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Time Warner Cable Laying Groundwork for Usage Pricing, Higher Modem Fees

Phillip Dampier June 5, 2013 Broadband Speed, Consumer News, Internet Overcharging, Time Warner Cable 8 Comments

timewarner twcTime Warner Cable has laid the foundation to eventually begin charging broadband customers usage-based pricing, raise the modem rental fee originally introduced last fall, and continue to offer customers unlimited broadband service if they are prepared to pay a new, higher price.

Time Warner Cable CEO Glenn Britt spoke at length at this week’s Bank of America/Merrill Lynch Global Telecom and Media Conference in London about how Time Warner Cable intends to price its broadband service going forward. The moderator peppered Britt with questions as investors looked on from the audience about if and when the cable company can raise prices for its broadband service or start a usage pricing plan that will generate higher revenues based on metering customer usage.

Britt

Britt

Britt repeated his earlier assertions that Time Warner Cable has no interest in capping customer usage. In fact, the company sees fatter profits from increased usage, as long as customers are willing to pay for it.

For the first time, Britt admitted customers seeking unlimited service should be ready to pay a higher cost for that option, telling the audience Time Warner would set a premium price on the unlimited tier and offer discounts to customers seeking downgrades to comparatively cheaper, usage-based pricing plans. The company hopes this new approach will limit political opposition and customer push-back.

Britt also said there is room to grow Time Warner Cable’s monthly modem rental fee ($3.95 a month), comparing it against Comcast’s current rental fee, which is $7 a month.

Britt complained that increasing usage and demand for broadband speed was requiring the company to invest more in its broadband service, something not clear on the company’s quarterly balance sheets. Real investment, except for expansion by the business/commercial services division, has been largely flat or in decline for several years. Time Warner Cable’s broadband prices have increased over the same period.

Britt also admitted that the costs to offer the service remain comparatively minor.

“In broadband there are the costs of connectivity and peering and all that sort of stuff, but they are pretty minor compared with (video) programming costs so it appears that broadband is usually profitable versus video.”

Britt also admitted the cable industry in general is increasingly dependent on broadband revenue and the profits it generates to shore up margin pressure on the industry’s formerly lucrative video service. As programming costs increase, pressure on profits increase. Yet the cable industry remains profitable, primarily because broadband earnings are making up the difference.

The meter is lurking

The meter is lurking

“I think if you look at the U.S. cable companies the EBITDA margins have been remarkably stable over a long time period,” Britt said. “The mix has [recently] changed. The video gross margin is getting squeezed, the broadband gross margin is larger and we are growing broadband so that is helping. The voice gross margin is higher than video and a little less than broadband and until recently that has been a growing part. And then we have business services which are growing rapidly and have a high gross margin.”

Additional Quotes:

Cable Modem Equipment Rental Charge: “It was received with a minimum of push-back and we’re still actually charging less than Comcast ($7/month), so I think there is room to charge more going forward. People can buy their own if they want and a small percentage of customers have chosen to do that which is fine with us.”

Usage-Based Pricing: “In order to keep up with the demand for throughput and speed which is going up every year, we are going to have to keep investing capital which we do on a regular basis, so we are going to have to figure out how to get paid for that. I think inevitably there is going to be some usage dimension, not just speed within the package, so what we have done is to put in place pretty much throughout our footprint, with a few exceptions, the idea that you can buy the standard service that [includes] unlimited usage and that costs whatever it costs, but if you want to save $5 (and that is the first thing we put in place) you can agree to a consumption limit, and we can start expanding on that.”

“I think the key to this — there has been push-back against caps in the past — I think the reason for the push-back is it was perceived in a sort of punitive, coercive fashion. The usual rhetoric is, ‘gee 20 percent of the people use 80 percent of the bandwidth or some number like that — we need to make them stop using so much.'”

“My feeling is we actually want everybody to use more, we want to invest the capital, we just want to get paid for it. So I think we should always have an unlimited offering and that should probably cost more than it costs today as the usage goes up and then people who don’t use as much should have the opportunity to save money. They don’t have to but they can, so I think that is a much more politically and consumer-acceptable way to do it than a sort of punitive thing people talk about.”

