Part One: Killing Economic Performance.
Last Thursday, we published an interview with the VP of PR for Time Warner Cable about plans to roll out data caps in the city of Austin and three other cities – Austin the most high-tech focused of the three.
In this three-part post, we’ll take a look at how at how data caps affect performance – economic performance, overall network performance, and the impact they have on your company’s network performance.
First, let’s talk broadly about the economic aspects of it – Austin is a high-tech community. It is not the /only/ high tech community in America. Small businesses will end up paying more for broadband, large businesses will have trouble recruiting talent to live in Austin when they could be soaking up the bits in San Francisco, Seattle, or New York.
Austin also has a great number of game development companies, a large number of film and television interests, and we even host SXSW.
This is such a big issue in Austin, that two of the three mayoral candidates have come out with statements addressing the caps. Lee Leffingwell said:
“Right now, we need to be encouraging, rather than stifling economic recovery and growth in Austin. This plan moves us in the wrong direction. It potentially puts Austin at a disadvantage as we compete against other communities to attract, retrain, and grow prosperous businesses… The usage caps proposed in [TWC's] new plan are neither realistic nor reasonable… It’s easy to see how the costs associated with the ongoing, high volumes of Internet use that many businesses require be could be astronomical. ”
And Brewster McCracken said:
“By placing a tariff on the flow of information, Time Warner is also undermining the Internet’s fundamental values of openness and equality. More than virtually any city, Austin is a center of innovation and creativity. That innovation and creativity increasingly is taking place through digital media, video games, independent film and social media… When the city funded the upgrades to Austin Studios recently, we funded installation of terabytes of digital media bandwidth…. Time Warner’s approach could make it so prohibitively expensive to produce films and video games using digital technologies that filmmakers would have to return to celluloid and projectors and video game producers would abandon multiplayer online games…. It is not good for Austin. It is bad for the principle of an open Internet. It undermines the public interest.“
The other candidate, Carole Keeton Strayhorn, is a former Republican, and doesn’t have a chance in the left-leaning Austin, so the real race is between Leffingwell and McCracken.
And these caps are getting attention at the federal level as well, with Rep. Eric Massa (D-NY) railing against the plan in the U.S. House.
Now, when a “simple billing change” inspires the politicians to rail against it, most companies should know that they’ve hit a nerve. Not so, with Time Warner, which continues to use various metaphors to try to explain away the problem. As Omar Gallega at the Austin American Statesman says:
[Quoting a Time Warner Spokesman] “As the amount of usage has dramatically diverged among users, this is becoming inherently unfair and not the way most consumers want to pay for goods they consume. When you go to lunch with a friend, do you split the bill in half if he gets the steak and you have a salad?”
All right, let’s talk about that for a second.
Rather than trying to compare its pricing and services to the way cell phone companies sell minutes or the way that restaurants price their food, why not stick to comparing apples to apples? Why not talk about Internet pricing trends, the cost that Time Warner Cable pays to build out its network and what wholesale bandwidth costs it has to pass on.
Quite right. So, let’s talk about Internet pricing trends. Let’s go back to the 1990s, in fact, when it was not uncommon to have a service like AOL, Compuserve, or Prodigy charge you on an hourly basis.
My family signed onto AOL January 2nd , 1996, for the “$10, 10 hour” service. It was when dad was getting $50 bills in the mail for AOL’s “$10/mo” service that we did the research and found out about dialup “mom & pop” ISPs that allowed you to use the Internet all you wanted for a $15-20/mo fee. We went with Cybernex, and when they closed down, Cyberwarrior. (They had funny names, but local call exchanges!)
AOL’s model simply couldn’t compete. It went from 5 hours free to 10 hours free, to 15 hours free… 50 hours free.. 700 hours free… even, at one point, 1000 hours free. (Keen eyes will observe that a 31 day month only has 744 hours.) Eventually, AOL went to an unlimited usage model as well.
This, of course, is because there were competitors.
Time Warner, in certain markets, has no competitors. The only other broadband provider with (large-scale) data caps is Comcast, which caps at 250GB a month, a policy which came out of congestion problems and which was eventually solved through QoS prioritization of low-data customers over high-data customers.
But even then we’re dancing around the issue, which is that any time you place a cap on data, you are lowering an effective performance. Sure, even at a 5GB cap, you may get those five gigs pretty quickly with a Time Warner connection. But how much more than your base rate is anyone actually willing to spend before they figure that it would be cheaper and easier to switch to a competitor (if possible) or to move out of the neighborhood (if it’s not?)
We’ll take a look at that question in part two of this article.