Time Warner Cable Inc. (TWC) and U.S. pay- TV companies, weighing how to profit from surging Internet demand spurred by Netflix Inc. (NFLX) and Hulu, are on the verge of instituting new fees on Web-access customers who use the most.
At least one major cable operator will institute so-called usage-based billing next year, predicts Craig Moffett, an analyst with Sanford C. Bernstein & Co. in New York. He said Cox Communications Inc., Charter Communications Inc. (CHTR) or Time Warner Cable may be first to charge Web-access customers for the amount of data they consume, not just transmission speed.
“As more video shifts to the Web, the cable operators will inevitably align their pricing models,” Moffett said in an interview. “With the right usage-based pricing plan, they can embrace the transition instead of resisting it.”
U.S. providers like Time Warner Cable have weighed usage- based plans for years as a way to squeeze more profit from Web access, and to counter slowing growth and rising program costs in the TV business. While customer complaints hampered earlier attempts, pay-TV companies are testing usage caps and price structures that point to the advent of permanent fees.
“We’re basically a broadband provider,” Peter Stern, chief strategy officer for New York-based Time Warner Cable, said Nov. 17 at the Future of Television conference in New York. “As a convenience for our customers, we package and distribute television and provide service around that.”
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Rogers Communications Inc., the largest Canadian cable company, has been billing broadband customers based on consumption since 2008. U.S. providers AT&T Inc. (T) and St. Louis- based Suddenlink Communications LLC are experimenting with usage-based plans.
Cable companies see usage-based billing as a way to limit the appeal of online services like Netflix and Hulu LLC, and reduce the threat from new entrants like Amazon.com Inc. (AMZN) and Google Inc.
“It’s the reason why Apple or Google would inevitably be reticent about committing a significant amount of capital to an online video model,” Moffett said. “You can’t simply assume just because you can buy the content more cheaply, you can offer a product that’s cheaper to the end user.”
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