Why Time Warner Cable's Pay-Per-Use Internet Experiment Will Fail

Time Warner Cable's (TWC) long-rumored Beaumont, Texas experiment -- giving new cable modem subscribers a bandwidth allowance and charging for overages -- begins this week, the AP reports.

Time Warner's tiers will range from $29.95 a month for relatively slow service at 768 kilobits per second and a 5-gigabyte monthly cap to $54.90 per month for fast downloads at 15 megabits per second and a 40-gigabyte cap.

Uploads and downloads will count toward their quotas, and subscribers will have a two-month grace period to figure out how much bandwidth they're using before getting charged extra. Overages will cost $1 per gigabyte.

Our first reaction: Are these typos? Those caps are tiny, and this is not going to work.

For instance, downloading just five movies a month from Apple's (AAPL) iTunes store would go over the 5-gig cap on the "cheap" subscription. Want to rent another movie? That'll be another $1 on top of what you're paying Apple. Even 40 gigs a month for the "fast" service isn't that much bandwidth in the era of all-you-can-eat Netflix streaming and four-computer households.

These caps will look even sillier once hi-def Web video, which eats up even more bandwidth, becomes more commonplace. And if you're using a legitimate peer-to-peer service like Joost, you could easily increase your consumption by uploading while you're downloading. (For more examples, see this post.)

Also confusing: Time Warner Cable is the lone major U.S. Internet provider to support Fon, a Google-backed (GOOG) startup that encourages you to share your Internet connection with strangers. Does TWC expect you to pay for what other people are downloading on your shared connection? Or if your neighbor (or someone less familiar) hops onto your wireless connection without your permission, can you request a refund?

As growth slows in the cable industry, and competition from phone companies heats up, we expect cable carriers to look for new pricing models, including pay-per-use Internet service. But we don't think Time Warner Cable has thought this one through. These caps are impractical, and any serious Internet user -- or someone who might be become one, someday -- should run away screaming to the nearest competitor. (Meanwhile, Comcast's proposed 250-gig limit makes much more sense.)

See Also:
Time Warner Cable: Download Hogs Could Pay More
How TWC Can Make Pay-Per-Use Work Without Going To Hell
Does Comcast Want To Put Bandwidth Hogs On A Diet? Sounds Good To Us