For an industry that's supposedly struggling to keep up with customer demand for more bandwidth, the nation's two largest cable operators seem to be doing pretty well.
This week Comcast and Time Warner Cable each reported strong earnings, in spite of the fact that Time Warner has said recently that it needs a new business model to handle growing broadband demand.
Comcast beat analysts' expectations and increased profits 5.4 percent to $778 million. Time Warner Cable's profits fell 32 percent, but this was mostly due to costs associated with the split from its former parent company, Time Warner. The company's revenue was actually up 5 percent to $4.4 billion when compared to the same quarter a year ago.
Comcast also increased revenue by about 5.3 percent to $8.4 billion.
Meanwhile, both companies reduced capital spending. Comcast cut capital expenditures by 19 percent to $1.16 billion. And Time Warner Cable cut its spending by 18 percent to $33 million. For broadband specifically, Time Warner increased revenues 11 percent to $1.1 billion.
The companies also increased subscribers. Time Warner added 225,000 new broadband users and 166,000 new voice-over-IP customers during the quarter. Comcast added 328,613 high-speed Internet customers, down 33 percent from the previous year, and it added 298,433 digital phone customers, also down about 53 percent.
Even though Comcast isn't adding new customers as quickly as it did a year ago and Time Warner's profits aren't as high as they were a year ago, the companies are still adding new subscribers and making money. And yet they are also cutting capital spending.
This financial reality is very different from the one Time Warner Cable has been touting recently, as it tries to explain why it wants to start billing customers based on how much bandwidth they use. Outraged consumers mounted loud protests when the company said it would expand trials of the new billing system. Time Warner backed off the plan for now. But the company still argues that it must do something because the current business model is "not viable."
Time Warner's views are shared throughout the industry. Kyle McSlarrow, president and CEO of the National Cable & Telecommunications Association, supported Time Warner Cable's trials in a blog post stating that they "may serve the vast majority of their customers better by reflecting the growing reality that some consumers utilize far more high speed bandwidth than others."
Smaller cable operators are already starting to meter bandwidth, according to a recent article by the Web site Broadcasting & Cable. Sunflower Broadband in Northern Kansas has been using metered pricing for the past four years. And Wave Broadband, which provides service in Oregon and Washington, is about to launch metered billing on its network.
The chief operating officer of Sunflower Broadband, Patrick Knorr, says bandwidth-based billing is the only way to manage infrastructure, the B&C article said. He believes that with all the high-definition content being downloaded that there is no way a cable company could keep up with demand at current flat rate prices. And like Time Warner's CFO, Landel Hobbs, Knorr says that consumption-based billing is "unsustainable."
But when cable operators add customers and cut capital spending on infrastructure, it doesn't seem as though they are even attempting to keep up with customer demand for more bandwidth. And the fact that they are still making profits also shows that they have the money to spend. So for consumers--who already feel they pay too much for broadband services compared to people living in other countries--Time Warner's argument that it has no choice but to meter traffic is a hard to pill to swallow, especially in this economy when so many people are financially strapped.
Starting October 1 customers of Comcast's residential data services will have an invisible barrier on their monthly data usage. Under the new guidelines of Comcast's Acceptable Use Policy announced Thursday, that cap will be set at 250 gigabytes per month, per account.
Users who go over the limit will get a courtesy call from Comcast's customer service for the first instance. However, under the new policy a second-time offense means the service is immediately suspended for an entire calendar year.
Surprisingly the company is not providing any tools to help users monitor their current usage. An FAQ on Comcast's support site simply suggests that customers do a "Web search" for bandwidth metering software that will track this amount for them. Going forward there may be plans to set up alerts over certain thresholds, or bundle some official tool as part of the company's starter software.
Comcast notes that the median usage for most residential customers falls somewhere between 2GB and 3GB, a number that is regularly broken within a matter of hours and sometimes minutes by customers taking advantage of streaming HD video and online backup services. The company breaks down basic usage numbers similar to what's seen on the marketing materials on a consumer hard drive:
* Send 50 million e-mails (at 0.05KB/e-mail)
* Download 62,500 songs (at 4MB/song)
* Download 125 standard-definition movies (at 2GB/movie)
* Upload 25,000 high-resolution digital photos (at 10MB/photo)
A far greater problem may be the slighting of cloud storage services that offer file transfer and backup. Services like Carbonite and Mozy let you back up and transfer the entirety of your computer's storage several times per month, which on many standard consumer machines can be in the hundreds of gigabytes.
