The price-gouging premiums of Time Warner Cable's data caps
Time Warner Cable, stung by online criticism of its paltry traffic caps (in tests, these have ranged form 5GB/month to 40GB/month) and ludicrous pricing schemes, has taken to the 'Net to defend its sullied honor. But it's hard to defend a scheme with fees so high they might well meet the legal definition of "obscene."
First, the response: Time Warner Cable COO Landel Hobbs wrote earlier this week of the need for people to pay for the bandwidth they consume. "When you go to lunch with a friend, do you split the bill in half if he gets the steak and you have a salad?" he asked.
Fair enough. Bandwidth costs (a little bit of) money, and there's certainly no reason for customers to demand the ability to transfer 4TB of data a month for one flat fee. But TWC's steak/salad analogy breaks down when it's crafted more accurately. The real question is whether you would even have lunch with a friend at a restaurant that charged $45 for a salad and $200 for a steak. Certainly, in a free market, most people would go elsewhere.
But this sort of absurd price structure perfectly characterizes the new TWC plans. Let's take a look.
Just how overpriced is that steak?
As TWC expands its test markets for the data caps, it offers plans with 5GB of monthly data transfer for $30. Plans with 40GB of data go for $55. The thinking here is that most customers currently use only 4GB per month or so, and offering those customers a cheaper rate is actually doing them a favor. As Hobbs puts it, "Our current pricing plans require all users to pay the same amount, whether they check e-mail once a month or download six movies a day."
But the only favors being done here are to TWC's bottom line. That base rate works out to a truly jaw-dropping $6 per GB per month, and it's so far out of line with competitors' plans as to shock even the most cynical heart.
Take AT&T's DSL, for comparison. The most expensive plan on offer (unless one subscribes to the U-verse IPTV system) is $35 per month for 6Mbps DSL. AT&T has no explicit data cap, but let's use 400GB as an illustrative limit. AT&T DSL comes out to 9¢ per GB.
Verizon's fiber-optic FiOS system can be had for as little as $44.99 a month if you're content with 10Mbps downstream. Assuming a 400GB cap (Verizon also has no explicit cap), this comes out to $.11 per GB. Upgrading to the much faster 50Mbps service for $144.95 a month still means that the charge per GB is only 36¢.
The situation is similar at other cable operators. Comcast offers Internet service starting at $42.95 per month and has a 250GB cap in place; this works out to 17¢ per GB.
TWC claims that the caps are needed to "make improvements to infrastructure" that are necessary for higher speed access, but it's hard to see how. Comcast is aggressively rolling out DOCSIS 3.0 upgrades across its service area. In Chicago, it already sells a 50Mbps plan for $139.95—only 56¢ per GB.
Besides, the dirty secret of these DOCSIS 3.0 rollouts is that they're cheap. Cable companies need to upgrade hardware at the headend and may need to send out a new cable modem, but this is hardly expensive. A New York Times piece last week quoted industry insiders who said the job could be done for between $20 and $100 (the latter figure includes a new cable modem).
If TWC wants to be "fair," as Hobbs says, perhaps it can start by rethinking either its caps or its prices. Even its most generous plan, 40GB per month for $55, costs a ridiculous $1.38 per GB. (The company has heard the outraged cries of its users and will eventually offer a 100GB cap option; pricing, however, is not yet set.)
As Dave Burstein, editor of trade publication DSL Prime, put it recently, "No one is going to stop Comcast, Verizon, or AT&T from practices that are truly necessary to efficiently run a network. The issue is blocking competitive video and charging 1,000 percent and higher markups on bandwidth that are unacceptable."
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