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NY Times Exposes Time Warner’s Rationing Plan as Profit Grab Scam

Phillip Dampier April 5, 2009 Broadband "Shortage", Talking Points, TWC (see Charter) 12 Comments

The New York Times (hat tip: Shawn808) just exposed the argument from cable companies like Time Warner, who argue for punitive rate hikes and Internet rationing plans, as little more than a naked profit grab in an insufficiently competitive marketplace.

Competition, or the lack of it, goes a long way to explaining why the fees are higher in the United States. There is less competition in the United States than in many other countries. Broadband already has the highest profit margins of any product cable companies offer. Like any profit-maximizing business would do, they set prices in relation to other providers and market demand rather than based on costs.

Pretty much the fastest consumer broadband in the world is the 160-megabit-per-second service offered by J:Com, the largest cable company in Japan. Here’s how much the company had to invest to upgrade its network to provide that speed: $20 per home passed.

The cable modem needed for that speed costs about $60, compared with about $30 for the current generation.

Meanwhile, Time Warner made dubious claims that it required a punitive rationing plan and rate hike to increase profits to “invest in technology to keep up with demand.”  Other cable operators are deploying DOCSIS 3.0, an upgrade to the current cable broadband delivery platform, as a normal cost of doing business.  The upgrade actually benefits cable operators in meeting demand and reducing neighborhood congestion, by “bonding” multiple channels of data together to “fatten the pipeline.”  Time Warner has dragged its feet on doing this upgrade, according to the Times.

Most systems can be upgraded for no more than about $100 per home, including a new modem. Moreover, the monthly cost of bandwidth to connect a home to the Internet is minimal, executives say.

Yet Time Warner’s rationing plan, announced last week, would dramatically increase the price of Road Runner service, in some cases by hundreds of dollars per month, well above the costs the company claims it must pay to upgrade its network.  Even more moderate users will be paying far above the amortized cost of the network upgrade, month after month, indefinitely.  Some other operators are not imposing Time Warner’s ludicrously low usage caps and demanding more money for them.  They just charge considerably more for faster service.

So what’s wrong with this picture in the United States? The cable companies, like Comcast and Cablevision, that are moving quickly to install the fast broadband technology, called Docsis 3, are charging as much as $140 a month for 50 Mbps service.

Let’s compare and contrast what is entirely profitable in Japan vs. what Time Warner whines they need to just eke by:

Liberty Global – 160Mbps unlimited access – $60 per month¹

NTT Communications – 100Mbps unlimited download/930GB upload cap per month + free phone line – $42 per month²

Time Warner – 10Mbps 40GB usage cap – $55 per month ($1 each additional gigabyte)³

¹New York Times April 3, 2009   ²Broadband Reports June 25, 2008  ³Rochester Democrat & Chronicle April 3, 2009

 

So why does Time Warner really need to ration your Internet service and punitively limit your use of the net? Michael T. Fries, the chief executive of Liberty Global is candid:

Fear. Other cable operators, he said, are concerned that not only will prices fall, but that the super-fast service will encourage customers to watch video on the Web and drop their cable service.

The industry is worried that by offering 100 Mbps, they are opening Pandora’s box, he said. Everyone will be able to get video on the Internet, and then competition will bring the price for the broadband down from $80 to $60 to $40.

Aren’t you worried that the prices will fall too? I asked.

“Maybe,” he said very slowly. “We’ll see how it happens. We want to keep it up there for now. It is a premium service.”

Currently there are 12 comments on this Article:

  1. Aaron says:

    Why don’t we take this fight to the TWC local advertisers?

    I don’t want to condone boycotting local businesses, but if we could convince them to drop their relationship with TWC that would have a far greater impact than any online petition or facebook group.

    Any organized way to do this without harming local businesses?

    • What’s wrong with boycotting? I think that’s a great idea. If the businesses in question don’t want to be harmed, they’ll play ball, and then they won’t be harmed. If we rule the tactic out, we’ll reduce our effectiveness, and then we’ll be the ones harmed.

      Think of it this way: if we’re paying more money to TW, we have less money to spend locally, thus hurting local businesses (and by extension, local workers).

