Paying by the Pound

Written by Jeff Baumgartner

Wednesday, December 5. 2007 at 01:50 PM EST Post a comment

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SANTA CLARA, Calif. -- As consumers continue to tap the Internet to feed their voracious appetites for video -- including high-end and high-def content -- today's all-you-can eat service model will have to shift to a consumption model more typical in the mobile phone world.

At least that was one of the conclusions made last week by MSO execs at a panel here at the first annual CableNEXT show.

"Video is going through a renaissance," said Michael Lee, the chief strategy officer for Rogers Communications of Canada. "People are consuming more and consuming it in different places, and consuming it in different formats."

Cable, of course, should be a tad concerned that so-called "over-the-top video" (or perhaps a "facilities-free" video services provider) could sap revenues away from premium and VOD services. On top of that, many new digital TVs come with Internet ports, giving those sets access to video streams and movie downloads. With that in mind, should offering a 100-Mbit/s solution based on Docsis 3.0 give the cable industry pause?

Sort of, but maybe not in the form one might expect.

Cable operators, said Charter Communications chief technology officer Marwan Fawaz, will certainly have to boost broadband speeds, but concerns are raised as the cost of that new infrastructure becomes increasingly difficult to manage, particularly as Internet traffic grows at 50 percent year-to-year. At that rate, it's "not sustainable," he said, for cable to continue to invest more equipment and support that growth with an all-you-can-eat model.

"Eventually, we will go to a usage-based solution," Fawaz predicted.

Rogers, for one, is already trying such a model with an 18-Mbit/s speed tier. Lee said it's a "relatively high cap," noting in a follow-up conversation that it's in the neighborhood of 90-Gbytes per month.

"You can't keep absorbing costs in the process of delivering it," Lee said of higher-speed tiers. "We need to move to a model that aligns our cost with our revenue."

As HD Internet video enters the fold, it will only require more horsepower on the network to support it.

Although consumption caps are targeted to a small group of power users, introducing them does involve some risk, particularly in upsetting a small (but very vocal) group of power users.

Comcast Corp. and its so-called "invisible cap" is the most documented case of this. The MSO has come under fire not so much for applying a byte cap, but for not disclosing what the threshold is. While customers complain in favor of Comcast disclosing that number, the MSO argues that sharing it would open it up to potential abuse. Previously, it has said that a small number of users (about 0.01 percent) go beyond the consumption limit and that the MSO gives those customers an opportunity to upgrade to a tier more in line with their usage patterns.

But cable operators are also starting to look at the potential of new Docsis 3.0-capable set-tops that bridge the traditional cable video world with one fed by high-speed connections.

Ian Blaine, CEO of thePlatform (a media publishing firm that's now part of Comcast), said his company is working with its new corporate cousin to help the MSO "prepare for when those things come together."

Although MSOs believe it's a question of when, not if, they will move to consumption-based billing for broadband Internet services, the big question is how consumers, which have grown accustomed to an all-you-can-eat model, will react to this new paradigm, and how that will affect the over-the-top video crowd.

Also, don't expect the recently formed Network Neutrality Squad to absorb that trend without a fight.