Are Cable Companies Hoping Usage-Based Internet Access Will Help Thwart Netflix?

[Commentary] At a January event, National Cable and Telecommunications Association president and former Federal Communications Commission Chairman Michael Powell reportedly suggested that caps on cable broadband were not about managing congestion on their networks (as previously argued), but “fairly monetiz[ing] a high fixed cost.” Translation: We paid a lot of money to build these networks—digging up streets, putting in wires—and now we need to make that money back.

The argument makes some intuitive sense. But those major investments were completed years ago to provide and upgrade cable television service, not broadband. Offering high-speed Internet service required substantially less capital investment for most cable companies. Powell further suggested that capped plans and usage-based pricing could be helpful to increase broadband access by making available lower-cost options for those subscribers who use less data. That’s good marketing, but in reality, a shift to usage-based pricing is not an act of charity by the cable industry. Large cable companies like Time Warner Cable and Comcast already make “almost comically profitable” margins on broadband service. How do you improve on 97 percent? A 2011 report from the Cisco Internet Business Solutions group suggested, “Usage based pricing can be a tool to catalyze new revenue.”