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Cable Likely To Follow AT&T Into Usage-Based Broadband Pricing: Analyst

Telco to Implement Monthly Caps on DSL Customers Starting May 2

By Todd Spangler -- Multichannel News, 3/14/2011 10:20:38 AM

AT&T's plan to impose monthly usage caps on wireline broadband customers -- and charge overage fees for additional data -- may provide "air cover" for large U.S. cable operators to do the same, according to Sanford Bernstein senior analyst Craig Moffett.

The telco will limit regular DSL customers to 150 Gigabytes of data uploaded or downloaded per month, while U-verse Internet DSL customers will be capped at 250 GB. AT&T will charge $10 for each 50 GB used beyond the caps, with the terms to go into effect May 2, AT&T said. The move was reported Sunday by DSLReports.com

In a research note Monday, Moffett said he expects U.S. cable operators to follow AT&T's move by introducing pricing plans that include caps for lower-end packages and surcharges for additional usage. The first MSOs likely to do so are Charter Communications, Cox Communications and Time Warner Cable, with Comcast "the least likely to move in the short term," he said.

"AT&T's move provides air cover that makes it easier for all of them to follow," Moffett wrote, adding, "We view the move as good news for all the terrestrial broadband operators."

Previously, Time Warner Cable, Cox and Charter have said they did not have immediate plans to adopt usage-based billing.

On a call with financial analysts earlier this month, Charter CEO Mike Lovett said the operator was considering usage-based pricing for low-end tiers, targeted at dial-up users.

"I think there is an opportunity to look at usage-based pricing not necessarily at the high end but at the low end, to create some attractive price points that are tied to usage to bring folks out of the dial-up experience. And there is probably some share shift opportunity with DSL as well," Lovett said. "Strategically that's how we're looking at usage-based pricing today."

In 2009, Time Warner Cable suffered a raucous backlash from customers and elected officials after it disclosed plans to test consumption-based billing in four additional markets, beyond its initial trial in Beaumont, Texas. The MSO tabled those tests, and TWC chairman and CEO Glenn Britt characterized the episode as "a bit of a debacle."

Among major MSOs, Comcast, Cox and Charter each have set maximum monthly data-usage limits. Comcast, for example, limits all broadband customers to 250 GB data usage per month but does not bill for additional usage; instead, the MSO's policy is to notify users that they have exceeded the cap and terminate service if excessive use continues.

Meanwhile, Canada's largest cable operator, Rogers Communications, moved to consumption-based broadband pricing several years ago. Shaw Communications, by contrast, last month temporarily suspended plans to implement Internet usage billing.

According to AT&T, less than 2% of its broadband customers will be affected by the change. The company said DSL customers use an average of about 18 GB per month.

"We are committed to providing a great experience for all of our Internet customers," the company said in a statement. "We will communicate early and often with these customers so they are well aware of their options before they incur any additional usage charges."

AT&T moved to usage-based billing for its wireless data plans offered for the iPhone and other smartphones last year.

The advent of bandwidth caps and overage fees by wireline broadband providers has implications for over-the-top video. Moffett said AT&T's usage caps on DSL users are high and noted that "only video can drive that kind of usage."

"[I]f consumption patterns change such that web video begins to substitute for linear video, then the terrestrial broadband operators will simply adopt pricing plans that preserve the economics of their physical infrastructure," Moffett said. "Of course, any move to preserve their own economics has far-ranging implications. Any move towards usage-based pricing doesn't just affect the returns of the operators, it also affects the demand of end users (the 'feedback loop')."

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