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from: Broadband Reports

Verizon, Industry Comment On Time Warner Cable Plans
Verizon taunts MSO, analysts think low caps are a ripoff
03:10PM Monday Jan 21 2008 by Karl

As we were the first to report last week, Time Warner Cable will be testing overage charges in one of the company's Texas markets. We've noted that Charter is also exploring metered bandwidth, and Business Week confirms that Comcast and Cox are as well. In the Business Week report, Verizon takes aim at the cable industry, suggesting that Time Warner Cable is interested in the plans because they lack bandwidth:

Verizon, which has been rolling out its own high-speed Internet service across the country, has no plans to adopt a similarly tiered payment plan, says Verizon spokesman Eric Rabe. "I think this is Time Warner's response to the cable companies' problem in a shortage of bandwidth," says Rabe. "We don't think that we are in a position that we need to do that."

While the cable industry suggests the move is to recoup costs incurred by heavy users, the low caps they've got planned (ranging from 5 to 40GB) are raising a lot of eyebrows. In his newsletter sent out this morning, industry analyst Dave Burstein captures what the move is really about: cashing in on the flood of video that will compete with the cable operator's core business.

I believe Time Warner’s interest in bandwidth caps has little to do with its own costs and a lot to do with the emergence of movie downloads and streaming television programs over the Internet. The smart people at Time Warner are scared of people watching TV directly over the Internet.

Burstein also doesn't think the numbers smell quite right:

There is nothing inherently wrong in charging for bandwidth, if the charge is reasonably proportional to the costs. Time Warner's numbers don't pass the smell test, however. The markup over cost on that bandwidth is between 1000% and 1500%. . . 40 gigabytes at seven cents is less than three dollars per month. Time Warner charges over $40. That's like Starbucks drastically raising the price if you put sugar in your coffee. Any large carrier with a cap below 100 gigabytes and a price above $30 is abusing market power. Their bandwidth costs are less than the marketing budget, and the customer is profitable.

Mike Masnick over at Techdirt isn't too impressed with the low caps, either:

If you're doing perfectly normal things, such as watching (authorized!) online videos or doing remote backups, 5GB can disappear mighty quickly. That doesn't seem like a way to stop "excessive" use. It seems like a way to squeeze more money out of a large percentage of users. On top of that, this gives less and less incentive for Time Warner to improve their network.

As you listen to justifications from the cable industry, don't forget the added revenue now coming in to many cable operators from DNS Redirection advertising, the sale of clickstream data, and behavioral advertising technology (assuming Time Warner is involved in the latter two). We're thinking money will also be saved by the new round of Philippines support offshoring at Time Warner Cable we've heard rumblings of.

The idea that metered billing is financially necessary does not wash.

Keep in mind that Time Warner Cable did not "announce" these plans as is being hinted by several outlets. The leaked memo obtained by Broadband Reports indicates the trials were to be conducted quietly, with the company studying consumer reaction for a broader launch if customers weren't annoyed. The largely negative press reaction to these plans may force Time Warner Cable to scrap the plan altogether.