As first revealed on Sunday by DSLReports, AT&T is set to introduce usage caps for its residential DSL and fiber broadband services. This is the worst of all possible worlds for the embryonic OTT industry, for incumbent PayTV providers that also own last-mile broadband networks (as they virtually all do) will now have an easy way to put a lid on the use of services like Netflix by undermining their core value proposition: all the video you can watch for just one (small) monthly charge.
Starting in May 2011, existing AT&T DSL and U-verse customers will have monthly caps of 150 and 250 gigabytes respectively, after which additional charges set in - in fact, $10 extra dollars for every 50 gigs of additional use.
Yes, these caps may seem fine for most broadband users. As AT&T and other broadband/PayTV providers have long argued, this new pricing scheme will supposedly only impact some two percent of its customers - today's heaviest bandwidth users and no doubt heaviest online video viewers. But the concern is not so much what this means to today's two percent, but what it means to tomorrow's mainstream consumer. As the diffusion of net-ready TVs accelerates and high-definition Internet video sources like Netflix are seamlessly incorporated into the regular TV experiences of mainstream consumers, no doubt today's ceilings will within a few years seem as antiquated as a 56k modem.
In a Financial Times piece (subscription required), Bernstein analyst Craig Moffett was quoted as saying that he expects other incumbent PayTV/ISP operators to introduce similar pricing plans, not to discourage consumers from watching online video, but from substituting OTT TV for the operator's own PayTV services. This is their way of heading off emerging competitors looking to take a slice of their TV revenue. If they can make OTT TV more expensive than traditional TV - which such charges will in the long run do - then they will have stemmed the competitive tide (i.e., crushed an emerging market).
Is this an anti-competitive practice? Of course it is, but that does not mean that any U.S. regulatory agency will see it as illegal. Instead, most will to view this move as just another step in the evolution of broadband delivery; a shift in the model reflecting finite supply (network capacity) and conditions of accelerating demand (online video consumption) in which operators have a legitimate right to manage their networks and services. Or so goes the argument.... If you are an OTT TV provider, you know darn well what this could mean to the future of your business and the OTT industry in general. The reality is that incumbent operators are very slowly and inoffensively building a wall that will one day keep out OTT providers - not so much now, but certainly in the next 5-10 years, especially as consumer uptake of net-to-TV solutions and services expands. (Case in point: should Netflix's move into original content production be legitimate, PayTV networks and operators will look for any way to reduce the threat, including throttling back demand by increasing the price of consumption.)
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