Is Usage-Based Billing Inevitable in the U.S.?

December 1, 2011 -

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.

Source: SFGate

 


Comments

Re: Is Usage-Based Billing Inevitable in the U.S.?

Monthly caps should be increasing at least 50% every six months if they're going to play it this way. (Okay.. maybe not 50%.) The intent being that ISPs have GOT to re-invest in their networks rather than let it stagnate.

For the record, my household, which has three people, uses on average 200GB a month. That's video, audio, games, and text. All of this is legitimately purchased content. All of this is on a "business" connection so we avoid the 250GB limitation that residential customers have. When games themselves are pushing the boundaries of 30GB to download, and legitimate high-quality media is coming down the pipe, ISPs must improve.

Even then, I'd still argue simply that the bandwidth for any traffic coming into my home or business is still paid for by BOTH sides.

Re: Is Usage-Based Billing Inevitable in the U.S.?

Thing is that there are still parts of this country that run on dial up.

Re: Is Usage-Based Billing Inevitable in the U.S.?

Most people forget this is how it was in the 90s or rather you payed per hour until that evil big corporation *join in hands Liberals!* Microsoft joined in on the dial up market and offered a flat monthly fee.

If all the cable companies choose to go down the path of tiering their service and putting caps it won't be long until a company comes out with a better or faster service with a monthly tier everyone will flock too.

Also Netflix cannot afford to raise their price up anymore since their stock is plummeting after they decided to go into the cable business which led to studios wanting more money and thus Netflix raising their price to appease Stock holders but then lost stock holders with the customer defection.

Netflix stock is currently 67.17 per share. It was 298.73 before the customer defections. Thats a page change from the summer to December. Also their stock almost went down to 50 this week alone.

At this point Netflix if it goes down lower I see a hostile take over of Netflix. Either way Reed Hastings needs to be replaced as CEO and they need to get out of the cable business and realize they are a streaming and rental service. When they bought out the rights to Arrest Development that sent the stock down anymore since the whole problem with Netflix was that they wanted an exclusive TV series by Kevin Spacey which pissed all the studios off royally.

http://www.google.com/finance?client=ob&q=NASDAQ:NFLX

Re: Is Usage-Based Billing Inevitable in the U.S.?

Dial-up is always what I think of when the topic of usage-based billing comes up. In all my dial-up subscription options, it was either time-based usage or unlimited. That time-based usage was measured in hours per month, so a little different from this. When I first got broadband, every offering was unlimited.

Looking back on it now, I think of it sort of like a precident issue in the world of law, which I know admittedly little about. Broadband seemed to initially be offered in unvarying flavors of unlimited usage to compete with the much larger dial-up market.

Yes, we know now that broadband is better and more desirable than dial-up, but at the time, dial-up seemed to be all a lot of consumers needed. As business teaches us, when something new comes along--a change to a system, a new product, etc.--it must be significantly better to succeed, so broadband companies had to make their offerings that much better than the established order.

Now, I look to law for a specific example. It came up in the California case, if I remember right, but one of the SCOTUS justices said that in America, we have a legal precident for censoring sexual content, but not violent content. Personally, I think both forms of censorship are equally harmful, but that's another matter. The example comes to mind because, as young as the broadband market is, it has historically offered unlimited bandwidth to its customers or, in the least, advertised as much (Comcast's monthly data limits come to mind here).

Taken another way, it sort of feels like changing the rules of the game halfway in.

Re: Is Usage-Based Billing Inevitable in the U.S.?

I think any company switching now would likely see a large backlash of people switching service.  Unfortunately probably not enough to kill them, but hopefully enough to keep others from trying it.


Re: Is Usage-Based Billing Inevitable in the U.S.?

The US is one of the few countries with unlimited bandwidth I believe. I pay $59 a month for ADSL2 (bring on the NBN!) and that gets me $150G a month. Unless I go seriously overboard on downloading every show I can think of I rarely cap it.

 

It's not the death of the internet.

Re: Is Usage-Based Billing Inevitable in the U.S.?

I take it you've never been to mainland Europe? Or are you a shrill?

Re: Is Usage-Based Billing Inevitable in the U.S.?

They think that since they made such and such amount of profit in the legacy technologies, that they are entitled to have it with new technology replacing it. That's not how it works. If the fundamental rules change, you can't disregard it and try to change the game in your favor.

 

-Greevar

"Paste superficially profound, but utterly meaningless quotation here."

Re: Is Usage-Based Billing Inevitable in the U.S.?

God I hope not.

If the likes of big corps & the government don't kill the internet, the ISPs just might with this.

 
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