Tuesday, June 3, 2008

Is Time Warner About to Kill the Internet?

It's either the end of the Internet as we know it or a smart business move on the part of an ISP, depending upon to whom you listen: Time Warner is testing download caps in Beaumont, Texas. They are offering two plans, the richest of which provides consumers with a monthly cap of 40GB. Customers who exceed their limits will be charged $1 for each extra GB per month.

Early adopters, tech lovers, and bloggers are outraged, but I've been expecting ISPs to begin testing "pay as you go" plans. While as a consumer I don't welcome the idea (since I can recall $150+ bills from Prodigy for my 56k access back in 1994), it isn't hard to see the need from the business perspective. With BitTorrent and P2P sharing already taking up huge portions of Internet bandwidth and demand for high-bandwidth applications growing, ISPs are seeking a way to prevent from getting swamped (or at least to profitably upgrade hardware to keep up with demand).

So, what does that mean to the average consumer? Even though the blogosphere is flaming Time Warner, my guess is that the average consumer doesn't exceed 40 GB per month. Even if you download an entire digital music album per night for 30 days, you'd still have around 37 out of 40 GBs left at the end of the month.

If most consumers are unlikely to be unaffected by the plan Time Warner's testing, why are so many people concerned? Aside from the worry about one's personal finances and the fact this flies in the face of the Libertarian leanings of many bloggers, there is a reason to be concerned for the future. Bandwidth needs are only going to increase, as they have since the Internet went public. Back in the early 90s, pages were all text, then we added images, Flash, music, video clips, application downloads, Massively Multiplayer Online Games, file sharing, and now full-length TV shows and movies. With hi-definition movies available for download running as big as 5 GBs, it's easy to see how quickly a 40 GB limit could be consumed.

Should marketers who've come to rely on the Internet be concerned? Certainly not yet, but it's worth keeping an eye on Time Warner's test and the reaction of consumers and competitors. We'd all hate to see consumers starting to cut back on Internet access or having to consider if visiting a brand's site, watching a brand's video, or playing a brand's game is worthwhile considering the expense.

Perhaps if more ISPs jump into the "pay as you go" model, the costs will come down. Right now, having consumers pay $1 per GB seems expensive to me. We can't really know what a gig of throughput costs Time Warner but we can look at the plans offered by the big hosting companies, and it would seem Time Warner sees costs of a dime or less. Maybe if Comcast and others adopt this approach, Time Warner will be forced to be more competitive and the price of additional throughput will moderate. At a certain price, the incremental cost of gigs won't be a concern to consumers, just as the cost of a few extra minutes on a phone bill doesn't stop people from gluing the cell phone to their ears.

This news from Time Warner isn't the end of the Internet, but it is a potential concern worth monitoring should this small test become a national policy and then a trend across the industry. There is a chance consumers may simply reject this approach; while I am sympathetic and expect other ISPs to follow suit, the truth is that if Time Warner unilaterally implemented this sort of variable-price plan in my neck of the woods, I'd be looking at AT&T and other options.

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