Apple, too, is just at the beginning stages of MobileMe, a service that offers sync and file backup to multiple devices. Additionally, the rumored all-you-can-eat iTunes could drastically change how much downloading users are doing on a monthly basis.
So what do you think about this new limit? Let us know in the comments and the poll below.
Internet papa Vint Cerf said broadband speed limits rather than broadband data caps would be more useful in managing congested networks.
Vint Cerf, Google chief Internet evangelist
(Credit: Google)Cerf, who is Google's chief Internet evangelist, on Monday wrote a post on the company's public policy blog blasting the idea of applying data caps and metered rate plans. Instead he proposed a plan that limits network speeds.
His comments come just days after the Federal Communications Commission's symbolic ruling against Comcast for violating the agency's Net neutrality principles. The FCC came down hard on the cable operator for blocking access to peer-to-peer file-sharing protocols such as BitTorrent.
Comcast has argued that it was only targeting protocols such as BitTorrent in order to manage its network, which has been flooded with P2P traffic. This is a common complaint among Internet service providers, particularly cable operators, whose networks were originally built for one-way communication and also share capacity at the neighborhood level.
In response to the controversy, some ISPs are looking into consumption-based billing or putting volume caps on the amount of data that subscribers can use. Time Warner Cable started testing such a metered bandwidth service in Texas. The way it works is that customers pay for a certain amount of data capacity per month that can be either uploaded or downloaded using their broadband connection. And if they go over the cap in a given month, subscribers are charged $1 per megabyte.
Cerf, who helped create the TCP/IP protocol used as the foundation of the Internet, says that he doesn't think applying a "volume cap" is very "useful." He also said that metered pricing instead of the flat fee plans "could end up creating the wrong incentives for consumers to scale back their use of Internet applications over broadband networks."
That said, Cerf acknowledges that ISPs, such as Comcast, need to be able to manage their networks. But instead of using volume caps, he thinks ISPs should introduce transmission caps. These would allow users to purchase access to the Internet at a given minimum data rate, which would be guaranteed even during times of congestion. Subscribers could download or upload data of any size, anytime they want, at the guaranteed rate. When the network isn't congested, like in the middle of the night, users could get faster speeds. But during times of congestion, the broadband pipe would be limited to the minimum guaranteed rate.
This might mean that at peak times, it could take much longer to upload or download content. If subscribers get frustrated with the slower speeds, they could upgrade to a higher tier of service with a faster minimum speed. Or ISPs could offer a service that allows users to pay for short bursts of speedier connections.
The technology to create such a service has existed for some time. And network operators have been offering corporate customers data connections with minimum data rates spelled out for years.
The problem is that carriers don't want to sell consumer broadband services this way for a couple of reasons. For one, broadband providers prefer to advertise peak speed connections rather than minimums. A service that offers up to 10Mbps sounds a lot sexier than one that guarantees a 1Mbps download.
But network operators typically oversubscribe their networks to squeeze more profit out of their customers. The idea is that all subscribers don't use the network at the same time, typically leaving enough capacity so that when they do use the network, most users can get close to the maximum capacity offered. Selling services with minimum bandwidth guarantees means that operators wouldn't be able to oversubscribe the network as much, because during times of heavy congestion they might not be able to deliver the minimum data rates. It would also force these providers to enter into strict service level agreements with individual customers, which could potentially cost them a lot of money if they can't deliver the minimum guaranteed speeds.
It's difficult to say whether broadband providers will heed Cerf's recommendations, especially since the cable operators, due to how their networks are designed, are the ones in greater need of help. The phone companies, which have always had networks built for two-way communication, have also been aggressively upgrading their networks with fiber, which offers greater capacity.
Verizon Communications has been building a fiber-to-the-home network, which will allow the company to continually upgrade capacity by simply changing some of the hardware on the network. And AT&T has been upgrading its network, pushing fiber deeper into neighborhoods to provide more capacity over shorter loops of its last mile copper networks.
That said, Cerf writes in his blog that he's encouraged by the talks he has had thus far with Comcast.
"I've been pleased so far with the tone and substance of these conversations, which have helped me to better understand the underlying motivation and rationale for the network management decisions facing Comcast, and the unique characteristics of cable broadband architecture," he said. "And as we said a few weeks ago, their commitment to a protocol-agnostic approach to network management is a step in the right direction."
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