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.”

“Customers could save money…” – Alex Dudley, Time Warner

Road Runner High Speed Internet Cost Review
Tier $/Included Traffic Allowance = Your Cost vs. Theirs

Your Monthly Price      Per GB     Time Warner Pays Per GB¹
$29.99 (5 GB Tier)      $ 6.00            less than 10¢
$39.99 (10GB Tier)      $ 4.00            less than 10¢
$49.99 (20GB Tier)      $ 2.50            less than 10¢
$54.90 (40GB Tier)      $ 1.37            less than 10¢
IYHTAYCAI² (100GB Tier)   N/A             less than 10¢
each additional GB      $ 1.00            less than 10¢

¹New York Times, January 17, 2008 – ²IYHTAYCAI = “If You Have to Ask, You Can’t Afford It”/Time Warner has not released pricing details.

Your Money = Their Money - Turbocharged Right Out of Your Wallet At Blazing Fast Speeds!

The current price for Road Runner service is $39.99 per month for unlimited access (slightly higher if you do not have a cable package) in most areas.  The equivalent service level under the new plan tiers would be 10GB per month, based on the chart in the Rochester Democrat & Chronicle.  The “standard service” plan (20GB), which is expected to be marketed to most existing customers, represents a $10.00 per month rate increase.  Are you soaking in the savings yet?

Now a breakdown of what it will cost you to use the Internet for several popular applications (low amount represents $1/GB overage charge, high amount represents cost on economy/lite plan):

• Typical High Quality DVD quality movie streamed online (4GB) – $4-24 each
• High Definition quality movie download (Blu-ray)  (13GB) – $13-78 each¹
• High Definition quality movie download (Blu-ray) (25GB) – $25-150 each²
• High Definition quality movie (Akamai Platform) (9GB) – $9-54 each³
• Netflix TV Show/Movie streaming (1-4GB) – $1-24 each
• Hulu/Joost/Amazon/Megavideo TV Show stream (<1GB) – $0.30-2.00 each
• …to be continued with your input!  Help us inform subscribers of the true costs of Time Warner’s Internet Rationing Plan!

¹Constantine, Resident Evil: Apocalypse, Ultraviolet (+/- 1GB) ²The Fifth Element, Transformers, Casino (+/- 1GB) ³Akamai-distributed on demand movie streaming/“Akamai White Paper – Highly Distributed Computing is Key to Quality on The HD Web”

From Our Readers:

“A RoadRunner Turbo customer downloading at the advertised 15Mbps speed can download 40GB of data in 6 hours. 6 HOURS! That leaves a user paying overage fees for nearly an entire month.” – Nathan

” To take the further, in one month (at full capacity) one could theoretically download 4.8TB of data. Assuming TW’s highest unannounced tier (100GB/mo) is priced at $75 with $1/GB over, 4.8TB would cost approximately $4,835 for that month. Let’s take a much more realistic scenario for a “heavy” Internet user (i.e. lots of Hulu, Netflix streaming, online gaming, working from home, Facebook, uploading and downloading pictures and music, etc.) — we’ll assume 250GB of usage in a single month.

Again with TW’s highest unannounced tier priced at $75/mo, this person would pay $225 per month for usage at that rate [$75 + ((250-100)*$1 = $225].” – Brion

“To update World of Warcraft on a fresh install is almost 3GB.” – Shawn808

“You can kiss off online backup services with Road Runner.  You’ll blow through your cap if you use these.” – BillInSanAntonio

“So what third party IS keeping a watch on the “gas meters” that TWC will place for us to watch our usage? How do we really know that this is correct?” – jsmith

“I not only pay for standard RR, but also Turbo as I want the download speed. Again, sold on this plan by RR and already pay more for it. Our video security is done via the Internet, our phone, our research, our entertainment. We already pay over $100 a month for TW services. Hey TW, is that a banner ad I just had seen on another site trying to sell me cable service? Hummm…Hello…It would have just cost me to download YOUR AD. (Thanks for that.)” – David

“Of course, this pricing plan change only affects residential users, while business accounts will not be bothered by it at all. Which is another sting in the matter, where businesses are probably using it more from all the internet cafes, and wi-fi access points that use TWC. So why are they exempt from being included, and only home users in this time of economic crisis?” – L Smith (Greensboro)

Road Runner customers in Texas who feel for whatever reason compelled to remain with Time Warner after the company implements their Internet rationing plan need to immediately take steps to secure a price protection agreement or term contract with Time Warner for as long of a period as possible.  The reason:  Time Warner has announced their contract customers will be exempt from all usage caps for the length of their contract signed prior to the implementation of the usage capped tiers.  That window may be as short as a matter of days or weeks, so it is critical to be on a term contract or price protection agreement before the existing unlimited service plan is deleted.

A special alert to all Texans impacted by the Time Warner Internet Rationing Plan

Time Warner has also told several reporters that those on promotional new customer or customer retention discount offers will not be exemp from the usage caps, so you should contact Time Warner about whether you need to convert your promotional or retention offer into a term contract.  Contact your local Time Warner customer service center for additional information on how to do this.  You may or may not lose your discounted price.  Please note this will apply to customers in San Antonio and Austin only.

Beaumont customers who signed up as new customers after the company began its usage cap experiment are already bound to those usage caps.  However, pre-existing customers in Beaumont are not, and should inquire about price protection plans or term contracts to preserve their non-capped status.

