This is the second article in a series aimed at analyzing the motive behind the various bandwidth caps that have recently been enacted by numerous Internet Service Providers.
In the preceding article, The Relative Cost of Internet Access, we looked at the differences in costs between various service tiers available from two Internet Service Providers. For those interested in a simple recap, here it is: the cost of a broadband Internet connection in Germany is (slightly) lower than the cost of comparable connection in the United States. But not only is the pricing more attractive in Germany, the speed of the connection is superior as well. Excluding special offers and discounts, customers in Germany have no trouble signing up for an uncapped connection of 32 Mbit/s down, while U.S. customers, looking to spend no more than their German counterparts, are limited to only 6 Mbit/s.
So now the question remains: why the hell is an Internet connection so darn expensive in the US, and why are so many ISPs now considering, or, worse yet, actually implementing, bandwidth caps?
In order to answer this question, let’s take a brief look at which ISPs are capping their customers and to what extent they are doing so:
- Comcast: 250GB cap on total bandwidth consumption per month.
- Time Warner Cable: Toying with the idea of total bandwidth caps at about 40 - 75GB per month.
- Cablevision: No explicitly stated cap; although some report that heavy usage is frowned upon.
- Verizon FIOS: No cap, whatsoever.
Notice anything interesting about the various caps that these four companies are imposing on their customers? Here’s a hint: look at what else they’re invested in.
Comcast and Time Warner both own a variety of actual TV networks. More specifically, Comcast owns E! Entertainment, The Style Network and G4. Similarly Time Warner also owns a plethora of channels, networks, and even a studio or two: New Line Cinema, HBO, TBS, Warner Bros., Cartoon Network, and the list goes on.
But why should it matter what else these companies do, as long as they can provide us with a digital connection to the outside world? Well, a major part of the problem is that because these companies have been allowed to expand into so many different direction (without any proper oversight from either the government, or the executives heading the boards), they are now so big that they simple too cumbersome to be able to adapt swiftly to the latest industry tends.
If you’ve set up a business model around television stations, networks, and programming for said media, what is the one thing that your business relies on? Television viewership!
And what’s the biggest threat to television at the moment?
Why, it’s the Internet, of course.
So, at the end of the day, it all comes down to traditional television programming versus diverse, à la carte Internet content.
Now, one might make the observation at this point that there really shouldn’t be a problem here, since Comcast and Time Warner are two business that are well invested in both of these markets; that is, they both offer Internet access, and then both offer television services. Though correct, this observation misses a critical point. Companies of this caliber are, relatively speaking, old gaints, who have over the years gotten very used to a single, very lucrative business model, which, at the end of the day, boils down to nothing more than the number of people tuning in. Internet service for these companies, in comparison, is only a small branch in a much larger business model. Additionally, offering Internet access is not, by any stretch of the imagination, the same thing as owning a TV network, let alone several of them. With ownership comes the ability to dictate and create content, which is not the case if you’re only acting as a doorkeeper to a vast realm of content and knowledge.
Being used to seeing the majority of their income stem from television based content, companies like Comcast and, to a larger extent, Time Warner are scared out of their wits; the Internet is stealing away viewers and they have no clue what to do about it. There now exist services such as Hulu and Netflix, which have led thousands upon thousands of people to drastically reduce the time that they spend in front of an actual television — mind you, they’re still spending a lot of time in front of a screen; they’re just not putting their feet up and leaning back.
Due to services like Hulu and Netflix, less and less revenue is streaming into the coffers of Comcast and Time Warner. They might be providing the Internet access, but that really is all that they are doing. They see absolutely no additional income from what the consumer actually does with that access.
The simple fact is that people are watching less and less actual TV, and from the perspective of those invested in both the Internet service and television service industries, the only real short-term solution to this problem is to limit the amount of time that customers can spend using online services such as Hulu and Netflix. This is simply due to the fact that under the current model there is far less money to be made providing content over the ‘Net than through the tube. For a lot of providers, the easiest way of reducing the time spent with a browser instead of a remote is simply to impose bandwidth caps and/or increase the price of pulling in the bits.
Of course, Comcast and Time Warner would be the last to admit that they are behind the times and that their coveted revenue models are antiquated and may be approaching extinction. The excuse typically peddled by Comcast and its ilk is that there are users — and by their own admittance, way less than 1% — who use exorbitant amounts of data on a monthly basis, and that these customers, in doing so, are spoiling the party for the rest of us. Without getting too far off topic, let me just say that I have a very hard time believing that.
If customers can only consume so many bits per month, then, logically speaking, there should come a point at which they will be forced to stop using the Internet to watch their favorite shows. And if they can’t watch their favorite shows on the ‘Net, customers will have to revert back to watching television instead, which is exactly what the cable companies want — and need.