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Will Charter-TWC Merger Scrap the Cap?

Deal conditions may put data limits, usage-based pricing in jeopardy across the industry 5/16/2016 8:00 AM Eastern
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Deal conditions imposed in the Charter-Time Warner Cable could put an unwanted spotlight on usage-based pricing and data-cap policies across the industry.

In a decision that could have far-reaching implications for the nation’s Internet-service providers, the Federal Communications Commission imposed a condition on Charter Communications’s acquisition of Time Warner Cable and Bright House Networks that will bar the post-merger Charter from imposing data caps and usage-based pricing policies for a period of seven years.

 

That condition, alongside others that prevent New Charter from charging interconnection fees and entering programming deals that could harm online video distributors, clearly are in place to keep the MSO from erecting barriers that could tamp down OTT competition.

 

The FCC so far has not moved to pursue rules that would fit similar collars on other ISPs, but chairman Tom Wheeler has tasked the commission with investigating the impact of data caps, usage-based policies and zero-rated offerings that exempt some services from an ISP’s or mobile carrier’s usage policies.

 

CAUSE FOR WORRY

That posture is cause for concern for ISPs that have implemented or are testing usage-based policies that are being built into their business models. While ISPs that use such policies preach that it’s about fairness — those who use the most bandwidth pay more than those who don’t — critics see them as a tool to keep over-the-top video competitors in check.

 

Industry analysts offer various opinions as to how the Charter conditions will affect ISPs that currently use data caps and usage based pricing. And it’s still too early to tell if those conditions will put much pressure on other ISPs to voluntarily toss out their capping and usage-based data policies, at least in the near-term, Jeff Wlodarczak, CEO and senior media and communications analyst of Pivotal Research Group, said.

 

Wlodarczak also doesn’t believe the lack of a usage-based pricing option will have much of an effect on the MSO’s current business strategy, which is focused on driving revenue generating units (and revenue) without being super-aggressive on price.

 

It’s also possible that Charter could try to compensate in other ways, such as driving customers to higher-end, more expensive tiers of service. Charter’s entry-level speed — 60 Megabits per second downstream — is already faster than the lower-end services marketed by many of its MSO peers.

 

Though it’s not clear if the FCC’s condition on Charter will affect other ISPs directly, some have recently tweaked their policies and begun to offer new unlimited data options that are OTT-friendly (see sidebar, below).

 

MoffettNathanson principal and senior analyst Craig Moffett said that the Charter conditions and recent data policy changes implemented by ISPs do change the game, because they effectively take usage-based pricing off the table as pay TV operators continue to face off against rising OTT competition.

 

‘CALM BEFORE THE STORM’

“It’s hard not to see this as simply the calm before the storm,” Moffett noted earlier this month in a semi-regular “Cord-Cutting Monitor” report, citing Hulu’s coming multichannel service, new OTT options from DirecTV and Amazon, and a virtual pay TV service called “Unplugged” that YouTube reportedly has in development.

 

“If and when the rains come, cable operators won’t have the umbrella of usage-based pricing,” he wrote. “We’ve always described UBP as an insurance policy, not to forestall OTT video but simply to make cable operators economically indifferent to it.”

 

On that note, Moffett has long considered usage-based pricing as a mechanism for MSOs to preserve a “transport charge” for video.

 

“With Charter committing to no UBP for seven years, and with Comcast … raising usage caps from 300 GB to an all-but-irrelevant 1 TB per month, UBP is now essentially off the table,” Moffett said. “That doesn’t make cord-cutting any more likely. But it does leave cable more vulnerable.”

 

Some ISPs that have implemented caps and usage-based pricing clearly are troubled by the FCC’s condition on the Charter-TWC deal and the potential threat it might pose to their future policies.

 

“Charter’s concessions related to usage-based pricing and data caps are certainly concerning,” Thomas Larsen, Mediacom Communications’ group vice president of legal and public affairs, said in a statement soon after the FCC’s proposed conditions were circulated. “Promoting a model in which the vast majority of a company’s broadband subscribers subsidize the behavior of a small group of heavy bandwidth users seems to go against the fundamental principles of American commerce.”

 

When the FCC was still considering the order that was eventually issued that bans Charter from using caps and usage-based broadband pricing for seven years, AT&T said it was “apparent that some or all of the conditions will have a broad effect beyond the parties to the merger.”

 

 

SIDEBAR: Fitting Customers With Different Data Caps

U.S. ISPs, both big and small, have been gravitating to unlimited data plans and soft caps that charge extra when monthly limits are exceeded. Here’s a snapshot of policies that have been deployed or are in the pilot phase:

 

Comcast: Starting June 1, Comcast will move to a monthly 1-Terabyte data plan in its current group of test markets, including Atlanta; Tucson, Ariz.; Chattanooga, Tenn.; and Charleston, S.C. Customers who exceed that ceiling can buy an additional 50 GB of data for $10, or move to a new unlimited data plan that costs $50 more per month.

 

AT&T: In March, the telco introduced an unlimited data plan for its U-verse and GigaPower residential broadband service that costs an extra $30 per month for customers who take a standalone data service, but, as an incentive, drops that charge for customers who bundle Internet with U-verse video or DirecTV service and pay on a single bill. Customers without unlimited data plans must pay $10 for an additional 50 GB when they exceed their monthly limit.

 

Mediacom: Also sells additional data buckets of 50 Gigabytes for $10 each when customers exceed their monthly limit, which scales up and down depending on the speed of the customer’s data tier. Mediacom has set a high monthly allowance of 6 Terabytes for its new 1-Gbps residential broadband service.

 

Suddenlink: The Altice-owned operator launched an unlimited data plan that is available to customers who take its two fastest tiers in a given market. Subs not on Suddenlink’s unlimited plans may pay $10 for an additional 50 GB when they exceed the limit.

 

BendBroadband: The operator, now owned by TDS Telecom, has set different monthly data limits based on the speed of the customer’s data subscription, and charges $10 per month for an additional 50 GB when customers exceed their limit. On May 9, BendBroadband began to exempt customers from those policies if they bundled Internet service with pay TV. BendBroadband estimates that more than half of its Internet customers are now longer subject to its datausage policy.

 

GCI: The Alaska-based operator’s “No Worries” data policy sets monthly data caps that scale up and down depending on speed, with the option to buy an additional 30 GB of data for $10 each when subscribers exceed that; upgrade to a different plan with a higher monthly limit; or get moved to a “basic level of service” (less than 1 Mbps) with no overages.

 

SOURCE : Multichannel News research

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