Time Warner: download too much and you might pay $30 a movie

by Saul Hansell, Bite/New York Times

Let’s say you buy a new Apple TV because you want to rent high-definition movies. And say you are about to move to Beaumont, Tex. If so, you might wind up paying Time Warner Cable as much as $30 when you download a movie using its high-speed Internet service.

Time Warner said on Wednesday that it was going to start testing a new rate plan in Beaumont that would limit the amount of bandwidth each customer can use each month before additional fees kick in. Alexander Dudley, a Time Warner spokesman, said that the exact terms had not been set, but that packages would probably offer between 5 gigabytes and 40 gigabytes a month. The top plan would cost roughly the same as the company’s highest-speed service, which typically runs between $50 and $60 a month.

Mr. Dudley said the company was still working on what to charge people who exceed their limits, but he pointed to Bell Canada, which has imposed bandwidth limits on its customers. According to its Web site, Bell Canada charges as much as 7.50 Canadian dollars ($7.42) for each gigabyte when customers exceed the 30-gigabyte limit on a plan that costs 29.95 Canadian dollars a month. Since the average high-definition movie is 4 gigabytes to 5 gigabytes, that would mean a charge of at least $30 a download for customers on a plan like that who were over their limit.

On more expensive plans, the over-limit charges at Bell Canada are as low as 1 Canadian dollar a gigabyte. That would represent a $4 to $5 charge for an HD movie for people over their monthly limits. Standard-definition movies are typically 1 gigabyte to 2 gigabytes.

Mr. Dudley said that Time Warner wants to test bandwidth limits to crack down on a minority of customers who are heavy downloaders. Indeed, only five percent of customers use half of its total bandwidth, he said.

I spoke to Dave Burstein, the editor of DSL Prime, and one of the most knowledgeable people around on the economics of high-speed Internet service.

He argued that Time Warner’s interest in bandwidth caps had little to do with its own costs and a lot to do with the emergence of movie downloads and streaming television programs over the Internet.

“The smart people at Time Warner are scared of people watching TV directly over the Internet,” he said. “‘Lost’ and ‘Desperate Housewives’ look better over the Internet than they do on digital cable.”

Moreover, the marginal cost of extra bandwidth is very small, he said. For broadband Internet service, 80 percent to 90 percent of the costs are fixed regardless of use. And the all-in cost of a gigabyte of use is about 10 cents or less. Most cable and phone systems keep their costs secret. Mr. Burstein cited an interview he conducted two years ago with Tony Werner, then the chief technical officer of Liberty Global, John Malone’s collection of European cable systems. Costs in Europe, he added, are likely to be a bit higher than in the United States.

Mr. Dudley disputed this view. “This is not targeted at people who download movies from Apple,” he said. “This is aimed at people who use peer-to-peer networks and download terabytes.”

Reaction to Time Warner’s test has been somewhat mixed. Some, of course, see this as a price increase that gives mainstream users the added stress of keeping track of bandwidth use.

Others suggest that it is a more straightforward pricing system that does make heavy users pay more, especially since some Internet service providers are quietly slowing down or otherwise restricting some service, most notably to users of the BitTorrent file-sharing protocol. That’s why Public Knowledge, a group that is certainly not afraid to criticize telecom companies, put out a statement praising the test:

Time Warner’s pricing test could be a welcome development for consumers and for the cable industry. Consumers will have a better idea of how they are using their Internet connections and will have the flexibility to adjust according to the rates. Cable companies could be able to better manage their networks and costs, so they won’t have to resort to cutting off customers for exceeding phantom usage levels or throttling some applications.

Whether cable users agree, or they start to complain because of occasional surprise bills for $30 movie downloads, depends on how Time Warner actually structures its rate plans.

“A big part of what we are doing is to test customer feedback,” Mr. Dudley said. “We want our customers to feel like they are getting a good value.”

article originally published at http://bits.blogs.nytimes.com/2008/01/17/time-warner-download-too-much-and-you-m....

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