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INTX 2015: Usage-Based Pricing Inevitable

CHICAGO – A panel of top analysts said usage-based pricing, long the bane of broadband users, is basically an inevitability given the growth of the service, but many remain fearful the government will squash any attempt to base rates on consumption.

In a panel discussion at INTX: The Internet & Television Expo here, titled "Money Models and Media: Financial Analysts on the New Digital Economy," MoffettNathanson senior analyst Craig Moffett; Evercore ISI Group senior managing director Vijay Jayant; BofA Merrill Lynch senior media & entertainment analyst Jessica Reif Cohen and Wells Fargo Securities managing director Marci Ryvicker discussed whether the industry would move toward a pay-a- you-go model for broadband.

“Usage-based pricing is inevitable,” Reif Cohen said. “How can you use broadband and not charge for it like electricity or water?”

Jayant added that usage-based pricing will come, but he believes it will be reactive rather than proactive.

“When things get bad enough on the video side, they will have this arrow in their quiver,” Jayant said. But he added he believes the first distributor to test it will be small.

“I don’t think it will be Comcast,” he said.

Moderated by Cox Communications chief financial officer Mark Bowser, the discussion quickly turned to regulation, particularly the onus of Title II reclassification of broadband as a telecommunications service.

Despite claims that the Federal Communications Commission would forbear any pricing regulation for Title II, Moffett said the regulation really has no other purpose.

“Title II is pretty clearly a price regulation framework,” Moffett said, adding the question isn’t whether broadband prices will be regulated but to what degree.

Moffett noted the FCC has said it would look at usage-based pricing on a case-by-case basis so that it is not harmful to the over-the-top video business. But by its nature, usage-based pricing would penalize heavier users of bandwidth, who are typically OTT video users. That, he said, proves that the agency is “predisposed to reject usage-based pricing plans.”

As far as opportunities for the industry, the analysts said they saw commercial services as having substantial runway ahead, while Jayant said M&A will also drive the industry going forward.

Jayant said the industry has about 660 operators and more than 5,000 cable systems.

“It’s inevitable that cable needs to consolidate,” Jayant said.

The analysts also lamented the loss of the biggest M&A deal in recent memory – Comcast’s $67 bilion merger with  Time Warner Cable, which was terminated after it was determined that regulatory approval wouldn’t come.

Reif Cohen said the deal could have been a catalyst for advanced advertising, business services and even video.

“It would have been great for the industry,” Reif Coen said of the deal.