      • phil says:

        I was pondering this on one of the Facebook groups this morning. I see nothing wrong with collecting the names of businesses who are spending their ad dollars on local ad inserts on Time Warner cable and suggesting they need to take their business somewhere else or else we might.

        Since this is all about the bottom line for Time Warner, affecting that will probably get more attention that trying to reason with them on a rational, fact-based basis.

        Who wants to organize this?

    • Lee Drake says:

      Here’s the answer to your question:

      Number of business accounts 283,000
      Number of home accounts over 4M

      Business is a drop in the bucket for them. They could lose it all and not blink. http://bit.ly/593K

  2. Mark says:

    Definitely a myth about lack of bandwidth.

    TWC are still running ANALOG cable! That’s 2.5Gbits/sec at least!

    Therefore the solution is simple in my eyes. “Upgrade” everyone to digital cable, turn off the analog everywhere, offer more HD channels (and save bandwidth by eliminating duplicate SD channels) and increase Internet bandwidth by deploying DOCSIS 3.0 as an interim solution.

    Eventually everyone may need to be fibered up but this will stave it off for 15-20 years. Alternatively someone may come up with some new modulation techniques or ways to squeeze even higher frequencies through coax so that there won’t be the problem of having to fiber up.

    • Lee Drake says:

      Problem is that even my nice new HD tv can’t receive many of their channels because they use switched video, which only works on Tivo’s with an adaptor or their box. If you turn off Analog you either increase their cable box rental revenue per household, or you blacken the screen for many many users who route the cable into their tv directly.

  3. SMay says:

    If Time Warner thinks I’m going to stick w/them if they want to cap bandwidth, they’ve got another thing coming… I already dropped them over 2 years ago after their crappy service, and being on the phone (that time alone) with them for over 3.5 hrs! just to downgrade service while I was going out of town on vac.. I got fed up w/them then, and just told them to stick it… I’ll do it again… weather I’m going to come close the cap or not, I don’t care… it’s like having charges on your phone for local calls! … and they say it’s like “cell” service charges… so are they going to provide a detailed bill w/all the ip addresses and amount of data transferred by the minute? … I shouldn’t have to pay for the garbage they can’t keep out of the emails, etc… who do they think they are…

    ***CALL TO ARMS FOR ALL — EVERYBODY boycott Time Warner… let’s flood them with EMails…. (all the companies attempting to put “caps” on us)… what they heck is the internet for? … EVERYBODY bombard them with emails on April 13, 2009… see if they can “handle” the outrage!

  4. Ted Husted says:

    In terms of a boycott, don’t forget about your TMX stock. If your holding TXM shares, sell your stock, and let investor relations know why.

    http://ir.timewarner.com/comment.cfm

    It just split, so it’s a great time to make a dent.

    -Ted.

  5. bouvy says:

    Everyone could survive 2-3 months without cable. Is it really a necesity? I myself am super addicted to getting on the internet multiple times a day and just to fulfill my compulsive behavior with it. I could find something else to do, that I am sure of. Think of it this way, many of us could boycott them and cancel service, or switch for that matter. I challenge you all to do it for 3 months. Once you see their 2nd and 3rd quarter earnings, it will just fuel our purpose even further. I would love to see them in the red. It would compel myself to quit tw even longer. Classic postive feedback! Who are they, the are worse than the government. This is absurd. If anyone should get money from excessive downloading, it should be the artist, actors, etc, that made the movies, not the cable company that is pissed because internet offers a cheaper alternative to the expensive cable packages. If they didn’t charge a ridiculous amount for cable in the first place, they probably wouldn’t be in this predicament.

  6. Jeffrey_Bays says:

    I agree that we can stop the broadban for a couple of months, but the reality is that if rochester dissapeared, no one would notice. TWC knows that.

    When it counts: The day they start the transition. … I work in a world of statistics. You look at the data that is important. They will most likely not be looking at the before and after data. They will look at the day of start and the day of ending. You have to remember that the people that make these types of decisions do not work a 9 – 5 . They take whatever they want to hear and manipulate it to fit their vision. It is obvious that they have already done that with the Texas “test” market’s data from Beaumont. The fact that they are not willing to share any of the raw data is dubious at best.

  7. jonah says:

    I just cancelled my service and switched to verizon … it’s a better deal anyway

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