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4/16/2009
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Time Warner Bandwidth Cap Points Industry Toward Utility Pricing

Analysts say the value of the Internet means providers can sell bandwidth much like utility companies sell electricity or municipalities sell water.

Time Warner Cable's expansion of its bandwidth cap testing marks the evolution of the Internet to a utility, like water and energy, where people pay for what they use.

People who have used the Internet for years have grown accustomed to paying one monthly price for unlimited access. However, that model is no longer sustainable as the increasing number of devices and people place higher demands on bandwidth, a finite commodity. Without controls, Internet users could experience "brownouts" as early as 2012, according to Time Warner chief operating officer Landel Hobbs.

The profit opportunity is also a major draw for cable and telecommunications companies. Capping bandwidth would enable networks to serve more people with minimum degradation while also allowing providers to get top dollar from the heaviest users -- in the case of Time Warner, as much as $150 a month for unlimited use.

Besides Time Warner, Comcast is also looking at bandwidth caps and has already imposed a 250-GB monthly limit for residential use. AT&T is reportedly considering a 150-GB cap.

But Time Warner is among the most aggressive and it appears bandwidth caps are inevitable for its customers. Through the rest of the year, the cable company will be taking the model from Texas to New York and North Carolina. In announcing its plans this week, Time Warner drew waves of protest on the Web and sparked a letter-writing campaign by Free Press, asking Congress to investigate.

Indeed, Rep. Eric Massas, a N.Y. Democrat, plans to introduce a bill that would prohibit "unfair tiered price structures from Internet providers."

However, Kyle McSlarrow, president and chief executive of the National Cable and Telecommunications Association, a trade group that counts Time Warner as a member, pointed out that the industry has spent "hundreds of billions of dollars" in the deployment of broadband, doubling or tripling speeds in the last few years.

In defending Time Warner, McSlarrow said in a blog posting: "Time Warner Cable has merely suggested that they are interested in conducting a limited set of trials of a new pricing model -- in a careful and transparent manner -- that may serve the vast majority of their customers better by reflecting the growing reality that some consumers utilize far more high-speed bandwidth than others."

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