Time Warner Cable: Three Mistakes on Usage Pricing

Wireless data network providers like AT&T and Verizon Wireless have usage caps and charge overage fees.

Canadian cable operators like Rogers have introduced consumption-based billing successfully, with nary a protester chained to the front gates (see Translation Please: ‘AUB’ Lessons From Canada).

So what did Time Warner Cable do wrong that prompted a Category 5 backlash, in which the cable industry was compared to OPEC and accused of (a) rapacious greed and (b) attempting to protect its TV subscription services by inhibiting Internet-video viewing? Politicians quickly saw the opportunity to surf the outrage of their constituents into the headlines.

(See TWC Puts Cap Plans on Ice, Does Cablevision’s Uncapped 101-Meg Tier Mean Metered Billing Is Dead? and Time Warner Cable Blinked.)

The issue is still percolating among those whose jobs it is to grind these axes relentlessly. Free Press’s Josh Silver on Thursday wrote on HuffingtonPost that usage-based billing plans such as Time Warner Cable’s would spell “the end of the Internet as you know it.” [An aside: great R.E.M. tune!]

Looking back, I think there were three key errors Time Warner Cable made:

1. Poor communication. TWC disclosed the plans to expand usage-based billing via an exclusive to BusinessWeek. It didn’t officially announce anything. Even when trouble started brewing, TWC did not issue official statements or post documents customers could easily view on its Web site; instead, COO Landel Hobbs’ comments were posted to longreply.com, a kind of mega-Twitter service.

As far as I can tell, the only “official” statement from TWC was the April 16 announcement that the trials would be postponed. This is available on a section of the operator’s site along with an FAQ. Unfortunately, this was after-the-fact damage control.

Clearly, the company’s idea — given that these were trials — was to have the flexibility to tweak pricing, adjust specific cap levels, etc., and not have these things set in stone. But the ad-hoc communications on the usage trials was perhaps the biggest reason this blew up.

2. Complicated plans & low caps. Time Warner Cable ended up proposing six different pricing schemes for the four trial markets, with caps at 1, 10, 20, 40 and 60 GB, plus a de facto unlimited plan with a $150-per-month max. Aggggggh. Keep it simple! At most there should be three: low, medium and high (unlimited) usage plans.

While most Internet users do in fact use well under 20 GB per month, perception is an issue. With Comcast’s ceiling at 250 GB (and of course some people complained this was too low) why would TWC look to introduce plans capped at 10 GB or, pray tell, one? (Stingy caps were the key complaint with TWC’s initial Texas trial: Is Time Warner Cable Completely Insane?!?)

Meanwhile, most Internet users have no clue how much data they even use, which leads to the last point:

3. No usage-metering application for customers. If you can’t measure it, you can’t manage it. Even tech-savvy people have no idea how much Internet data they consume in a month. 10 Gigs? 40 Gigs? Customers haven’t had to care before, and suddenly they’re being asked to pick from a (complicated) menu of options lacking this critical information. The cable operator has promised to release a “gas gauge” to subscribers but it still isn’t available.

As I’ve written before, TWC — as the first major U.S. mover on this front — is bearing the brunt of the challenges in moving to consumption-based billing, which, again, is the only fair and reasonable option as Internet bandwidth consumption continues to skyrocket. (See Why Metered Bandwidth Pricing Is Inevitable.)

These missteps are valuable lessons not only for TWC but for all broadband service providers.