AT&T Sets Broadband Meter Running

Usage-Based Billing Move Could Pave Way for Cable to Follow

By Todd Spangler -- Multichannel News, 3/21/2011 12:01:00 AM

It might be the beginning of the end for the all-you-can-eat broadband buffet.

AT&T last week disclosed that, starting May 2, it will impose monthly usage caps on wireline broadband customers — and charge overage fees for additional data.

The telco will limit regular digital subscriber line customers to 150 Gigabytes of data uploaded or downloaded per month, while U-verse Internet DSL customers will be capped at 250 GB. AT&T will charge $10 for each 50 GB used beyond the caps, AT&T said.

AT&T’s plunge into usage-based billing may provide “air cover” for large U.S. cable operators to do the same, according to Sanford Bernstein senior analyst Craig Moffett.

“We view the move as good news for all the terrestrial broadband operators,” he wrote in a research note.

Moffett expects U.S. cable operators to follow AT&T’s move by introducing pricing plans that include caps for lower-end packages and surcharges for additional usage. The first MSOs likely to do so are Charter Communications, Cox Communications and Time Warner Cable, with Comcast “the least likely to move in the short term,” he said.

Among many consumers, the general idea of eliminating fl at-rate broadband is unpopular — and likely to elicit angry or indignant reactions.

“AT&T’s actions are another troubling symptom of a broadband market that lacks meaningful competition, and this move may be the start of a race to the bottom among other providers to see who can squeeze its customers the most,” Free Press research director Derek Turner said.

One of the keys to successfully introducing caps and usage- based billing is to translate gigabytes into what they actually mean in terms of everyday Internet usage, said David Jacobs, chief technology officer of Amdocs’ broadband, cable and satellite division. The company provides billing systems to telecommunications providers and other industries.

“I don’t think people want to buy raw bits per second,” he said. “If bandwidth caps are going to occur, they have to be in a language that humans understand — like, ‘I can watch 100 movies a month.’ ”

Roughly speaking, one hour of standard-definition video streamed over the Internet consumes about 1 GB.

Last summer, when AT&T adopted usage-based billing for its wireless data plans offered for the iPhone and other smartphones last year, it also launched an online data calculator to help customers estimate bandwidth needs based on how many e-mail messages, videos and Web pages they expect to access.

Still, for wireline providers, the issue of usage-based billing has been fraught with controversy.

The last time metered bandwidth was seriously evaluated by a big U.S. wireline operator — Time Warner Cable, in the spring of 2009 — it rapidly became a public-relations nightmare. After the MSO disclosed plans to test consumptionbased billing in four additional markets, beyond its initial trial in Beaumont, Texas, the outcry from users and elected officials forced it to back down. TWC chairman and CEO Glenn Britt later characterized the episode as “a bit of a debacle.”

Major cable operators said they do not have immediate plans to adopt usage-based billing.

But clearly some MSOs are actively investigating the models. Charter CEO Mike Lovett, on an earnings call with Wall Street analysts this month, said the operator was considering usage-based pricing, for low-end tiers, targeted at dial-up users.

“I think there is an opportunity to look at usage-based pricing not necessarily at the high end but at the low end, to create some attractive price points that are tied to usage to bring folks out of the dialup experience,” Lovett said.

Among major MSOs, Comcast, Cox and Charter each have set maximum monthly data-usage limits. Comcast, for example, limits all broadband customers to 250 GB of data usage per month but does not bill for additional usage; instead, the MSO’s policy is to notify users that they have exceeded the cap and terminate service if excessive use continues.

For its part, Verizon Communications also said that — for now — it won’t implement usage-based pricing for fixed broadband customers.

But even Verizon executives have said that at some point flat-rate pricing for unlimited broadband will be unsustainable given expected usage growth. At an industry conference in 2009, Richard Lynch, then Verizon’s chief technology officer, said, “We’re going to have to consider pricing structures that allow us to sell packages of bytes, and at the end of the day the concept of a flat-rate, infinitely expandable service is unachievable.”

Meanwhile, Canada’s largest cable operator, Rogers Communications, moved to consumption-based broadband pricing several years ago, as did Cogeco Cable. Shaw Communications, by contrast, last month temporarily suspended plans to implement Internet-usage billing, amid a public controversy in the country after Canadian regulators proposed a plan to allow usage-based pricing for wholesale Internet access.

According to AT&T, less than 2% of its broadband customers will be affected by the change. The company said DSL customers use an average of about 18 GB per month.

“We are committed to providing a great experience for all of our Internet customers,” the company said in a statement. “We will communicate early and often with these customers, so they are well aware of their options before they incurany additional usage charges.”

The advent of bandwidth caps and overage fees by wireline broadband providers has implications for over-the-top video. Moffett said AT&T’s usage caps on DSL users are high and noted that “only video can drive that kind of usage.”

“[I]f consumption patterns change such that web video begins to substitute for linear video, then the terrestrial broadband operators will simply adopt pricing plans that preserve the economics of their physical infrastructure,” Moffett said. “Of course, any move to preserve their own economics has far-ranging implications. Any move towards usage-based pricing doesn’t just affect the returns of the operators, it also affects the demand of end users (the ‘feedback loop’).”

BILLING FOR BITS

• AT&T will limit regular DSL users to 150 Gigabytes and U-verse Internet DSL users to 250 GB per month.

• Users will be charged $10 for every 50 GB beyond the caps.

• The telco’s DSL subscribers use an average of 18 GB per month.

SOURCE: AT&T