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Cable Operators May Move To Web Usage-based Billing Next Year

December 2, 2011

At least one major cable company will likely begin charging usage rates for its Internet service next year, according to analyst Craig Moffett with Sanford C. Bernstein & Co. in New York.

In other words, the more data a customer uses through their home Internet connection, the more they will pay.

The move towards consumption-based pricing has been linked to content delivery services such as Hulu and Netflix, which cable operators see as freeloaders on their networks that divert traffic away from the cable companies’ paid television content.

Cox Communications, Charter Communications or Time Warner Cable would likely be among the first cable operators to enact such a charge-by-usage model, Moffett told Bloomberg News on Thursday.

Cable companies face discouraging numbers in the current entertainment landscape, with Netflix now consuming nearly 32.7 percent of all peak downstream traffic in the United States, according to PC World.

And while many see Netflix usage leveling off in the future, demands from other content providers, such as Amazon Prime, will likely grow.

Cable operators generate significantly more revenue from their broadband services than they do from their TV services.   Gross margins on broadband are 95 percent, compared with just 60 percent for video, Bloomberg reported.  Furthermore, video services margins are expected to decline as programming costs rise at a rate of 10 percent annually.

All of this has cable companies talking about when — not whether — they will begin implementing usage-based fees.

While creating such tollbooths for cable Internet may slow the shift towards online TV viewing, experts say momentum is shifting against the cable companies.

Indeed, analysts predict that 12.5 million U.S. households will receive TV shows and movies from Internet services rather than from a pay TV provider by 2015.  That represents a 500 percent increase over last year, when just 2.5 million Americans viewed their entertainment over the Internet.

But losing TV viewers could ultimately end up being a blessing in disguise for some cable operators, Moffett said, since reductions in programming costs and set-top box spending would more than offset the lost TV revenues.

“In the end, it will be the best thing that ever happened to the cable industry.”

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Source: RedOrbit Staff & Wire Reports



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