AT&T Sets Broadband Meter Running

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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

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

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’).”


• 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.