In an effort to understand Time Warner's side of the story, I sat down with a big mug of hot tea, some relaxing music, and loaded up their 2008 SEC Annual Report (linked on the right side of this blog). In it, most everything about the company is explained in legalese but enough English for the average person to muddle through.
The Annual Report discusses the structure of Time Warner Cable as they relate to Time Warner Incorporated, Time Warner NY Cable Incorporated, and Time Warner Entertainment. It's a fascinating bit of reading of you can stay awake while reading it. The report also defines the services Time Warner Cable provides, what its revenues were year over year from 2006 to 2008, its costs, and its perceived threats to the business.
Below you'll find an interesting and poignant fact from the report and placed next to a statement made by Landel Hobbs, the Chief Operating Officer of Time Warner Cable.
I've also created what I consider to be a common use scenario, relative amounts of bandwidth for said activities and how they stack up against each usage plan.
He Said, They Said
Landel Hobbs (4/9/2009)
With the ever-increasing flood of content on the Internet, bandwidth consumption is growing exponentially. That’s a good thing; however, there are costs associated with this increased Internet usage. Here at Time Warner Cable, consumption among our high-speed Internet subscribers is increasing by about 40% a year. 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.SEC Filing (12/31/2008)
(Capital expenditures, pg. 73)
Year Ended December 31, (in millions) 2008 2007 2006 Customer premise equipment $ 1,628 $ 1,485 $ 1,125 Scalable infrastructure 600 604 568 Line extensions 350 372 280 Upgrades/rebuilds 315 315 151 Support capital 629 657 594 Total capital expenditures $ 3,522 $ 3,433 $ 2,718
Landel Hobbs (4/9/2009)
Rather than raising prices on all customers or limiting usage, we think the fairest approach is to move to a tiered model in which users pay more if they use more.
Old TW Plans vs. Proposed TW Plans
(from web statements on a.longreply.com, Twitter from AlexTWC, and the original BusinessWeek article)
| Existing Plans* | |||
|---|---|---|---|
| Monthly Price | Speed Down/Up | Data Limit | Cost per GB |
| $15 Lite | 768 Kbps/128 Kbps | NONE | negligible |
| $25 Basic | 1.5 Mbps/384 Kbps | NONE | negligible |
| $35 Standard | 10 Mbps/1 Mbps | NONE | negligible |
| $45 Turbo | 15 Mbps/2 Mbps | NONE | negligible |
* - Internet-only subscribers pay $10 more at each tier
| Proposed Tiers | ||||
|---|---|---|---|---|
| Monthly Price | Speed Down/Up | Data Limit | Cost per GB | Overage Fee per GB |
| $ 15 | 768 Kbps/128 Kbps | 1 GB | $ 15 | $ 2 |
| $ 30 | 10 Mbps/1 Mbps(?) | 10 GB | $ 3 | $ 1 |
| $ 45(?) | 10 Mbps/1 Mbps(?) | 20 GB | $ 2.25 | $ 1 |
| $ 50(?) | 10 Mbps/1 Mbps(?) | 40 GB | $ 1.25 | $ 1 |
| $ 55(?) | 10 Mbps/1 Mbps(?) | 60 GB | $ 0.91 | $ 1 |
| $ 75 | 10 Mbps/1 Mbps | 100 GB | $ 0.75 | $ 1 |
| $ 99 | 50 Mbps/5 Mbps | 150 GB | $ 0.66 | $ 1 |
(?) indicates these are guesses because no actual numbers have been released at the time of writing
Realistic Usage Scenarios
Under the new pricing plan (regardless of the costs to TWC), customers have to choose between how much data they consume, how fast they want their connection, and how much they are willing to spend but no matter what they can't have what they have now.
There simply is no exact equivalent to any existing plan. So-called "light" users will perhaps choose a low plan like the $15/month one, but be saddled with DSL speeds, an impossibly low 1GB monthly usage cap and an exorbitant $2/GB overage fee. However a so-called "moderate" user who might have standard RoadRunner now at $40/month will pay the same amount but potentially hit their cap (10 or 20 GB) and incur up to $75 in overage fees bringing the grand total to $115/month.
Below are what I consider to be common usage patterns or scenarios and the associated conservative bandwidth usage followed by the current cost to a user of that scenario and the cost in the tiered system.
"Light" User Pattern
A "light" user varies between someone who uses the Internet daily for email and little else, to someone who does not use the Internet much at all during a month's time frame. For the purposes of this scenario I will select the following characteristics of a "light" user:
- Checks email at least once daily including attachments (~ 1MB per day)
- Browses the web four times a week for 1 hour each time (10 - 50MB depending on the sites)
- Gets OS updates once a month automatically (50 - 400MB)
- Very infrequently downloads music or watches video online (5 - 30MB)
The difference between existing and proposed is the new system would penalize the user if he or she managed to use twice as much data in one month at a minimum overage fee of $2 or 13% of the cost of the plan.
