Broadband Pricing May Prompt Congressional Probe

Red flags keep being raised over Time Warner’s controversial metered and tiered broadband pricing plans. Although Time Warner has pulled back on its proposed pricing trials in the face of public complaints, Free Press April 22 asked Congress to investigate why Time Warner and other broadband providers are considering charging more for less.
Time Warner had planned a four-city test of the tiered pricing scheme that would offer a basic tier of Internet access capped at 1GB per month for $15, charging an extra $2 for every additional gigabyte. Time Warner also planned to offer higher-capacity plans ranging from $29 to $75, each with overage fees.
Under the plan, the highest possible Internet bill would be $150 per month, more than double what current Time Warner customers typically pay for unlimited usage. While Time Warner has dropped the idea for now, a tiered pricing trial continues in Beaumont, Texas. AT&T is testing a similar plan in Reno, Nev.
“It makes no sense that many consumers are being asked to pay more for Internet access at exactly the time that costs are going down and profits are up,” Ben Scott, policy director of Free Press, said in a statement.
In a letter to House Energy and Commerce Committee Chairman Henry Waxman calling for lawmakers to investigate the pricing models, Scott added, “The usage limits appear to be arbitrarily low and the overage charges appear arbitrarily high when compared to the behavior of other providers and when considering the underlying costs of providing service.”
Free Press noted that Verizon and Cablevision are competing without limits or overage fees.
Time Warner claims some sort of usage limit is necessary because heavy users are already slowing Internet connections for others and with Internet video traffic dramatically increasing the problem will only grow worse.
“Here at Time Warner Cable, consumption among our high-speed Internet subscribers is increasing by about 40 percent a year,” Time Warner Chief Operating Officer Landel Hobbs said in an April 9 statement. “As a facilities-based provider, we’ve built a network that must be maintained and upgraded. We have increasing variable costs and we have to continue to invest in the network itself.”
Free Press’ Scott counters that Time Warner is overstating the issue since available public data suggests that the usage fees proposed by Time Warner are well above the marginal cost of providing Internet service. In a recent Time Warner SEC filing, the company reported decreased per-subscriber costs in 2008, in large part because of decreased connectivity costs.
“We are not persuaded by the arguments from network owners that these new [overage] penalties are necessary,” Scott said. “Implementing new fees that will limit the growth of Internet video smacks of anti-competitive activity. It will discourage use and innovation on the Internet, right at the time we need this sector to help pull our country out of recession.”