Time Warner Cable Expands Metered Billing

Rochester, Austin, Greensboro and San Antonio...

Back in January of 2008 we were the very first to report that Time Warner Cable was conducting a trial in their Beaumont, Texas market that imposed caps ranging from 5GB to 40GB on the company's existing tiers of service. More controversial perhaps was the news that trial participants would be charged $1 per every additional gigabyte consumed, a huge markup for Time Warner Cable over cost, and a first for a major US ISP.

Back in February, Time Warner Cable told us they'd be expanding this project into four additional markets, and that they'd be raising the limits on some of the trial caps in response to user complaints. This morning Time Warner Cable gave Business Week an exclusive scoop, informing them that the four markets will be Rochester, NY, Austin and San Antonio, Texas, and Greensboro, North Carolina. Business Week even gets exclusive face time with CEO Glenn Britt, so the cable boss can frame the decision to overbill you just the way he'd like it:

quote: "We need a viable model to be able to support the infrastructure of the broadband business," Time Warner Cable CEO Glenn Britt says in an interview. "We made a mistake early on by not defining our business based on the consumption dimension."

As usual, Britt tries to suggest that Time Warner Cable's existing flat-rate pricing model isn't "viable" enough to fund essential infrastructure upgrades. That's simply not the case. The company has been very profitable under the flat-rate model, and they've consistently found creative new ways to generate additional income, such as with DNS redirection advertising , which creates a revenue stream out of your URL typing mistakes.

In reality, Britt is pursuing metered billing because it gives him a way to monetize and/or control Internet video, which poses a very serious long term threat to his cable television revenues. The pressure to shift to metered billing also comes from investors, who obviously love the idea of charging consumers more money for the same (or less) service in an age where the cost of bandwidth and network hardware continues to drop. Keep in mind that Time Warner Cable has yet to officially announce DOCSIS 3.0 upgrades in a single market.

Where the trials go from here isn't exactly clear. Judging from the Business Week report, Time Warner has yet to increase the highest 40GB cap in these trial markets; a ridiculous decision for any carrier in the age of HD video delivery -- much less one that's facing growing competition from TelcoTV alternatives. "Rest assured that there will be a super-tier at approximately 100GB," a company spokesman tells me.

The question remains: will metered billing only be something Time Warner Cable imposes on less competitive markets, where limited choices mean consumers can't vote with their wallets? Or do company executives really think they can bring 40GB (or even 100GB) caps to bear in markets where they compete with uncapped (so far) and speedier Verizon FiOS?

So far they're avoiding "big red" markets like the plague.

All five of these trial markets have limited or no FiOS availability. Rochester is home to financially-troubled Frontier, who (judging from posts to our forums) can barely offer consumers more than 3Mbps, and has been exploring 5GB caps. The other Time Warner Cable trial markets are in AT&T territory. AT&T is also testing metered billing, imposing caps from 20 to 150GB in two trial markets, charging customers $1 per gigabyte in overage fees.

And there's the rub: a national migration from flat rate to metered billing will only succeed if carriers work together to institute obnoxiously low caps and painfully expensive overage fees. Otherwise, the un-metered competitor in a metered market can highlight how Time Warner Cable, Frontier or AT&T is being a cheapskate, charging users an insanely high markup on bandwidth over cost. Of course, if you don't have many other viable competitors (and change the laws to keep it that way), you can do, well, whatever the hell you'd like.

In markets where competitors aren't playing along with the idea, or the carrier faces pressure from municipal fiber builds, Time Warner Cable's decision could border on seppuku.