Metering Consumer Bandwidth Usage, or
How to Kill Broadband TV before It Becomes a Legitimate Threat

Colin Dixon, Practice Manager, Broadband Media

August 14, 2008

In my June 18th opinion piece, I examined a few of the bandwidth usage claims of Time Warner Cable’s (TWC) metered service trial in Beaumont, Texas and found them sharply at odds with reality. I also considered the implications of TWC making it easier for customers to consume video over their broadband connection and thereby hit (or even exceed) their usage limits. No doubt TWC is the most aggressive U.S. operator in both areas, but it is far from the only operator considering such options.

AT&T Wants to Play…

Take AT&T, for example. AT&T U-verse has launched its own broadband TV service branded OnTheGo that enables subscribers to watch live TV on their PCs.^[1] OnTheGo includes a compelling combination of about 30 broadcast and cable TV channels such as Fox News, Fox Sports, Discovery, and the History Channel. For $10 a month, U-verse subscribers can watch all these channels any time they like, all from the “comfort” of their PC.

Sounds like a great offering, right? But what if AT&T chose to apply the same metered bandwidth strategy that TWC is now trailing?

Using TDG data featured in my original June piece, we know that 12% of adult broadband users watch 25% of their weekly television online. If the average U.S. consumer watches a little over eight hours of TV a day^[2], then 12% of Internet users watch at least two hours of TV per day online. Since AT&T’s OnTheGo customers have actually gone to the trouble of subscribing to an online TV service, it’s not unreasonable to assume they will fall into the “heavy user” category and spend a couple hours a day using the service. If they do, they would use about 20 Gigabytes of bandwidth per month just watching online TV.

If AT&T were to charge the same fees TWC is testing, OnTheGo viewers would have to pay an additional $15 a month in excess bandwidth charges, bringing the total cost of service to $25 per month ($10 basic monthly fee plus $15 in additional charges).^[3] Yes, this seems a bit expensive for a PC-only TV service, but keep in mind that most PayTV subscribers spend more than $50 per month for their service (and they are not real happy about that!).

…But at What Cost?

Yet what if AT&T decided to levy bandwidth usage charges on all U-verse subscribers but exempted OnTheGo customers and simply collected the $10 monthly service fee? This is not at all farfetched, especially if AT&T is serious about building up a decent base of OnTheGo users and simultaneously “managing” bandwidth consumption among its subscribers. They are not mutually exclusive objectives.

Should this happen (and we hope it doesn’t), it would be virtually impossible for a pure-play web TV provider like Hulu to compete. Think about it: though Hulu users get the TV service for free, AT&T would still collect $15 in related bandwidth usage fees, meaning that the cost of watching Hulu TV programming goes from “free” to $15 per month: $5 greater than a similar OnTheGo viewer. The impact? Simply put, this surcharge would render open Internet TV services competitively inept when compared to AT&T’s own web TV service.

So When is “Open” Really Open?

When a consumer purchases broadband Internet service from an operator they are explicitly buying open access to the Internet and all its richness, not some walled garden of content. If broadband network operators are allowed to structure their pricing in a way that favors their own broadband TV services over “cloud-based” broadband TV services, the latter would never achieve the critical mass it so desperately needs to mature and grow. In its place, we would likely find ourselves limited to operator-managed services (with a wide array of content and which work very well) and just a few alternatives (with limited content and which work poorly or not at all).

Should operators be able to charge metered rates for broadband connections? In truly competitive markets, this is something for the market to decide. In markets where there is little or no competition for broadband service, no doubt some consumer protections will be required. Regardless, operators must keep in mind that U.S. consumers have time and again shown their preference for “all-you-can-eat” video services, so acting to limit or charge for this behavior will be a risky endeavor. The chilling effect usage limits will have on web video consumption could well end up killing the goose that laid the golden egg.

If facility-based broadband networks launch their own online TV services, they must do so on equal terms. In other words, if AT&T decides to impose usage-based fees on its broadband subscribers, OnTheGo users must be subject to these same charges – that is, if our goal is to keep the Internet truly open and the playing field level.

If government legislation is required to guarantee this, bring it on.