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Wall Street: Broadband is Underpriced – Slap On Caps and Usage Billing to Kill Cord-Cutting

Phillip Dampier October 29, 2015 Competition, Consumer News, Data Caps 6 Comments

more moneyBroadband prices in the United States are far too low and it is long past time to “significantly” boost prices and introduce usage caps/consumption-based billing to put an end to the threat of online video competition once and for all.

Those are the views of Jonathan Chaplin, a research analyst for New Street Research LLP, and he made sure to share them with Robert Marcus, CEO of Time Warner Cable on a morning conference call with investors.

“Our analysis suggests that broadband as a product is underpriced,” Chaplin told Marcus, and it is hardly the first time he has beat the drum for higher Internet pricing.

In June, Chaplin wrote a note to investors that pulled no punches about what usage billing is really all about.

new street research“Our work suggests that cable companies have room to take up broadband pricing significantly and we believe regulators should not oppose the re-pricing (it is good for competition & investment),” Chaplin wrote. “The companies will undoubtedly have to take pay-TV pricing down to help ‘fund’ the price increase for broadband, but this is a good thing for the business. Post re-pricing, [online video] competition would cease to be a threat and the companies would grow revenue and free cash flow at a far faster rate than they would otherwise.”

Chaplin pestered Marcus this morning about why Time Warner Cable has remained steadfast in keeping compulsory usage caps or usage-based pricing away from their broadband customers.

Marcus

Marcus

“As part of the merger conditions, you made a concession to not moving towards usage-based pricing for a number of years,” Chaplin asked. “I’m wondering if that’s something that you felt the FCC required, or that came up during the course of the Comcast, Time Warner Cable discussions and why you needed to offer that up as a condition.”

Ironically, it was Marcus who schooled Chaplin on the realities of a marketplace where cap-free competitors like Google, Verizon, and AT&T U-verse (their stated cap is not enforced) exist and are more than capable of stealing Time Warner Cable customers if the cable company gets too greedy. Time Warner’s best chance of earning more broadband revenue is to sell faster service, Marcus noted.

“I can’t give you an outlook on where broadband pricing is going, except to say we’re going to continue to deliver more and more utility to customers,” Marcus said. “Generally speaking, where customers get more value out of your products, they’re willing to pay more. But what we actually charge is going to be a function of what the marketplace dictates. It’s a very competitive market out there and we’re going to have to continue to price our products in a way that allows us to acquire and retain them.”

Chaplin’s remarks tying usage pricing to curtailing online video competition are no surprise to consumer advocates, who believe usage-based billing is an obvious weapon cable and phone companies can use to protect their cable-TV revenue. Sling’s CEO considers usage pricing a serious threat to the viability of alternative video providers like Sling TV.

Currently there are 6 comments on this Article:

  1. Joe V. says:

    Man these guys their greed has no f**king bounds. Not only are they asking for people to revolt violently on the streets they want to piss off Netflix, Amazon and a host of other streaming companies who are opposed to usage based billing.

  2. Jack says:

    What an asshat.

  3. ghfcghdg says:

    I always like how they keep trying to say Broadband here is Underpriced when in fact its Overpriced. On top of that were gouged $10 for 50GBs due to the Bulls**t Data Cap that is pointless. At least I found a place in Chattanooga,TN so I can escape all this f***ing bull**it.

  4. Paul Houle says:

    It’s a funny thing to say given that you usually expect technology to get better and cheaper over time, not the other way around.

  5. Mike D. says:

    How long did anyone think that the Broadband boys were going to leave that giant pile of cash alone?
    Did anyone really think that the cord cutters were going to be allowed to continue not paying up?

    Big Business today doesn’t have a “Win/Win” philosophy, rather a “Whatever the market will bear”.

  6. Jeremy says:

    A big problem with caps and usage billing is that it effects those that don’t/didn’t intend to drop cable.

    Up until recently we had no plans of dropping cable, even with our increase use of video streaming services like Amazon Prime and Netflix. However, we just had out 2nd notice for going over the data cap from Cable One and it looks likely we will go over the cap for the 3rd time this month (it has been difficult to stay under 300GB since the increase to 100Mbps).

    If we end up going of the data cap for a third time we will be forced into a higher priced tier; which will increase our monthly bill by $25 or more (on top of the recent $5 increase). Thanks to this we may have no other choice than to join other cord-cutters.

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