Monthly Archives: April 2009

To Time Warner Cable

What’s wrong with charging internet subscribers per gigabyte? When you pin your rates to an index that is guaranteed to rise faster than costs in order to increase profits, your risk remains pinned to customer retention. This business is sums, not rocket calculus.

The first thing you did wrong was to pick a margin so greedy as to be unjustifiable. Many consumers know or at least feel that half a dollar is too much to pay for a gigabyte of network traffic. Moderately savvy consumers would complain if rates were more than a few cents per gigabyte.

The second thing you did wrong was to try to profit most on the subscribers most likely to feel the inequity. The more bandwidth a person uses, the more likely they can understand their own usage habits in terms of gigabytes; the more likely they have a reality-based idea of the costs; the more likely they are to voice their righteous complaints publicly, educate other consumers, and threaten to subscribe elsewhere.

Many of them also know that they are good customers; they don’t consume your low-value, high-cost call center or web portal resources, they just want cheap, reliable bandwidth. These are the very people you should have favored when crafting your rate plans. Instead you underestimated and insulted them. Now they are clamoring to the competition, it is time to show them consideration. Whatever rate you settle on, it well be easier to swallow because it involves a concession. It was wise of you to test high rates on small markets.

The trump card that allows free consumers to demand a fair deal is the ability to decline the deal. Are consumers free if they believe your service is a necessity of life? Assuming people need your service, you can get away with outrageous rates if the competition colludes rather than competes. This would leave an opening in the market for low-rate providers if you hadn’t already locked it shut by lobbying for fixed-cost regulations that only established providers can afford. You’re pretty smart after all.