Broadband Sticks, Or Carrots?


Who’s next in line to hit bandwidth pigs
with surcharges?

Today (May 2), AT&T is set to become the first major U.S.
broadband provider to not just impose specific usage limits
on subscribers, but also tack on
fees if those caps are busted.

The telco’s policy applies to all
users, though AT&T estimates less
than 2% of its entire base of digitalsubscriber-
line customers will hit
the caps. The company has tried
to explain that the move is aimed
at easing network congestion — to
improve service for all customers.

No matter how AT&T spins it,
such a change won’t be viewed
favorably by most customers, according
to Leichtman Research
Group president Bruce Leichtman.

“Consumers want stable pricing,”
he said. “The magic of the
bundle is, consumers don’t have
to worry about what their bill is
every month.”


Added Leichtman: “It’s not the
stick and the carrot — it’s just the
stick. The purpose of this is not to
please consumers. The purpose
of this is to punish the heavy users.

AT&T will limit U-verse Internet
subscribers to 250 Gigabytes of total
usage (downloads and uploads)
and traditional DSL subscribers to
150 GB. For every 50 GB beyond
those, customers will be charged
$10 (equivalent to 20 cents per GB).

All Internet-service providers,
to a different extent, spell
out in their terms of service that
extraordinarily heavy broadband
usage isn’t allowed. Some
big MSOs, including Comcast,
Cox Communications and Charter
Communications, have set
explicit limits but don’t charge
overage fees, while a few smaller
cable operators in the U.S.
have already moved to cap-and-surcharge models (see

Some analysts argue that AT&T is showing leadership
on this issue and paving the way for other Internet-service
providers to put into place the necessary pricing mechanisms
to sustain network investment.

“This isn’t about protecting against the data network being
swamped with excess usage,” Sanford Bernstein senior
analyst Craig Moffett said. “This is about putting the
business model on a stable, long-term economic model.”

Ultimately, according to Moffett, cable operators and
telephone companies are “simply infrastructure providers
and they have to earn a return regardless of whether
the service they provide is called ‘cable TV’ or ‘broadband.’
As viewing shifts from cable TV as we know it to Internet
video, they have to be in an acceptable place to earn a return
on the investment in their infrastructure.

If there’s a surprise about AT&T’s usage limits, it’s that
the telco did it across the board, Moffett said, instead of offering
a “carrot” at the low end of less-expensive, capped
tiers. That’s where he expects cable providers to start.
Charter, for one, has said it’s investigating the prospect
of a low-end broadband tier, priced less than its conventional
plans but with overage charges.

What’s pushing ISPs toward eliminating all-you-caneat
broadband isn’t the previous
bête noire of peer-to-peer file
sharing. The bulk of bandwidth
usage today is over-the-top video
streaming — specifically, by
users of Netflix’s Instant Streaming

Netflix racked up about 3.6 million
subscribers in the first quarter
of 2011, about half of whom
take the $7.99-per-month streaming-
only plan. Th e company now
has 22.8 million customers in the
U.S., about as many basic video
customers Comcast had at the
end of 2010.


BendBroadband, an independent
cable operator in Bend,
Ore., has cited the surging demand
from Netflix as one of the
reasons it caps most users at 100
GB and charges fees for use beyond

“[T]he volume of data associated
with Netflix drives significant
incremental investment in the
network and the need to purchase
more bandwidth in order to maintain
the user experience, and this
must be funded,” BendBroadband
says in a frequently asked questions
section on its website.

Netflix’s senior executives, in
discussing first-quarter results,
called out data-usage caps enforced
by Canada’s Rogers Communications.
Those range from
2 GB for the MSO’s Ultra-Lite
economy tier to 175 GB for the
Ultimate 50 Megabit-per-second

To help Rogers subscribers stay
under those caps, Netflix now lets
Canadian customers opt for lower-
quality video so that 30 hours of viewing can consume
as little as 9 GB (down from as much as 70 GB).

“We’ll study how this affects consumer attitudes about
Internet video, and take appropriate steps if needed,”
Netflix CEO Reed Hastings and chief financial officer
David Wells wrote in a letter to shareholders last week,
adding, “Comcast has had 250-Gigabyte caps for years
without overage charges, and that hasn’t been a problem
for Comcast customers or for us.”