"Moderate" User Pattern
A "moderate" user varies between someone who uses the Internet daily for email and web browsing to a person who also occasionally watches TV shows on Hulu.com or subscribes to Netflix and occasionally watches a movie on the computer instead of the DVD player. This is a general representation of your modern-day networked person who does not use the Internet excessively, but doesn't shy away from it either. For the purposes of this scenario I will select the following characteristics of a "moderate" user:
- Checks email at least once daily (~ 1MB per day)
- Accesses the web at least once daily and may spend up to three hours each time simply "surfing the web" including accessing sites such as the Yahoo! home page portal for news and entertainment (53 - 263MB)
- Gets OS updates for their computer a few times a month. This may also include getting Antivirus software updates. (100 - 450MB)
- Posts a small amount of personal pictures online with sites like Flickr.com and Picasa.com (60 MB)
- Uses a form of social networking such as Twitter, Myspace.com or Facebook.com (20 - 100MB)
- Occasionally downloads music from online retailers such as iTunes Music Store or Amazon.com MP3 Downloads (25 MB)
- Occasionally plays online games on a computer, Xbox Live, Wii, or PS 3 (50 - 200MB)
- Occasionally watches videos on sites like YouTube.com or Vimeo.com (100 - 300MB)
- Occasionally shops online from sites like eBay.com, Amazon.com or Newegg.com (10 - 50MB)
The difference between existing and proposed is the new system would penalize the user if he or she managed to use five times as much data in one month at a minimum overage fee of $1 or 3% the cost of the plan.
"Heavy" User Pattern
A "heavy" user varies between someone who exhibits the behaviors of a "moderate" user and also exhibits several of the following behaviors:
- Spends more than three hours a day each week online (+300MB)
- Downloads a large amount of music and/or movies from iTunes Music Store or Amazon.com MP3 Downloads (+575MB)
- Downloads video game demos for the computer or gaming consoles (+2 to 10GB)
- Uses Internet telephony such as Vonage or Skype with some regularity (+100MB / hr)
- Uses Internet video chat with a web camera (+300MB / hr)
- Watches three or more streaming movies per month through video services such as Netflix (+18GB)
- Regularly watches TV on sites such as Hulu.com or abc.com (+500MB / hr)
- Watches and/or uploads videos regularly from sites such as YouTube.com or Vimeo.com (+600MB)
- Does a lot of online shopping at sites such as eBay.com, Amazon.com and Newegg.com (+100MB)
- Regularly plays games online using a computer or a gaming console (+100MB / hr)
- Uploads large amounts of photos to sites like Flickr.com, Picasa.com, Facebook.com or MySpace.com (+3GB)
- Frequently spends time on social networking sites such as Twitter.com, Facebook.com, or Myspace.com (+300MB)
- Listens to streaming Internet radio from such sites as Last.fm and Pandora.com (+50MB / hr)
Additionally in the new system the user would be penalized if he or she managed to use an additional 25 GB in one month at a minimum overage fee of $1 or 1% the cost of the plan. The new plan also provides slightly slower speeds -- 10 Mbps/1 Mbps vs. 15 Mbps/2 Mbps.
Other Considerations
While the above scenarios do indeed punish heavy users as Time Warner aims, there are several factors that may significantly play into making the "light" and "moderate" users use much more data per month possibly incurring overage fees or requiring a higher, more expensive tier:
- These are conservative estimates based on my own experience. While I'm a heavy user, my daily average usage currently is around 2 GB. On "light" days I still manage to use about 500 MB of data just checking email and using Facebook. Also the sites you visit will make a big difference on how much "surfing" will cost in terms of data. Sites like YouTube and Flickr.com, even without watching any videos or loading full-sized images, are implicitly "heavy" sites and will use far more data that a text-only site with few or no images. Quick indicator: moving or dynamic pages are "heavy", static and sometimes boring-looking pages are "light".
- These numbers don't factor in malware and viruses. If your computer manages to contract a virus or get malware on it that malicious software will most likely send and receive data constantly without your knowledge and artificially inflate your data usage incurring overage fees or requiring you to move to a higher tier.
- These numbers don't factor in spam and other unwanted junk mail. Although a much more slight factor, unwanted e-mail is still downloaded to your computer when you check your e-mail and that download uses up part of your allotment.
- Time Warner expects Internet usage to grow at least 40% each year**. This means the "light" user above may use 921 MB next year; the "moderate" user may use 3.2 GB next year; and the "heavy" user may use 105 GB next year.
- Unsecured wireless home networks may be used by unscrupulous "war-drivers" who drive (or walk) around and use these networks as their Internet access on your dime. War-driving's legality is not entirely clear, but the financial impact on you if you stumble into an unscrupulous war-driver is clear.
- The maximum overage fee is $75 if you really exceed your cap. This means your damages are limited, but it also means you may be paying up to three times as much as you do now for "unlimited" service.
As you can see, there are many factors that may adversely affect the conservative numbers presented here. The caps as stated place everyone in a tight-fitting shirt that will shrink when it goes through the wash and won't fit next year.
Data caps in general create a disincentive to use the Internet for fear of reaching or exceeding the cap an incurring overage fees. No matter how high the cap is, given time technology will rise to exceed it under normal circumstances.
Hopefully this article provides some concrete examples of how the tiers will work and who will be most impacted. The best way to get an accurate feel for how much data you or your household uses is to monitor the so-called "gas gauge" Time Warner will be enabling later this summer.
You will have two months to determine how much data you download and one additional month after the caps go into effect where you will be warned about any overages but not charged until the following month if your usage remains the same.
It's your choice - raise your voice or accept your limits.
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