Tiered Internet Services Coming?

On January 18, Business Week published an interesting article about a trial Time Warner’s cable division will be running in Texas later this year. Here’s a quote from the article:

Time Warner Cable plans to test a multi-tiered price system for high-speed broadband service later this year. New customers in the trial area of Beaumont, Texas, will be charged different rates based on the amount of data consumed in a month, much like a cell-phone plan charges based on minutes used.

Right now Time Warner is saying they will offer plans priced for up to 5, 10, 20, and 40 gigabytes per month, with middle-tiered plans running roughly the same amount average users currently pay (around $30 per month) for high-speed connections. The company also says they will allow customers to go over their limit but they will be billed for the extra.

This actually makes some sense from both a business and a consumer perspective – the ISP’s have always said 5% of users consume as much as 50% of network capacity downloading vast numbers of large files, such as movies, videos, and songs. I think of my parents who use little bandwidth to check email and occasionally surf the web and compare them to our house where my teenagers are often watching and uploading videos on YouTube, uploading to Flickr, downloading Mike Q and my podcasts , etc. I’m certainly not putting my kids in that top 5% but you get the idea – why are my parents paying just as much as us when we’re using a lot more bandwidth?

Companies looking to sell audio and video products on the web (NetFlix, Apple, Amazon, etc) are the ones who could ultimately get hurt. If I’ve used up my 20 gigabytes this month I’m not going to download that movie I wanted to watch on Friday night……… Here’s another piece from the article:

Another unintended consequence of tiered pricing is that it could discourage some companies from launching new services that require large bandwidth, consumer advocates say. The plans could also penalize early adopters whose heavy use of new services helps developers come up with refinements that use up less bandwidth……

According to the Business Week article, Comcast is considering a similar plan. Right now, Verizon does not appear to be.

I’ve written in the past about the Amazon Kindle eBook reader. The Kindle uses a cellular network connection to deliver books purchased by users. The cost of cellular service is bundled into the price of the book by Amazon - users do not need a cellular contract to make purchases on their Kindle. Perhaps the ISP’s should consider similar arrangements with companies selling audio and video products on the web.