

Time Warner Cable plans to test its controversial, new scheme to have users pay by the gigabyte in Rochester, New York, but the area's freshman congressman calls usage caps greedy and plans to introduce legislation to stop it.

New York Democratic Rep. Eric Massa called TWC's proposal to switch its 8.4 million cable broadband customers to metered internet billing an "outrageous plan to tax the American people."

Massa, a longtime blogger at the liberal site DailyKos, says he will be joined by a "legion of activists" and called the fight against usage caps a "national issue of generational consequences." However, Massa's fight will not get far without support from powerful House members,including Virginia Democrat Rick Boucher who now controls a key committee on telecoms and the internet.

Critics say usage caps will cost users more and hurt innovation on the net — especially in new video services, as subscribers begin to calorie-count their internet usage.

TWC's new tiered pricing structure for its Roadrunner internet service starts at $15 for a plan that allows 1 GB a month with an overage charge of $2 per GB. (A GB of data equals about three hours of online video from Hulu.com and about half of a rented standard definition movie.) The company says bandwidth hogs need to pay their fair share and maintain that if the company doesn't get enough money to build new infrastructure, "internet brownouts" will be inevitable.

In a conference call with reporters Tuesday, Massa dismissed those arguments, describing TWC as a greedy, unregulated monopoly providing a utility service. His yet-to-be-introduced bill would seek to increase competition among broadband providers and regulate monopolies, he said, though he declined to give specifics.

"They are providing a utility and frankly you should not be able to impose cascading rate increases without justifying them," Massa said. "What Time Warner is saying is not true and their own SEC filings show that. This is AIG-style greed."

Company spokesman Alex Dudley said the company cannot comment on the proposed legislation since it has not seen it, but emphasized the company is trying to test whether this is the right pricing model, or not.

As Wired.com first pointed out, Time Warner Cable's 2008 annual report shows its high-speed data costs actually declined by 12 percent to $146

million. Meanwhile its subscriber count increased by more than 10 percent to 8.4

million, and high-speed data revenues climbed to more than $4 billion.

But TWC's Dudley says that the $146 million it paid in 2008 was simply the cost to transport traffic across the internet backbone. The company is warning that net traffic rose "exponentially" at 30 percent a year — putting the net in danger, but its cost to transfer that data across the net's backbone fell from $164 million in 2007.

Still, according to Dudley, the company has other costs (labor, vans and hardware) that also go up with increased usage. Those are typically considered fixed costs that don't vary much whether a customer uses the net some or a lot, though Dudley disagrees.

"That $146 million is a small part of the variable costs," Dudley said. "Demands placed on network are a factor, such as 'Do we have to split a node to accommodate heavy use?' Those are capital costs that are directly related to use."

TWC first tested the plans in Beaumont, Texas, and is now collecting usage data in Rochester, New York and the Texas cities San Antonio and

Austin, in preparation for an expanded metered billing test later this summer.

The plan has faced intense criticism since the company announced the changes at the beginning of the month. Hoping to mollify its critics, the company modified its tiers last Thursday, increasing the usage caps for each tier and adding a $150 all-you-can download plan.

Nearly all U.S. residential broadband providers sell their services based on bandwidth speeds, with no mention of a usage cap. Experts say that's in part because there's little data for the companies to base their pricing on, and because if one company offers unlimited data, the others do as well, at least in markets where there is broadband competition. Broadband usage continues to grow, most recently thanks to an explosion in online video services, but the cost of moving those bits also continues to fall.

Time Warner isn't alone in its campaign to crack down on heavy net users. AT&T announced last November that it would test monthly bandwidth caps and overage fees. Comcast installed a 250-GB cap last

August; Canada's Rogers enforces a 60 GB limit; and New York-based DSL

provider Frontier has a miserly 5-GB limit (though public pressure forced the company not to enforce it).

Timothy Karr, a campaign director at the consumer advocate group

FreePress, argues that TWC is unfairly trying to protect its lucrative cable television business from customers switching over to online video.

"Charging consumers penalty fees on top of what they are already paying to download a movie or show will cripple online video," Karr said last week. "This is a win-win situation for Time Warner. Congress must investigate these anti-competitive practices before they become a nationwide problem."

A Massa spokesman said the text of the bill would be ready late in the week.

This story has been updated with comments from Time Warner Cable.

Graph: Wired.com/Dennis Crothers

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