Some reporters on Comcast’s call yesterday about its new bandwidth-cap approach were confused: If only a very small number of subscribers even approach the 250-Gigabyte limit today, what is even the point of having a cap? (See Comcast To Shift From Broadband Caps To Usage-Based Pricing.)
Comcast EVP David Cohen responded, “It’s a matter of messaging, rather than capacity. We just didn’t like the message we were sending to consumers, that they had a static, 250-Gigabyte cap.”
Right, you might ask, but why not “send the message” that subscribers can have unlimited, all-they-can-eat, flat-rate broadband forever? That’s a simple proposition (and it’s what Netflix has agitated for), so why can’t Comcast just suck it up and give people what they want?
Because it’s unsustainable. “Our network is not an unlimited resource,” Cohen noted.
Internet service providers like Comcast, AT&T, Cox and Charter say they’ve instituted monthly bandwidth-usage thresholds as a way to ensure good service to 99% of their customers — by capping the 1% or so of elite broadband users who use a disproportionate amount of the network (see Last Call At the All-You-Can Eat Broadband Buffet).
There’s no way ISPs can keep delivering unlimited usage to all customers without raising rates or otherwise absorbing infrastructure costs, with the dramatic spike in usage driven by services like Netflix (see Think Bandwidth Caps Are Unnecessary? Check Out This Graph and Netflix Streaming Traffic Grew 30% In Last Six Months: Study).
Note that Morgan Stanley has estimated that a typical American TV household would eat up 600 Gigabytes of data to stream the equivalent amount of video over the Internet — that’s double Comcast’s revised 300 GB threshold (see Delivering HDTV to Typical Household Entirely Over-the-Top: About 600 Gigabytes Per Month).
Comcast says the usage-based pricing provides a way to recoup its investment in network upgrades. “Appropriate pricing has to take into total costs of building, maintaining and expanding the network — not just incremental operating costs,” Cohen said on the call.
Conspiracy theorists won’t be dissuaded that Comcast’s move to cap-and-surcharge plans (like AT&T’s) is really about discouraging consumers from canceling cable TV and getting all their video over-the-top. (On a related note, apparently upwards of 20% of Americans believe the U.S. government faked the moon landing.)
Is Comcast planting a hedge against a totally Internet TV future? I don’t think that’s the motivation here, at least in terms of Comcast allegedly wanting to give its own TV service a price advantage over a “virtual MSO.”
But in any case, the adoption of usage-based broadband pricing is a necessary step to ensure ISPs can deliver on the enormous capacity demands on the horizon.
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