Is Tiered Pricing an ISP Scam?

Beaumont, Tex., may not be the most well-known town in America, but it’s about to become one of the most influential.

The town of 114,000 has been randomly selected as the host of a grand experiment that may forever change how we pay for Internet access. Multimedia giant Time Warner will soon begin testing a tiered-pricing scheme that will charge new customers who consume large amounts of bandwidth more than those who do not.

Currently, Time Warner charges its users a flat fee for Internet access regardless of how much (or how little) bandwidth they use over the course of a given month. But the all-you-can-eat structure has encouraged some users to gorge themselves to the point of popping buttons and slowing down traffic for everyone, or at least that’s what the ISPs claim.

“There’s a user in New York City who downloaded the equivalent of 1,500 high-definition movies in a month,” said Alex Dudley, a spokesman for Time Warner Cable. “But the average customer uses less than 20GB per month.”

Time Warner has chalked this test up to one of preventive necessity. The company claims that a mere 5 percent of its users are responsible for more than 50 percent of online traffic; a number that has grown with the breadth and accessibility of online content. Time Warner can determine bandwidth use by tracking users’ downloads. Dudley argues that these “power users” will eventually cripple the Internet from downloading large music and video files through BitTorrent and other peer-to-peer sites.

Although the average Time Warner customer isn’t negatively impacted by these bandwidth hogs at the moment, the company is taking a pre-emptive strike against such users before their excessive downloading produces a sluggish Web experience for others. 

What exactly constitutes excessive usage? Time Warner’s vaguely worded Acceptable Use Policy says that the service can’t be used in any fashion that would interfere with the company’s ability to service others, “including the use of excessive bandwidth.”

“I guess you could say that we didn’t learn much from AOL,” said Stephen Baker, vice president of industry analysis at The NPD Group. “When we went away from pay-per-minute and pay-per-hour structures, Internet usage went up dramatically.”

Although some argue that tiered-pricing structures are a step backwards, others see it as the natural evolution of a free-market society. “The Internet started out in the 1990s with a pay-per-minute price scheme,” said Jeff Kagan, telecom industry analyst. “The broadband era brought all you can eat. Pricing always changes.”

Temporary Fix

Some Internet providers have pondered charging extra fees to content providers in order to provide the extra data capacity required for the exponential increase in bandwidth usage. And presumably, this cost increase would be passed on to consumers.

Instead, Time Warner has eliminated the middleman and is looking to attack the source of the perceived problem. But Kagan’s concern goes beyond whether or not tiered pricing is necessary. He wonders if Time Warner’s big experiment in the Southwest is nothing more than a Band-Aid covering a knife wound.

“[Tiered pricing] is a good idea, but as companies offer more movie downloads and streaming media, all consumers will use more bandwidth,” Kagan said. “Right now, tiered pricing is a temporary fix, but in two years when there are far more power users, then what?” Dudley replied that as overall bandwidth use increases, Time Warner would make the appropriate pricing changes to match the new demand.

At the time of this writing Time Warner hadn’t publicly revealed when the Beaumont experiment would begin or how much the tiers would cost, but Dudley stated that the tiers would be positioned in such a way that “pricing isn’t significantly changed for the average user.”

Although Baker agrees that there’s “clearly a group that’s abusing the terms of service,” he doesn’t fully support the idea of a tiered Internet. He believes that it’s necessary to keep the entirety of the Web accessible to everyone with a computer and Internet connection.

“The general theme is content providers versus ISPs and users. It’s all about who owns the pipes and who gets to regulate it,” Baker said. “The government’s job is to regulate companies who can provide service.

Frankly, the Internet isn’t a luxury, but a necessity, just like gas, oil, heat, and phone service. If we are to consider Internet access a public utility, then it is the government’s responsibility to ensure a fair playing field. That involves monitoring and managing [ISPs].”

Will Other ISPs Follow Suit?

A Cablevision representative declined to comment on the company’s stance on Time Warner’s move or if it has a similar plan in the works, but Comcast is more open about the idea of implementing a tiered-pricing plan.

“Comcast does not currently offer a consumption-based service,” said Charlie Douglas, director of online and voice services at Comcast. “We continuously evaluate a variety of models, including consumption-based billing, to ensure that we deliver our customers a great experience online.”

Douglas mentioned, much like Time Warner, that a tiny fraction of Comcast users (less than 1 percent of customers) are using an inordinate amount of bandwidth, which violates the company’s Acceptable Use Policy. Comcast identifies excessive use as sending 20,000 high-resolution photos or 40 million e-mails, downloading 50,000 songs, or viewing 8,000 movie trailers.

In most cases, users curbed their large bandwidth consumption when contacted by the ISP, instead of acquiescing to Comcast’s demand that they upgrade to commercial accounts—accounts that are usually reserved for small businesses.

What do the locals think? Adrian Smith, a Beaumont, Tex., resident, isn’t too keen on the “pay more to use more” structure. “I don’t think anyone should pay extra money for using the Internet,” Smith said.

“If you’re online, you’re online.”