2012 Year In Review: Usage-based broadband launched by Comcast, Time Warner Cable, Suddenlink

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Usage based billingThe news: Several cable operators began experimenting with usage-based broadband pricing, including Comcast (Nasdaq: CMCSA), Time Warner Cable (NYSE: TWC) and Suddenlink Communications.

Subscribers in Texas were the first to see usage-based billing emerge in February, when Time Warner Cable and Suddenlink rolled out different usage-based models. Suddenlink set a monthly usage cap of 250 GB for its cable modem service, and began charging subscribers who exceed the cap fees of $10 for every 50-gigabyte increment that exceeds the cap.

Time Warner Cable took a less aggressive approach, opting to offer light Internet users $5 monthly discounts on its high-speed service if they download less than 5 GB of data each month. Subscribers that choose the usage-based option and exceed 5GB of data are charged $1 per each gigabyte of data that exceeds the cap, with the overage fees capped at $25 monthly. CEO Glenn Britt said the MSO would expand the usage-based option to systems in every state it operates except Hawaii by the end of 2012.

Comcast has been testing two different usage-based pricing models. After increasing its monthly data cap nationwide in May from 250 GB to 300 GB, its Nashville, Tenn., system began charging incremental fees of $10 per 50 GB to subscribers that exceed the cap. In October, Comcast's Tucson, Ariz., system began offering data caps that are based on the tier of service a subscriber orders. Subscribers who take its Blast package get a monthly cap of 350 GB, while customers who order its Extreme 105 Mbps tier receive a cap of 500 GB.

Regulators sent mixed messages about usage-based broadband. During a Q&A with National Cable & Telecommunications CEO Michael Powell at The Cable Show convention in May, FCC chairman Julius Genachowski supported the idea. "Experimentation in this area is completely appropriate," Genachowski said. But during a speech in September, Genachowski said he was concerned that the usage-based approach could impact online video providers such as Netflix. "I'm concerned about practices that harm competition, including from over-the-top providers; unnecessarily depress broadband usage; or reduce incentives to increase broadband speeds and capacity," Genachowski said in an address at Vox Media headquarters in Washington, D.C.

And Republican FCC commissioner Ajit Pai warned in early December that the FCC could attempt to regulate usage-based broadband pricing next year if its new network neutrality rules are upheld by an appeals court.

Why it's significant: Broadband Internet access has become the hottest product in the triple-play packages marketed by cable MSOs. While most cable operators continue to lose basic video subscribers each quarter, they are growing cable modem customers. Usage-based broadband pricing could help operators grow revenue and ensure that heavy users of Netflix (Nasdaq: NFLX) and other over-the-top video services don't drain network resources. Deploying broadband usage meters in cable homes could also help cable operators introduce prepaid broadband services.

While cable operators are poised to grow revenue from usage-based pricing, they face increased scrutiny from regulators who are being lobbied by Netflix and other Internet video players that have complained about data caps and usage-based pricing.