Why Tiered Broadband Is the Enemy of Innovation

Om Malik Om Malik, in a GigaOm article last week, suggests that, while newly introduced tiered broadband pricing schemes appear to be a pre-emptive strike on the future of video-on-demand, they will, by stifling new innovative applications – throwing the baby out with bathwater, as he puts it – ultimately become a self-inflicted wound for the network operators.



From the article:

On the first point:

In the future, the emergence of much higher-speed DOCSIS
3.0 and fiber-based broadband will make it even easier to
download or stream videos, which scares the bejesus out of
the phone companies. And that is one of the reasons they
are introducing tiered broadband.

But consider the bandwidth caps. I asked some of my
telecom sources to help me put into perspective the new
tiered-pricing structure with which Time Warner Cable is
experimenting. TWC’s lowest price tier – 768 kbps at
$29.95 a month for 5 Gbytes and $1 per GB – may seem
reasonable, but it isn’t.

If you assume that we’re pulling down data at a steady 20
kilobits per second for every second of the month, the
total monthly transfer comes to about 6.8 gigabytes. At a
higher speed of 768 kbps, that jumps to over 250
gigabytes, and at 1 megabits per second, the monthly
download will hit 324 gigabytes. At first blush, those
look like awfully generous numbers. After all, who uses
their connections consistently?

WHY METERED ISN’T ENOUGH

However, if you take into account our average behavior
online, data transfers start to add up really fast. Stacey
crunched the numbers yesterday and came up with an
interesting conclusion: If you bought the monthly 15
mbps/40 GB transfer option for about $56 a month, you’d
get about 40 hours of standard definition video along with
enough bandwidth for your normal browsing and surfing
habits. That’s just over 75 minutes of SD Internet video
every day – two or three shows at best – which means you
might need to continue buying the “video connection” in
order to watch more television. Sure you can slice and
dice the data transfers with other online activities, but
this is all about video.

From that perspective, you would think that Comcast’s
proposal for 250 GB a month is pretty reasonable. Actually
it’s not, especially if you factor in how quickly we’re
moving towards HD downloads. With HD, each roughly 2-hour
long movie is going to consume about 8 GB, while live
sports events, etc., when watched in higher quality can
take up some 13 GB. Remember we share our Internet
connections with multiple people in a household. So Before
you know it, that 250 GB isn’t enough.

and on the second:

My biggest fear is that as these companies try and protect their video revenues, they are
doing more harm than good, and putting roadblocks in the way of interesting services
that make broadband worth having. When I asked Dudley if his company was putting innovation at risk by limiting flat-rate broadband — if they might be throwing the baby out with the bathwater — he noted that many of these startups and services are built on their infrastructure.

“You need to understand that the networks are going to be managed and we need to make profit,” he said. “We are trying to find a balance here, and it is too soon to say that we are throwing baby out of the bathwater.”

Dudley was, however, quick to point out that TWC’s experiment in Texas was just that – a test. If consumers don’t want it, the company is going to back away from it. “I think this is a trial and we are going to learn from this trial,” he said. If the results of our poll are any indication, they would be wise to back away from it — and soon.

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