Even Cord Cutters Will Have to Pay the Cable Bill; Viable online TV products may thwart Internet service providers’ new push toward usage-based prici

Even Cord Cutters Will Have to Pay the Cable Bill

By Joshua Brustein August 22, 2013

Internet television finally seems nigh. ESPN (DIS) on Wednesday said it has held introductory discussions to offer its channels through Web-based TV services. That comes on the heels of news that Sony (SNE) had reached a preliminary Internet distribution deal with Viacom (VIAB) and that Google (GOOG) was talking to the NFL about buying the rights to its Sunday Ticket package. And, of course, the reports of Apple TV (AAPL) persist.These deals seem like a cord cutter’s dream. But don’t think you’re going to get out of those monthly cable bills. The big cable companies also provide Internet service, and the industry is getting increasingly aggressive about billing customers based on how much data they use, as opposed to a monthly flat rate. Comcast (CMCSA), Time Warner Cable(TWC), and Mediacom recently introduced this kind of plan. Given that streaming video gobbles up bandwidth, this could be big business for the cable companies.

A Time Warner Cable spokesman described the move as a way to allow light Internet users to pay less, and this week the company began offering $5 to $8 monthly discounts to customers who use less data. At the same time, people who use more data will pay more—maybe a lot more. According to Comcast figures, replacing HD video from cable with Internet programming would likely use about 648 gigabytes of data per month. Under Comcast’s new pricing plans, that would cost customers an additional $60 each month.

This strategy isn’t new (phone companies bill this way), not even to cable companies, which for years have been saying usage-based pricing is inevitable. But the industry may have made things significantly harder by taking so long to get to it. With Internet television appearing to be a serious competitor to traditional cable service, regulators could see data caps as a way to squeeze out competition from Internet companies. In a report released this week, an advisory committee to the Federal Communications Commission said there are many open questions surrounding the subject (PDF).

Cable industry analyst Craig Moffett says the chances of regulators approving usage-based pricing systems are relatively low if there are already viable Internet television services on the market. “In effect, we are now in a race,” he says. “So the question becomes this: What will appear first, a credible online video alternative, or widespread adoption of usage-based pricing?”

The problem, says Michael Weinberg, vice president of an open internet advocacy organization, is that data caps would force companies to pay Internet service providers for special treatment. Such deals are reportedly already in the works for wireless data plans, and there are signs of similar moves in broadband. Last year, Comcast announced a plan where its own online video services would not count against data plans for its Xfinity customers who were streaming video via Xbox or TiVo (TIVO). The company has declined to enforce its data caps up to this point, and the FCC has yet to respond to advocates demanding action. Comcast has not responded to a request for comment.

In a letter submitted to the FCC on Thursday, Weinberg asked the agency to weigh in. He says the potential to price competitors out of the market should show how the cable companies are gearing up to squeeze people who have no other options. “If the market sustains that kind of thing, if it doesn’t punish you, it means there isn’t much of a market,” he says.

The bottom line: Viable online TV products may thwart Internet service providers’ new push toward usage-based pricing.