The cable TV industry is playing the long game when it comes to denting threats to their monopoly status in most markets.
Nothing on the horizon appears likely to offer a cheaper alternative to compete with cable’s ubiquitous infrastructure wiring up over 100 million homes nationwide. The real threat is cord cutting, when customers drop costly cable TV subscriptions for cheaper Internet-based entertainment alternatives. And already the proportion of households paying for cable TV dropped to 80% last year from 84% five years earlier.
Regulators thwarted cable’s first strategic response. Initially, cable companies tried to charge services like Netflix (NFLX) extra fees to reach their Internet customers. And when the services didn’t pay, customers mysteriously found their online video connections slowed to a crawl. The Federal Communications Commission’s net neutrality rules put an end to much of that effort, barring Internet service providers from discriminating against any online content.
So now cable is turning to plan B: impose caps on customers’ Internet usage that will eventually drive up the cost of watching too much online video. To avoid criticism and further regulatory pressure, the caps have largely been set at high levels that won’t impact online video watchers yet.
But once the regime is in place, cable companies could easily lower the caps. They could also wait a few years until super high definition 4K video becomes the norm, meaning online video watchers will be consuming a lot more data. Or, they could follow the strategy of some wireless carriers of favoring their own online video services by exempting them from counting against the caps.
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This week, Comcast, the largest cable provider in the country, disclosed that it is extending a cap of one terabyte (the equivalent of 1,000 gigabytes) per month to customers in parts of 18 states, including California, Texas, and Michigan. The cable company already imposed the cap on customers in 16 states, such as Maine, Arizona, and Kentucky. Customers who use more than one terabyte in a month will be charged $10 for every additional 50 gigabytes.
Earlier this year, Comcast raised the caps from 300 gigabytes. At one terabyte, a typical user would have to watch 600 to 700 hours of high-definition video in a month–or 25 to 29 straight days worth—to exceed the one terabyte cap, Comcast (CMCSA) says. Less than 1% of current Comcast customers use more than one terabyte in a month, the company adds. And an “unlimited” plan is available for an extra fee of $50 a month. The company has said it needs to impose the caps to prevent some customers from using too much network capacity.
For more on Comcast’s data cap policy, watch:
Charter Communications (CHTR), the second-largest cable TV provider, won’t be allowed to impose data caps for the next seven years thanks to conditions imposed by regulators in April when it bought Time Warner Cable and Bright House Networks.
Netflix jumped into the fray last month and asked the FCC to prohibit the caps. “Today’s ‘above-average’ Internet consumer is tomorrow’s average Internet consumer,” Netflix said in its filing.
At the same time, Netflix executives have tried to reassure investors that the caps won’t hurt its service right now. “We’re super happy to see Comcast adopt 1-terabyte data caps, because that’s really following the consumer,” Netflix CFO David Wells told investors at the Goldman Sachs Communacopia conference last month. “We think data caps are not a great consumer way to manage it, and you’re much better off selling higher-speed broadband and having services use the service.”
So for now, at least, most cable Internet users will still be able to watch as much Netflix and Hulu as they’d like. Down the road, it may be a different story.
