An Attempt at Economically Rational Pricing: Time Warner Trial

Fri Jan 18 22:49:48 UTC 2008

On Fri, 18 Jan 2008, Patrick W. Gilmore wrote:

> On Jan 18, 2008, at 3:11 PM, Michael Holstein wrote:
>
>> The problem is the inability of the physical media in TWC's case (coax) to 
>> support multiple simultaneous users. They've held off infrastructure 
>> upgrades to the point where they really can't offer "unlimited" bandwidth. 
>> TWC also wants to collect on their "unlimited" package, but only to the 95% 
>> of the users that don't really use it, and it appears they don't see 
>> working to accommodate the other 5% as cost-effective.
>
> I seriously doubt it the coax that is the problem.
>
> And even if that is a limitation, upgrading the last mile still will not 
> allow for "unlimited" use by a typical set of users these days.  Backhaul, 
> peering, colocation, etc., are not free, plentiful, or trivial to operate.

To elaborate on what Patrick said, consider what the access providers are 
up against here.

We've spent the last several years in a state where bandwidth between 
major American, European, and East Asian cities seemed free and unlimited. 
There was a huge glut of fiber, interface speeds kept getting faster, and 
what users were downloading was mostly web sites.  We've now got 40 Gb/s 
backbones, which would have seemed like a staggering speed just a few 
years ago.

But look at the content that's being pushed hard now.  People have gone 
from downloading web pages with a few pictures to downloading TV shows and 
full-length movies.  To use Apple's iTunes video as an example, a 40 
minute TV show represents half a gigabyte of data.  A two hour movie 
represents 1.5 Gigabytes.  In terms of Internet bandwidth, that's two 
megabits per viewable second.  Assuming video downloading continues to 
grow, that people are still going to want to watch movies and TV in "Prime 
Time", those 40 Gb/s backbone links don't look so big anymore.  One of 
those super-fast backbone links can handle 20,000 simultaneous users, 
which isn't very many in the grand scheme of things.

Real HDTV data rates are considerably higher than current iTunes video 
data rates, so the number of viewers that can be supported by a 40 Gb/s 
backbone link is likely to fall further.

There are a number of things the ISPs could do about this, as far as 
getting content closer to the users and the like, and backbone links will 
certainly continue to get faster.  Still, it also seems likely that the 
era of capacity being so plentiful that it's not worth charging for will 
come to an end.

>> My guess is the market will work this out. As soon as it's implemented, 
>> you'll see AT&T commercials in that town slamming cable and saying how DSL 
>> is "really unlimited".

In a commodity market, which Internet access is, charging more than a 
competitor for the same service is difficult.  If AT&T is selling 
unlimited service, and Time Warner is selling metered service at the same 
speed, Time Warner's base rate will likely have to be a bit lower than 
AT&T's to compete.  But once they've got that lower base rate, they may 
have an easier time drawing in those who just want to check their mail or 
look at web pages, which are the easy customers for them to support.  If 
the really demanding customers go elsewhere, they may even see that as 
advantageous.

Anyhow, if a customer really wants to be able to download lots of video, 
they may prefer to be charged extra than to get sent random TCP resets, 
which seems to be becoming the current way of handling such things.

-Steve