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Caps: Innovation Killer?
Paper: killing off power users not a great idea...
by Karl Bode 04:08PM Tuesday Sep 30 2008
With Comcast's new 250GB monthly cap going live tomorrow, industry journalist Om Malik drops us a line to note he's published a new white paper exploring how Comcast's decision will "become the symbol of a new Internet era." Malik is no friend to caps, previously arguing that a shift away from flat-rate pricing and toward caps and overages is the enemy of innovation. The white paper, co-written by former Bell Labs employee Muayyad Al-Chalabi, argues that carriers should spend more time improving their offerings, and less time making power users angry.
quote:
Carriers are better off simplifying the pricing schemes based on value provided to customers; such value can be demonstrated through higher access speed, local availability of content, and consistent quality of service. The current path of shifting from unlimited usage to a usage-based pricing scheme is shortsighted since it does not account for the total value of content delivery. Today, it targets heavy users, while tomorrow it will affect all users.
The gist? About the only thing caps and overage charges are going to provide is higher prices for consumers. Using Time Warner Cable's current trial in Beaumont, Texas as a starting point (40GB cap and $1 per GB overages on the fastest tier), the paper explores how their pricing quickly becomes unreasonable:
quote:
If we take Cisco’s traffic usage numbers for an average household of 200 Gbytes per month by 2012, then the monthly household bill will be $214.95 ($54.95 fixed with limit of 40 Gbytes plus $1 per Gybte above the limit). Today’s high-speed Internet access ARPU is around $42 per month; 5X today’s plans
Not only is today's power user tomorrow's average user, but, the paper argues, they're an essential part of the content innovation and delivery hub. It argues that ISPs are better off embracing these users, and potentially caching hot (and obviously legal) content on the ISP head end. The problem is a lot of the hot content is pirated, and caching legit content often runs afoul of Hollywood, as IP Democracy points out.
quote:
Believe me, most broadband providers would love to do this. One tiny problem, however, is that copyright owners (in the case of, say, Hollywood films) or application providers (in the case of, say, Skype) would want their share of any revenues generated by the broadband providers that flow from the "increased value" offering.
Of course the argument to cap or significantly reconfigure content distribution assumes that we can't just leave the existing flat-rate uncapped model in place. The current combination of flat-rate pricing, sensible upgrades and intelligent (and hopefully transparent) network management seems to be treating most ISPs' bottom lines rather well. But while carrier execs argue that looming congestion has made the current pricing paradigm irrelevant, others, like Andrew Odlyzko, argue said congestion is manageable with just a few modest capacity upgrades.


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Matt3
All noise, no signal.
Premium
join:2003-07-20
Jamestown, NC
kudos:12

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Money Grab

This is nothing but a money grab.

If we look at the cell phone industry as an example, we see that people know exactly how long and exactly what a minute is -- yet they still go over their monthly allotment. This is exactly what implementing a cap will accomplish. Ask your neighbor how much their monthly usage is and they'll have absolutely no idea. Much less so if they have children using the internet. So the cable companies can provide less for the same monthly fee and then pop you a few times a year for an extra $15 or $20 in overages.

Along with that, there are the online movie delivery services which are a threat to the bottom line of any of the big companies who also provide Video on Demand. This is a very easy way to nip that little problem called "competition" in the bud before it can gain a foothold. It's no coincidence Time Warner and Comcast - the two largest providers of VoD in this country - are rushing to implement this. The Netflix Roku, XBox Store, XBox/Netflix partnership, PS3 online store, DirecTV Internet Service, plus the Youtube's and Hulu's are not only eating into their VoD business, but driving up their cost of providing your cable modem.

While I think Comcast is being generous at the moment with their cap, as digital distribution of video - especially High Definition Video - becomes more mainstream, the caps need to be reviewed and raised on a regular basis.

Additionally, the prices need to be kept to a reasonable level. Time Warner's assertion that a GB of data needs to carry a 1500% premium over the actual cost of delivery is madness and monopolistic greed at its worst.

While I loathe to mention government regulation at the present time, here is a perfect example of how a little regulation would go a long way to provide assurances that competing video delivery services can sprout among the Comcast and Time Warner redwoods.
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trebzon

join:2001-09-03
Grandville, MI

3 recommendations

Poppycock

It is all poppycock. Competition in this area is a myth. We need to eliminate franchises and allow and encourage multiple threads of service. I.E. Charter and Comcast in one town. Verizon and AT&T in one town. The current system is garbage and I resent my lack of choices or how little my voice or vote with my pocketbook matters.