If You Are Streaming Video, You Can’t Cap Your Rivals (Time Warner Cable Edition)

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All of the innovation in the world does not change the fact that cable companies have the power to cap their online video rivals.


Time Warner Cable recently announced that it's cable TV subscribers can download an app onto their Xbox360 consoles.  The app gives them access to a wide range of cable content through their Xbox360.  But for the fact that Time Warner Cable also imposes data caps on its subscribers, this would be fantastic news.

It is great to see companies like Time Warner Cable (TWC) trying out new things.  And we have pushed the FCC for years to update its rules to make it easier for all cable subscribers (and, for that matter, all other pay TV subscribers) to access the content they pay for on the devices of their choosing.  So why can't we celebrate TWC's announcement?  Because as the internet offers more ways for competitors to reach consumers, the way that cable companies treat the internet begins to matter more.

Capping Your Competitors

One way to see this will be on the Xbox dashboards of TWC customers who download the TWC app.  Remember, those Xboxes don't have cable inputs in the back – customers attach them to their home routers.  Next to the TWC app may be a number of other apps – Netflix, Amazon, Crackle, and more.  One one level, all of those apps are the same.  They offer the customer a way to watch video through their Xboxes on their TV.  But on another level, they are very different.  All of those apps, with the exception of TWC's, will count against the customer's data cap.  That's a significant advantage for TWC.

This highlights a fundamental conflict developing in the world of video.  Many existing cable companies are preparing for increased competition from internet-delivered video.  At the same time, those cable companies control the very internet connections that their online video competitors are relying on to reach customers. 

If a Company Can Harm its Competitors, It Probably Will

The dual control creates a massive conflict of interest.  Cable companies are facing competition but – good news! - they also control a vital ingredient that makes that competition possible.  In the absence of some sort of check, their logical reaction to such a situation is to leverage their control over internet access to protect their pay television service. 

Fortunately, we have an entire government agency (actually, more of a Commission) set up to make sure that just these types of conflicts do not negatively impact our communications systems.  Unfortunately, that Commission has ignored every opportunity it has had to do even the smallest amount of thinking about how data caps might impact that system.  And it has avoided even considering a petition that Public Knowledge filed over a year ago when Comcast decided to do something similar.

Two Caveats

When thinking about this news, two caveats should come to mind.  First, TWC does not impose data caps on all of its customers.  Instead, it gives some of them an option to opt-in to a severely caped plan for a $5 discount on their monthly bill.  But that does not do very much to address the concern.  It is not hard to imagine an ISP using small discounts to push consumers away from the connectivity required to support a competitor.  And if customers never sample the competition for fear of hitting their cap, they are much less likely to make a switch.  Until an ISP can explain simple things about their cap - how it was set, how it is evaluated, and how it might evolve over time – there are good reasons to be wary of it.

The second is TWC's claim that the reason the app is exempted from data caps is that it really isn't an internet offering.  Rather, it is part of TWC's cable offering.  But that logic actually highlights the problem. 

Like Comcast's offering from last year, TWC offers IP-delivered video through a consumer's home router to a device connected to the home network.  It works the same way that its online competitors do.  To the extent that TWC's service is different – for example, it does not have to be delivered onto TWC's network from somewhere else – that difference is because TWC owns the network.  Which is, of course, the problem: TWC cannot be allowed to leverage its ownership of the physical delivery network against its online video competitors.

So while they are both worth keeping in mind, neither of these caveats address the central concern: Cable competes with online video.  But cable controls access to the internet.  And because of that, data caps are a great way to undermine a competitor.

Image by Flickr user Tim Dorr.

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