Are usage based billing and data caps going to become the standard for cable and broadband operators in the United States as a way to combat services such as Netflix, Hulu and Roku? One analyst familiar with the sector says that it is inevitable, though who is going to jump in first remains a mystery. Craig Moffett, an analyst with Sanford C. Bernstein & Co. in New York predicts that at least one service provider will make a move towards this in 2012.
"As more video shifts to the Web, the cable operators will inevitably align their pricing models," Moffett said. "With the right usage-based pricing plan, they can embrace the transition instead of resisting it."
This is certainly not the first time that cable operators have thought about usage-based billing but it's a very unpopular thing amongst customers and reaction to a move towards it has always been fiery. Moffett adds that the best option for ISP's is to find ways to squeeze profit from that online shift. That way, if revenues decline from a loss of TV subscription revenues, it would be offset by the caps and usage fees. Generally if a subscriber goes over a certain cap they have to pay an extra fee. The problem for cable operators is defining what is a reasonable cap level and a reasonable fee. Many subscribers feel that any kind of extra fee is unreasonable.
"In the end, it will be the best thing that ever happened to the cable industry," Moffett said.
Netflix is certainly not happy with the prospect of usage-based billing fees, nor is Dish Network, who runs the Blockbuster movie-rental business..
"That Netflix subscription of $7.99 could go to an extra $20 a month for bit streaming," Ergen said, making a total monthly subscription "the equivalent of $27.99."
Netflix General Counsel David Hyman said in a Wall street Journal editorial back in July that usage-based pricing is anti-competitive if it diminishes the value of rival services, wrote Netflix General Counsel David Hyman in a July Wall Street Journal editorial.
Steve Swasey, a Netflix spokesman, said that usage-based billing "is not in the consumer's best interest as consumers deserve unfettered access to a robust Internet at reasonable rates."
Groups that supported net neutrality saw this one coming when Federal Communications Commission Chairman Julius Genachowski gave cable operators concessions such as the ability to use usage-based billing. Clearly cable operators will use it and data caps as a way to recoup money lost from declining TV subscriptions and to make consumers think more about the total cost of using a streaming service. While we've talked a lot about Netflix, usage-based billing affects everything - from the files you download to the games and YouTube videos you consume every day.
This is why the FCC's net neutrality rules are being challenged in court by at least one net neutrality advocacy group: they didn't go far enough to protect consumers.