment executive, Michael Aragon, referring to cable and broadband providers, while speaking at a meeting sponsored by Variety in April.
Still, Mr. Aragon added, “We do believe there’s a business model out there.”