AT&T Embraces Internet TV

I enjoyed Charlie Sheen’s performance in Major League, the movie where he played pitcher Ricky “Wild Thing” Vaughn. Wild Thing is an all-over-the-place fastballer who terrifies hitters as Ryne Duren did for Mickey Mantle’s Yankees while wearing eyeglasses with lenses as thick as Coke bottles. Lately Sheen has been as erratic as Wild Thing’s fastball, and I had to wonder if he didn't get control of the Free Press publicity machine when I read their reaction to the AT&T usage caps announced yesterday. First, the facts:

AT&T is going to set a soft limit of 150 Gigabytes/month for their ADSL customers and 250 Gigabytes for their VDSL+ (U-Verse) customers. To put these numbers in context, if you watch Netflix seven hours a day, seven days a week, you won't have a meaningful social life, but you won't exceed your cap.

The accounting is straightforward: According to Netlfix, they stream videos at an average rate of 1.5 Mbps into the AT&T network, which works out to 675 Kilobytes per hour. That comes out to 222 hours of streaming TV per month, or 7 hours a day plus change, for ADSL users. For U-Verse users, the cap allows 370 hours of streaming per month, which is 12 hours a day, about all the consumer can handle on top of a a part-time job at McDonalds and 8 hours of sleep a night. In the event that it’s not enough, they're happy to sell additional bandwidth for $10 per 50 Gigabytes. The excess capacity fee is roughly a 400% markup over the OpEx cost of bandwidth, a typical multiplier that leaves just enough profit on the table to cover the CapEx costs of the long-term bandwidth crunch.

To put these numbers in even more context, the average American watches a whopping 6.75 hours of TV each day, so if all of AT&T’s broadband customers cut the cord completely on broadcast TV and substituted Netflix, AT&T wouldn't raise their prices, so there’s no meaningful argument to be had with this plan in terms of the transition from broadcast TV to Internet TV. AT&T is saying: "bring it on."

Given that the AT&T caps will allow the typical consumer to completely substutute Netflix for OTA and cable TV, they're clearly pro-innovation. Given that they're high enough not to affect streaming and just low enough to raise the price of piracy - most of the applications that run to more than 250 Gigabtytes/month are likely to be those in which the user is not paying for content at all - I'd have to say they're pretty close to ideal. We want users to have enough capacity for legitimate uses, but not enough for illegitimate ones, after all.  And by the way, AT&T is going to warn customers when they're reaching their limits, on their monthly bills, and at 65%, 90%, and 100%.

Nonetheless, Free Press released a press statement declaring this plan as something akin to highway robbery:

AT&T’s Internet overcharging is a poor solution to an unproven problem, and it will have a chilling effect on economic growth and innovation online. AT&T claims that its caps and penalties will only affect a few users, but unless the limits grow rapidly along with usage, many more customers will soon be ensnared. When ISPs force their customers to watch the meter, experimentation, innovation and business will suffer.

This is what’s called an inversion of reality. The AT&T caps will permit today’s Internet users to cut their cable TV cords completely, and then to increase their TV resolutions substantially before paying a dime more than they pay today. Most people would regard that as a darn good deal. As Jon Healy explains in the Los Angeles Times, this kind of pricing plan is exactly what the normal user wants:

...the caps are a better deal for most broadband users than all-you-can-eat pricing that forces them to subsidize the outsized data appetites of a small minority. That’s the dirty little secret of the flat-rate pricing model that AOL made standard across the Net: It costs most users more than they would have to spend under the pay-as-you-go model.

And that, my friends, is reality: The all-you-can-eat plan passes the costs of high consumption to low consuming users, a great deal if you can get it. It’s interesting that America’s actual free press, the LA Times, understands this while America’s notional Free Press, the pressure group, doesn't.

Now if we can just get Charlie Sheen into rehab before he strikes again...