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Time Warner Cable’s Incoming CEO Promises to Keep Unlimited Broadband Tier

Phillip Dampier September 12, 2013 Competition, Consumer News, Data Caps 15 Comments

twcGreenTime Warner Cable will not follow Comcast, Charter, Cox and Mediacom by imposing usage caps or move towards a compulsory usage-based billing scheme.

Yesterday, incoming CEO Robert Marcus told investors attending the Bank of America Merrill Lynch 2013 Media, Communications, and Entertainment Conference that he recognizes the majority of Time Warner Cable’s broadband customers want the company’s unlimited use offering and made it clear that option will continue to be available.

Marcus

Marcus

“Most customers today — the vast, vast majority — take our unlimited offering and I think over time most customers will continue to take unlimited,” said Marcus, who currently serves as Time Warner Cable’s chief operating officer. “They value it and will be willing to pay for it. I think that is great and we have no desire to change that.”

However, Marcus also reflected on the revenue opportunities available to the company from its broadband offering, and signaled investors the company would continue to price the service commensurate with its perceived value.

“High Speed Data is a tremendous product for us,” Marcus said. “Our customers continue to use it more and more for all different sorts of applications. I think consumption growth year over year in the second quarter is somewhere north of 40 percent. It has been in that kind of range for a long time and we expect it to continue to grow at a pace like that for as long as we can see. With that increasing usage comes an increasing utility to customers and we believe an increasing willingness to pay for that incremental utility.”

Time Warner Cable increased its broadband average revenue per user (ARPU) by 9% for residential High Speed Data during the second quarter, with total broadband revenue up more than 12%, according to Marcus. Those revenue increases have been made possible by three things:

Less is More: With the FCC claiming the average Internet user consumes 28GB of broadband per month, this may explain why Time Warner Cable customers have little interest in the company's 5GB Internet Essentials offer. (Chart: New America Foundation)

Less Costs More: *-With the FCC claiming the average Internet user consumes 28GB of broadband per month, this may explain why Time Warner Cable customers have little interest in the company’s 5GB Internet Essentials offer. (Chart: New America Foundation)

  • Adding new broadband customers, mostly those abandoning telephone company DSL;
  • Implementing general price increases on broadband service for existing customers and the introduction (and later increase) of modem rental fees starting last fall;
  • Successfully encouraging customers to upgrade to faster speed tiers, which are sold at a higher cost.

Despite Marcus’ commitment to maintain unlimited broadband service for Time Warner Cable customers, the cable company is moving forward with several optional, usage-based tiers sold at a discount.

“There are customers who choose to consume less and we feel strongly that we need an offering for them which allows them to pay less and eliminate the structure where they have to subsidize the heavy users,” Marcus explained.

For more than a year, Time Warner has offered a little noticed, usage-limited plan for customers willing to confine their Internet browsing to a maximum of 5GB per month. The plan has not been popular with customers and very few have signed up. Time Warner announced earlier this summer they would try again.

“We’re now in the process of rolling out yet another usage-based tier of service which I think is a more meaningful one because it comports with what real-life usage is like, which allows customers to use 30GB a month of service again at a discount from the unlimited pricing,” said Marcus. “When you put 30GB in context, our average usage today is about 50GB a month, median usage is actually less than 30GB, so for some customers there is going to be an economically rational reason for them to choose that 30GB tier. I expect the take rate will be certainly higher than for the 5GB service.”

Marcus, like the current CEO Glenn Britt, admits the company is attempting to educate customers that broadband usage carries a cost.

“There is a principle at stake: that value, price and usage are related to one another and that is important over time,” Marcus said.

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BenJF3
BenJF3
6 years ago

“They value it and will be willing to pay for it. I think that is great and we have no desire to change that.”

READ: We are going to continue to keep gouging our customers or come up with a specific, very high cost single tier for unlimited.

BenJF3
BenJF3
6 years ago

We are in desperate need of competition where I live. I’d love to see a community based municipal broadband option. Extreme Internet here is $91 a month and Ultimate is $105 and those are WITHOUT the modem fees! I have no other option for high speed broadband here. I could get a 1.5Mbps DSL or dial up, but not a high bandwidth connection. I’d love to see a small community based company that could offer a 15/2 connection for around $25 a month just to put some heat on TWC. In reality, a 30/5 connection shouldn’t cost more than $50.… Read more »

Anita
Anita
6 years ago

TWC is my only option for high-speed internet, and if they decide to begin charging more, I refuse to pay such a high price and will discontinue service altogether.

BenJF3
BenJF3
6 years ago
Reply to  Anita

I can completely understand that, but here with my household and business usage it would basically be like turning off the heat. Broadband is pretty much a necessary utility today and should be treated as such. I wish I had the start up capital to work on a WiMax solution or some option here to offer a basic level of competition.

tacitus
tacitus
6 years ago

Fortunately, here in Austin, Google Fiber is just around the corner, and given that their current mid-level rate (including modem fees) is now within $10 of Google’s gigabit rate, they have little room for maneuver on the rates. As soon as Google made the announcement, I knew that any serious effort to impose meaningful usage caps in Austin was dead in the water. Just got me a $30 cable modem to tide me over until Google arrives. I had let the first round of charges lie, but TWC got too greedy and I’ll be returning their cheap six year old… Read more »

BenJF3
BenJF3
6 years ago
Reply to  tacitus

I wish we had Google Fiber here! I would be all over that!

Steve
Steve
6 years ago

I was not aware of these prices but it seems odd to me they are so close. $40 for 5 GB. $45 for unlimited. Now they are going to add a 30 GB tier in between, maybe $43? Are consumers that price sensitive?

rastamouse
rastamouse
6 years ago

What exactly is wrong about usage based pricing? If you are a heavy user of broadband, it may be nice to be subsidized by light users. But let’s not pretend that somehow usage based pricing is immoral in comparison to charging a high price for unlimited usage.

rastamouse
rastamouse
6 years ago

The fact that gross margins on broadband service are high, and the marginal cost of data transport is relatively low is true, but also largely irrelevant. For broadband providers, the challenge is generating sufficient revenue to recover their fixed costs and fund future network investment. The key broadband pricing question is not the marginal cost of transport, but the best strategy for recovering those fixed costs. The unlimited flat-rate model is an inefficient solution. Flat-rate pricing forces “all subscribers to pay the same amount for broadband service, regardless of the performance or usage of the service, would force lighter end… Read more »

Ron
Ron
6 years ago
Reply to  rastamouse

Except they never lower the price to have those low income people be able to afford it. There is a lower tier, it is a slower speed and is already significantly lower in price than their standard or higher tiers.

Scott
Scott
6 years ago
Reply to  rastamouse

The difference in cost for a provider such as Time Warner on a user (or household) that were to use 500GB of data vs a casual single or couple lightly using their broadband with only 50GB per month.. This is on a plan no less than $50/mo not including extra fees, at a 50% profit margin, if not 80-90% for most. 500GB @ .02 cents per GB = $10 50GB @ .02 cents per GB = $1 So the data “hog” used a whopping extra $9 of bandwidth at cost ASSUMING that’s consistent peak usage during the evening when the… Read more »

BenJF3
BenJF3
6 years ago
Reply to  Scott

If they want usage based options, then bring on Ala Carte cable!

rastamouse
rastamouse
6 years ago

The Economics of Usage-Based Pricing in Local Broadband Markets
http://i.ncta.com/ncta_com/PDFs/Wildmanreport_web.pdf

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