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Beaumont, Texas, has become the testing ground for a new way to charge Internet users for access. It's meant to make heavy users pay more.
Time Warner (NYSE: TWX) will begin rolling out an experimental program that will meter users' Web usage and bill them extra if they download or upload more than a set amount of data.
Data caps aren't entirely new. You'll certainly get some attention from your Internet service provider if you start downloading in the neighborhood of 300 GB per month, especially if you get access from a cable company.
What's different about the Beaumont case is that Time Warner will charge over-users a buck per gigabyte. Also, it has set usage caps way below the big numbers most cable ISPs frown upon. Its trial limits users to between 5 GB and 40 GB per month.
By comparison, a single high-definition movie file usually weighs in at around 6 GB to 8 GB.
Too Little, Too Soon
Attempting to impose some sort of limitation on users makes sense, at least theoretically. For years, ISPs have basically been running an open bar -- pay an upfront monthly cover charge, and you can drink all you want. Now the bar is getting crowded, what with movies, online games and streaming video sites like Hulu chugging away at kegs of data. So now Time Warner is trying out a sort of two-drink minimum system. If you want more, you'll have to open a tab.
But Time Warner's new system is very different from what people are used to getting from a high-speed service provider, and it forces all its new customers in Beaumont into the plan. If you don't like it, you'll have to get your Internet hook-up elsewhere -- if you can.
AT&T (NYSE: T) also serves the Beaumont area, according to DSL Reports, but it's always a crap shoot whether an ISP will hook up a given address. Some users may have no choice.
Trying new things to keep turning a profit in an increasingly difficult situation is fine, but more options need to be provided. Hopefully, this is not a model that will stick around long in Beaumont -- or worse, be expanded regionally or nationally.
Heavy Users, Stay Away
Time Warner says that as it stands now, a small fraction of its users -- 5 percent -- take up half of the network's total bandwidth. This experiment, it says, is designed to charge them accordingly. The result will be that the company won't charge them very much at all -- those who can will walk away.
As reported by AP, Time Warner has about 90,000 subscribers in town, but only new sign-ups will be subjected to the bandwidth cap trial. That's the escape for anyone who doesn't want to participate -- just try to find another ISP. That's likely going to be the plan for all who consider themselves heavy users.
The cap will even scare off some moderate users who aren't sure how much data they use or just don't like the idea of getting smacked with a huge bill if they accidentally watch a little too much YouTube (though Time Warner says it will provide a "gas gauge" application).
Who's left? Lightweights -- e-mail checkers and straight-up page surfers, not big-file downloaders who grab gigs of video and music by the fistful. Infrequent users will be the most likely to go along the trial program because they know they'll never even approach the cap. With that kind of demographic making up a good chunk of new customers, Time Warner could walk away from this experiment figuring that most of its subscribers were happy with limits, giving it little motivation to cater to a heavy-user crowd.
Not Much of a Price Incentive
Given that the plan only appeals to lightweight users, Time Warner could have at least tied it to a lightweight pricing scheme. That doesn't appear to be the case, especially with the way the data caps are tied to the pricing tiers. Sure, other cable providers like Comcast (Nasdaq: CMCSK) also have their monthly limits, but theirs hover around 150 GB to 250 GB per month, and then they only send warnings, not ballooned invoices.
The cheapest package under the Time Warner experiment -- the one that limits you to 5 GB -- is US$30 per month for just 768 Kbps. For that amount of money, even infrequent Web users don't want to wait forever for pages to load. There are plenty of DSL packages that perform four times as fast for the same rate.
On the upper side of the scale, the offer of 15 Mbps for $55 per month sounds more competitive, but with that, you're capped at 40 GB. Someone who actually uses speed like that is likely dealing with more data than just 40 GB per month -- I'm thinking online video users, heavy MMORPG gamers and the like. Who's going to buy this?
Cutting Off Hulu, iTunes, Amazon
Moderate and heavy users aren't the only ones who stand to lose out with such low data caps.
As a cable operator, Time Warner deals with media content owners -- the same ones that are peddling their wares over the very Internet services this experiment marginalizes. Services like Hulu and iTunes are almost out of the question for users of Time Warner's cheaper plan; even those with the most expensive option need to watch their step if they're into high-def. Amazon (Nasdaq: AMZN), Netflix (Nasdaq: NFLX), Internet radio -- anyone who streams or downloads content, for free or for pay, has more or less been cut out of the Time Warner/Beaumont market.
I wonder, are media powerhouses like News Corp. and NBC OK with this? Do they regard projects like Hulu and partnerships with iTunes and Amazon as loss-leaders that they've basically been forced to offer in the face of piracy? Would they just as soon drop them? Do they see bandwidth caps as a way to both solve piracy and stop having to come up with ways to monetize legit online video? Would they have us all living in 1997?
Usage limits seem like an even stranger move when you consider some of Time Warner's other partnerships and promotions. As Silicon Alley Insider points out, the company is a major backer of Fon, an organization that encourages users to share their Internet connections with others. Will you pay for their usage over and above your cap?
Also Dallas Morning News' Andrew Smith noticed that just days ago, Time Warner promoted a home networking system expressly for the purpose of moving Internet video to a TV screen. Time Warner knows there's a significant demand for Net video, even as it plays around with plans that will restrict its users' access to it.
Catering to the Low-Value Customer
No doubt some users in Beaumont will sign on to the service with no complaints and no nasty surprises on their bills. They should be charged low rates for their slow, capped lines.
But limiting everyone -- even the premium subscribers -- cuts out a significant and valuable segment. Heavy users aren't all pirates grabbing free movies illegally. A lot are just TV, movie and music fans who want to take full advantage of the convenience and efficiency that Internet distribution allows.
I know, they'll be able to pay a dollar per GB if they want more. But unless an ISP is the only game in town, high-end users will run far and fast from that proposition, and the provider will be left with only the two-bit, lightweight users. Might as well be dial-up.
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