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Cable Technology Feature Article

December 01, 2011

Cable Companies May Soon Place Data Caps on Broadband Subscribers to Slow 'Cord Cutting'

By Beecher Tuttle, TMCnet Contributor

In a veiled attempt to stop their customers from cutting the cord, U.S. pay TV companies are heavily considering implementing a usage-based billing system for subscribers who also purchase broadband Internet service, according to Bloomberg.

Craig Moffett, an analyst with Sanford C. Bernstein & Co., told the news source that three of the nation’s top cable companies – Cox (News - Alert) Communications, Charter Communications and Time Warner Cable – may soon install data caps and impose additional fees on those who exceed monthly bandwidth limits.

“As more video shifts to the Web, the cable operators will inevitably align their pricing models,” Moffett told Bloomberg (News - Alert). “With the right usage-based pricing plan, they can embrace the transition instead of resisting it.”

Users are beginning to leave behind their expensive cable subscriptions for more cost-effective Web alternatives like Netflix, which is hurting companies like Time Warner’s (News - Alert) bottom line in two different ways. Not only are they losing the customer, they are also forced to deal with the additional costs associated with high bandwidth usage from alternative Web services.

Without a usage-based pricing system for broadband, cable companies are basically paying for customers to walk away from their cable subscription. Credit Suisse analyst Stefan Anninger recently estimated that the cable market will lose 200,000 subscribers in 2012 due to the growing trend of “cord avoidance,” where new households never sign up for cable in the first place.

Conversely, the installation of data caps would certainly have a negative effect on companies like Netflix, which succeed in part due to their cost-effective nature.

Dish Network Chairman Charlie Ergen speculated earlier this month that a $7.99 per month Netflix subscription could increase the equivalent of an additional $20 per month with bandwidth usage charges.

The implementation of a new pricing system would surely send Netflix reeling, especially considering the company recently estimated that it has lost around 600,000 customers since July, powered mostly by 60 percent price increases and a series of PR nightmares.

In fairness to the cable companies, streaming outfits like Netflix do hog the vast majority of U.S. bandwidth. A recent study from Sandvine found that Netflix currently accounts for a whopping 32.7 percent of peak downstream traffic within fixed networks in the U.S, representing a relative increase of 10 percent since the spring. Netflix currently accounts for more daily aggregate traffic than any other Internet application.

Long story short, take advantage of video streaming now while you still can. Broadband providers are soon to treat home data usage in the same manner that they treat mobile usage.

Beecher Tuttle is a TMCnet contributor. He has extensive experience writing and editing for print publications and online news websites. He has specialized in a variety of industries, including health care technology, politics and education. To read more of his articles, please visit his columnist page.

Edited by Jennifer Russell