business news in context, analysis with attitude

by Kevin Coupe

It has long been the contention around here that one of the things wrong with this country is that nobody really understands what anything costs. From bananas to cars to a college education, there are so many promotions and discounts and various payment schemes that it is almost impossible to figure out the value of things because the actual cost is virtually obscured behind all the marketing clutter.

Well, the Wall Street Journal reports that Time Warner Cable may be trying to establish some new pricing parameters for consumers by testing the notion of consumption-based pricing for broadband service.

According to the story, Time Warner is testing the concept in South Texas,but plans to “offer a similar tiered-billing option in other markets in the future. Under the new pricing plan, consumers will get a $5 reduction in their monthly bill if they accept a cap of five gigabytes monthly ... The offer will be available to customers on three lower-speed tiers, which cost between $34.99 and $54.99 a month. Customers who go over the cap will be charged $1 per gigabyte up to a maximum of $25 extra.”

However, the story notes that it wouldn’t be hard to go over the cap - streaming just three high-def movies via Netflix would likely take more than five gigabytes.

Time Warner has tried this before, and run into enormous blowback from consumers, but the company seems to be dedicated to eventually making it work; the premise is that someone who reads email a couple of times a week should not pay the same as someone who watches a couple of high-def movies each day. Which seems fair. (Though let’s be clear. This isn’t really about consumer fairness. Time Warner is doing this to make more money.)

Consumer resistance, I suspect, is as much cultural as economic. Americans have been trained to expect a lack of restrictions on what they consume; the whole notion of a “cap” seems somehow anti-American, a violation of so-called American exceptionalism.

While the Time Warner move is rooted in pure capitalism (and there’s nothing wrong with that),it will be interesting to evaluate the consumer response, and the broader impact of consumption-based pricing.

It could be an Eye-Opener.
KC's View: