Recently, three North American cable operators instituted metered billing programs for high-speed Internet. Phoenix-based CableOne and Calgary-based Shaw Communications have established new Internet tiers with different prices based on monthly data levels, following on the heels of AT&T, which began charging overage fees for DSL and U-verse Internet earlier this year. (For more, see Metered Broadband Requires Smart Back-Office).
Canada’s Rogers Communications has offered metered billing for several years. That operator didn’t seem to have any customer-relations problems with its billing policy, probably because Rogers also is a major wireless operator, and customers are accustomed to usage-based pricing for wireless services. Cable subscribers, on the other hand, are accustomed to "all you can eat" broadband, so switching to metered billing could stir a revolt. When Time Warner Cable attempted to deploy consumption-based billing in 2009, it quickly retracted that plan after getting hammered with bad publicity.
Gradually though, more MSOs are entering the metered-billing fray. What will this mean for cable engineering and operations?
According to some executives from IBB Consulting, metered billing is pretty easy for cable operators from a technical standpoint. The tricky part is pricing.
As far as counting bytes, Dan Dodson, a fellow at IBB, says the cable-modem termination system (CMTS) generates logs that can measure usage. Operators also can hire companies like Sandvine to measure traffic.
But pricing is a lot more complicated. "It (broadband) has been a simpler product up until now," says Dodson.
David Noonan, a consultant with IBB, adds, "U.S. MSOs are finding themselves in new territory. In the past, they only needed to maximize their profit for a limited set of products. Now the product portfolio has increased to several, and they need to understand relationships across the entire portfolio."
The first step is to understand how peak usage affects the high-speed data network.
"When you buy a CMTS and network, you’re buying capacity," notes Dodson. "Capacity only matters when you reach that capacity, and you only reach that capacity at peak. Peak usage is what drives the cost of cable networks."
According to IBB, heavy users aren’t necessarily the heaviest peak users.
"Heavy users are downloading stuff all the time," explains Dodson, "but consumption doesn’t necessarily drive costs. If a subscriber consumes all his bytes in the morning, who cares? You could add lower-priced customers that don’t add any costs. But operators could accidentally offer up tiers that require them to upgrade their infrastructure."
The bottom line is that when people think of usage-based billing, they usually think of caps and overages. But there are some profit opportunities at the lower end of the scale. Such cable operators as Shaw and Cable One may garner some new (and likely young and desirable) subscribers by targeting people who aren’t heavy data users – offering them lower-priced Internet tiers.