I am compiling a list of alternative providers for both Austin and San Antonio first, and will then work on Greensboro and Beaumont.  If you live in any of these cities, and would like to assist me in compiling this information, either drop me a note in the comment section or use the Contact button to send me a private message with your contact information.

Talking Points

One of the many arguments you will hear from the pro-rationing broadband providers is that “flat rate, unlimited” pricing is unfair.  A much fairer approach is to charge you for only what you use.

You don’t get flat rate service from your power company.  You have to pay for what you use.  Our company feels it’s fairer to every customer to charge for access just like your local gas and electric company does.  Then you only have to pay for what you actually use.

If you hear this argument, consider this:

With your gas and electric service, you control what you consume.  Don’t want to pay as much?  Turn off lights and lower the heat – you have absolute control.  But in the broadband world, it’s impossible to do this.  That’s because you do not have total control over your Internet connection.

Do you have to provide an electrical outlet for the guy standing outside of your front door with a power drill trying to break your lock and force his way in?  That’s what happens every day on your broadband connection.  Hackers, bots, network probes and other uninvited traffic is continuously arriving at your cable modem.  That blinking data light on the front of your modem is all you need to know that with usage caps, you are now paying for all of that traffic, day in and day out, 24 hours a day.  Time Warner, among others, apparently is incapable of stopping it, but they do feel capable of asking you to pay for it.

Right in the middle of preparing dinner, are you compelled to let the Viagra salesman, a home refinance scammer, a Nigerian with an offer you can’t refuse, and Capital One into your kitchen to pitch you products and services?  If these people broke into your home and turned on all of your lights and turned the heat up, you’d call 911 and have them arrested.  They can’t just move in and jack up your utility bills.  But on broadband, not only are they allowed into your home through web advertisements, pop-ups, and spam e-mail, but now you are expected to also pay for it!  This article brought to you by that free Nintendo Wii you just “won.”  Congratulations!  And since that pop up ad had audio in it, you owe us an extra nickel.

When you arrive home from work, is a power company representative parked in your driveway banging on your door begging to upgrade your meter because they found a major flaw in it after they installed it?  Probably not, and even it was true, you wouldn’t be billed for their problem.  But in the broadband world, Microsoft comes knocking at least once or twice a month with critical patches, bug fixes and upgrades, all of which consume bandwidth you are now being asked to pay for.  Be it a Linux distribution, an update for your iPod, or the latest antivirus definitions required to keep your online experience safe (because your broadband provider cannot), cough up the cash!

Whatever you do, don’t ask this question:

If my broadband connection is just like my gas and electric service, shouldn’t you also be regulated by the government to ensure you are providing fair, equitable, and reliable service?

The traditional media’s coverage of Time Warner’s announcement it would impose caps on their broadband customers has been headline news in some cities, barely mentioned in passing in others.

By far the most intense coverage was found in Rochester, New York where it has led newscasts for several days and garnered “above the fold” coverage in the Rochester Democrat & Chronicle Friday.  Rochester’s daily newspaper also planned special weekend coverage to survey customer feelings about the end of unlimited Internet for the Flower City.

WROC-TV made Time Warner’s plan their lead story earlier this week, talking with a typical younger user of the web who now devotes at least an hour or two daily on the Internet, and how the rationing plan will impact her use of Road Runner.

WHAM-TV was back late in the week to gauge how much customer outrage local residents were feeling towards Time Warner.  It was quite a lot.  The number one rated newscast in Rochester led with the story on their 5:00pm newscast:

And WROC-TV was back on the story as well later in the week, this time pondering exactly how customers will be able to gauge how much they are already using the Internet:

But in other areas, the story has generated considerably less media scrutiny.

In Austin, Texas, only Time-Warner-owned cable channel News 8 Austin devoted significant television coverage to the story, weighted heavily to the company’s position on bandwidth usage and a single customer protesting the event in an unflattering soundbite.

The Austin American-Statesman covered the story in greater depth, also from a political angle because of a written protest from a mayoral candidate released on his website.

In San Antonio, KSAT-TV provided a written account of the metered bandwidth plan, but no video to share.  The station also provided a poll to ask if residents are planning to switch providers over the change.  As of this writing, the poll attracted about 1,000 respondants with 50% planning to cancel service.  WOAI-TV delivered a straightforward report on the plan in their April 2nd newscast, along with their own poll, asking customers if they favored the plan.  A whopping 92.8% said they didn’t.  The comments attached to the report from viewers were overwhelmingly hostile.

KABB-TV, the local Fox affiliate, mentioned the cap briefly on its April 1st newscast with few details.  The San Antonio Express-News gave the story detailed coverage, and reader comments numbered over 130, virtually all extremely upset with the cable company.  With a story headlined Big Internet Usage Could Cost You Big Bucks, it was a story noticed by local readers.

KENS-TV also gave the issue short shrift, but it did not escape the attention of viewers who threw their own two cents into the story’s comments section.

Greensboro, part of North Carolina’s Piedmont Triad, had some excellent coverage on the issue with more than a recitation of the Time Warner press machine.  WGHP-TV, the area’s Fox affiliate, raised skeptical questions about just how consumers will be able to easily track their usage by remembering to visit the Road Runner “gas gauge.”  They were also the only station to point out that even if customers may not be the “heavy users” Time Warner labels them today, it’s only a matter of time before even moderate users of the Internet break through the caps.

WXII-TV, the NBC affiliate, had some of the best coverage of all, making it a top story and going into the issue in great detail from all angles.