Currently there are 8 comments on this Article:

  1. Sunshine1970 says:

    Glad I’m in Austin. I’ll jump ship to Google Fiber if I’m able to. I’m also pretty sure that TW will want to be competitive, so the pricing probably won’t be as high here as other places that aren’t as lucky to get Google Fiber.

  2. Shane Burns says:

    If TWC introduce data cap, then goodbye TWC and hello At&t Uverse. At least they havent fix or start their usage meter.

  3. elfonblog says:

    Yeah, I’m seeing Time Warner in Austin TX becoming a test bed in just how reasonable the cable industry can be when they have competition. They may as well know that I’m dumping them UNLESS they offer me unlimited (time), uncapped (volume) Internet service where the price per Mbps/mo closely matches Google Fiber. That’s $.07/Mbps/mo. My 15Mbps service should come to $12.60+taxes/year. I “just might” opt for a faster tier, lol.

    TW’s best strategy might be to re-jigger their tiers to be 10/50/100Mbps to semi-match the wifi class used in various households. I’m surprised Google Fiber isn’t broken down into similar tiers, since there are many potential customers that simply won’t want to use cables. They might think paying for Gb speed, which they can’t fully use, would be a waste.

    And Shane B: No, dude. Don’t do it. Just don’t. AT&T is far, far, far more evil than TW, and TW is pretty evil. Not only would you be paying MUCH more per Mbps than with TW, but you’ll be stuck with an obsolete technology that cannot scale up the way cable can. A good coax cable handles nearly 10Gbps today, right now. A short phone line can only barely approach 100Mbps, using gear that isn’t actually available to the public yet. The cable company may be able to upgrade you to Gigabit speeds one day (per DOCSIS 3.1 expectations) , but the phone company will still struggle to get you 300Mbps at a much higher cost (so far, under ideal laboratory conditions involving an extra pair of wires).

  4. Scott says:

    All I can say is “I’m glad I live in Austin.”

  5. Kevin says:

    I love that he seems to think that it’s perfectly reasonable to expect broadband customers to pay additional fees to shore up an increasingly obsolete video service.

    Broadband costs are quite a bit higher than their actual cost as it is. If they were offsetting the structural costs of expanding to underserved rural areas, or expanding service in congested areas, I would be fine with that. However, if I wanted cable TV service, I would purchase cable TV service – it’s completely unreasonable to expect me to subsidize it even if I don’t have it or want it. Spin off the video service and operate solely as an ISP. It’s becoming increasingly evident that with the level of content protectionism that’s starting to emerge among ISPs as streaming video gains popularity, that having both under one umbrella is a conflict of interest that is harmful to the market and to consumers.

    • elfonblog says:

      …Yet, Britt weeps for the poor grannies who supposedly have to pay more for their Internet service in order to subsidize the higher consumption of the movie downloaders, heh.

      But that’s just the tip of the iceberg. Britt is a highly bewildering man. While I suspect his definition of “broadband costs” is wildly different from mine, he has been recorded telling folks (stockholders?) that the books were cooked to manipulate the apparent costs of broadband vs television. But get this; he says they were making broadband appear cheaper, just as you thought, in order to justify the high prices of television service. The truth is, most of the expense of running a cable network is in purchasing several sports-related channels. Every other cable TV subscriber, even those who don’t have these sports channels in their tier, subsidize the bill for those who do watch sports. Britt seems quite fine with subsidizing. It’s a very familiar tool for him. Probably why it ever even occurred to TW to make a point about it vs poor granny in the first place.

      But it gets sweeter. The topic at hand in this recorded meeting was the fact that it was no longer advantageous to hide the expense of broadband, since they wanted to justify charging more for it. Britt assured his audience that they were going to move things around between columns again in order to produce the new desired illusion.

      “Just see our books, Mr. FCC Inspector! Numbers don’t lie!” “Tell us what the FCC concluded, Mr Naive NYT reporter! We can count on their dedication and experience… nothing will slip past them!” “Listen to the nightly news piece on broadband costs, Mr Customer. Sounds like everything works out. I guess there’s no point in fighting that 30% hike in rates. Truly, broadband is scarce and expensive!”

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