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msnbc.com contributor
updated 4/15/2009 7:02:41 PM ET 2009-04-15T23:02:41

If Internet service providers' current experiments succeed, subscribers may end up paying for high-speed Internet based on how much material they download. Trials with such metered access, rather than the traditional monthly flat fee for unlimited connection time, offer enough bandwidth that they won't affect many consumers — yet.

But as more people use the Internet to watch TV and stream movies, they could bump up against the metered rates' caps, paying expensive over-use fees. Watching a movie may then require paying two fees: one for the movie, another to the cable company.

More and more television programming and movies are available online, through sites including Hulu, Netflix Watch Instantly, YouTube and Amazon.com's Video on Demand.

"If you wanted to watch TV over the Internet in 2000, you had to be willing to take much less content than cable," said Bobby Tulsiani, a senior analyst with Forrester Research in New York. "Now you get much, much more. Of course, you're still watching on your PC, not your TV, so there are tradeoffs, but they are tradeoffs many people are willing to make."

Most consumers probably don't realize how much bandwidth their Internet usage consumes, because they've never had to care. Time Warner, the nation's third-largest Internet service provider, in its five experimental markets is offering 5 gigabytes of downloaded Internet content for $29.95 per month. That translates to 15 hours of viewing standard-definition video, or 350,000 e-mails, or 170 hours of online gaming, or some combination of those activities, according to the company. A high-definition movie consumes about 7GB of bandwidth.

In addition to compelling consumers to monitor their Internet usage, metering could have broad societal effects, including disenfranchising the poor, retarding network growth and discouraging innovation, some experts say.

"Our use of bandwidth is growing smoothly every year, with more people using more all the time," said David Isenberg, a Cos Cob, Conn.-based independent telecom analyst. "One of the main nutrients on the Internet is low price. If you start stomping on that or putting in the wrong kind of price signals, my fear is you will inhibit all kinds of innovation."

Time Warner Cable, which operates under the Road Runner brand, said it has been offering tiered, capped service in Beaumont, Texas for some time and in March began testing that pricing in four new markets: Austin and San Antonio, Texas; Rochester, N.Y.; and Greensboro, N.C. Still unpriced is Time Warner's maximum available offering: 100GB per month, said Time Warner Cable spokesman Alex Dudley. Usage exceeding those caps is charged at $1 per gigabyte.

Others among the nation's largest ISPs are also experimenting with caps and tiers.

The largest ISP, AT&T, says it started similar trials Nov. 1 in Beaumont, Texas, and in Reno, offering between 20GB ($19.95) and 150GB ($65) per month depending on connection speed, with excess usage charged at $1 per gigabyte.

No. 2 ISP Comcast Corp. allows up to 250GB per month for a flat fee, calling the 1 percent of its users who exceed that limit and "asking them to moderate their usage," but not charging them more, said spokesman Charlie Douglas. Verizon, at No. 4, said it has no caps or tiers, while No. 5 AOL offers no broadband service and in any case said it's not considering consumption-based plans.

Both AT&T and Comcast say the reason they're experimenting with caps is to preserve network quality. In an e-mailed statement, AT&T said half its bandwidth is used by 5 percent of its customers, which "has an impact on all of our customers."

But that 5 percent could substantially expand as more and more people consume TV, movies, music and news over the Internet rather than on cable TV. The Internet is not yet a utility, defined as a vital service or substance like electricity, water, and heating gas or oil. In a tough economy, it can be eliminated or cut back. Yet for many, a connected computer receives utility status.

Cable companies are getting worried that more people are watching TV over the Internet. Glenn Britt, chief executive of Time Warner Cable, voiced his concern in February during a quarterly earnings discussion with analysts.

"We are starting to see the beginning of cord cutting," he said. "People will choose not to buy subscription video if they can get the same stuff for free."

It's tough to pin down how many people actually have given up cable — most of the evidence remains anecdotal — and which customers moved to a competitor. Still, Time Warner Cable lost 119,000 basic video customers in the fourth quarter, even after excluding subscribers it gave up from the sale of some cable systems.

Time Warner spokesman Dudley said his company is experimenting "to accommodate growth and anticipated growth, to better fund that growth." He said consumption-based billing is more equitable.

"Some of the population for whom the Internet buffet has been a very filling proposition are concerned," he said. "We could charge everyone more, or create a plan that charges more to those who use more. The concept of paying for consumption is fair."

Both Time Warner and AT&T stressed that the trials, though they have no announced end dates, are just that: experiments. They'll be modified, or even abandoned, if they meet too much hostility, Dudley said.

"Overwhelmingly we've seen positive results, but we'll see what happens. Presumably we'd retract it if there were enough outrage over it," he said.

Dudley denied the plan is designed to increase revenue in an era when growth of the broadband customer base has slowed. He said it's solely intended to grow the network and improve its quality.

But others wonder whether metering is designed to thwart the spread of movies and TV over the Internet by making it unafforable, thus preserving that business for cable. Onlookers also questioned whether profits gleaned from metering will really be plowed back into network growth.

"The technology exists to never be bandwidth-limited again: it's fiber optic cabling that's virtually limitless in capacity," said Isenberg, the telecom analyst. "But I think the money (from increased ISP fees) will go to executive bonuses and dividends, not to building a new network. They'd need to start new with that, not take incremental steps."

Lauren Rich Fine, research director for ContentNext Media, called consumption-based broadband billing "a huge step backwards."

She added, "Inner-city youth's ability to go online is the best way to give them broad access societally. Consumption-based models will end up being a bigger burden on less affluent people."

Fine said she doesn't see such billing as inevitable. Instead, subscribers could continue getting unlimited access unless they also want video, for which a fair premium could be charged.

Isenberg said he wishes such billing could be avoided.

"We need new ways of thinking about bandwidth. We need to think of it like sewer services and roads rather than like food in a supermarket."

But Alan Mutter, a former cable TV and ISP exec turned commentator, said consumption-based billing, if unfortunate in some ways, is both logical and necessary.

"In the early days of the Internet, especially abroad, uptake of online content was definitely slowed by metered access. There's no question higher or metered fees retard consumption," Mutter said.

In the 1980s and 1990s, American ISPs moved to offering unlimited access as a way of getting big fast. Once customers were signed up, they were reluctant to leave, as that would mean changing their e-mail addresses. Now that ISPs' market shares are more stable, the ISPs have to start adjusting prices so the biggest users pay more, Mutter said.

"I do see that as fair," he said.

But there's one vital factor to consider, he said: competitive forces.

If one company starts to meter and the others don't, the metering plan could fall apart, he said. Or — more likely — other ISPs could join the metering movement, just making their offers look like a better deal.

"In an environment where consumers are spending less at every turn, I think it's inevitable businesses that have been offering an all-you-can-eat special for a decade will be considering ways to start charging by how much you use," Mutter said. "It's just part of the economic times we live in."

This report includes material from The Associated Press.

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