SoftRatty: Are Internet Providers Making Broadband More Expensive To Protect Their TV Businesses?

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Are Internet Providers Making Broadband More Expensive To Protect Their TV Businesses?

2008-06-18 12:19:00 by Dan Frommer in Silicon Alley Insider

As high-speed Internet providers either test -- or think about testing -- new pricing models that charge heavy bandwidth users more, a conspiracy theory has emerged: Cable companies like Time Warner Cable (TWC) and telcos like AT&T (T) want to discourage people from watching video on the Web by making it more expensive -- so their customers will keep watching more cable TV, and won't cancel their cable service.

Is that true? "No, it's not," says a rep for Time Warner Cable, which is testing selling Internet service with bandwidth caps and overage charges in a Texas town. An AT&T rep says the telco has "nothing to announce" regarding its pricing structure, but that usage-based pricing is "inevitable" for bandwidth hogs, as it's "one way to deal fairly with Internet usage, which is very uneven among broadband users."

But that's the great/bad thing about conspiracy theories -- authority figures can't disprove them, because they're authority figures, so why would they be telling the truth? And in this case, the ISPs really don't have a track record that inspires confidence to begin with, especially now that Comcast (CMCSA) has been caught disrupting its subscribers' peer-to-peer Internet transfers.

And this conspiracy theory, like many conspiracy theories, is at least partially based on a bona fide truth: Web video is increasingly competing with their cable TV services.

Time Warner Cable, for instance -- which gets two-thirds of its revenue from selling TV services -- wants to sell you a video-on-demand movie rental for $4. Until recently, they had very little competition from the Internet. But now Apple's (AAPL) iTunes will let you rent the same movie -- and unlike Time Warner's, you can also put on your iPod. And Netflix (NFLX) will let you stream as many movies as you want over the Internet -- even to your TV -- for free, as long as you pay more than $8.99 a month for their DVD rental service. The Web is now starting to threaten conventional TV programming, too: Services like Hulu and MLBTV are making cable TV service with a DVR less of a necessity.

We don't expect the majority of cable TV subscribers to cancel service overnight, but over time, it's inevitable that many people will dump cable for Web video. So even if providers aren't explicitly trying to protect their TV businesses by charging Web video watchers for the bandwidth they use, they should definitely be thinking about it.