Here’s what’s behind Time Warner Cable’s new pricing plan

Few people will likely take Time Warner Cable up on its new Internet Essentials plan, which offers customers a $5 discount in exchange for staying below 5 GB of data consumption each month. But the real benefit to the plan is the roll out of the broadband meters at Time Warner Cable. The plan is to use that to get a better sense of how much, where and when broadband consumption occurs.

Alex Dudley, a spokesperson at Time Warner Cable, explained the thought process to me this morning. “With these meters we will be able to count [data consumption] at a census level for the first time,” Dudley said. “Our hope is for using that data to manage the network.” A cable network is composed of a plant where all the gear a satellites are that pull down the TV content lives, which connects to various nodes that serve between 1,000 and 250 homes. Currently Time Warner Cable can see when nodes are overloaded, but it can’t see any deeper.

This could have benefits for customers since cable networks are shared among subscribers. For example, one way to relieve network congestion is for a cable company to split the node, which then reduces the number of homes on a node. With household data the cable company might be better able to divvy up homes on the node to include both heavy and light users. As an end user on the network it means your service might improve because the capital dollars will be allocated to the areas that need it most.

We do not like low caps and tiers

The data will also help Time Warner Cable price its service, although Dudley was clear that it has no plans to do so at this time. But when asked about uses for the data he did say, “The other thing we’ll do is work on packages that make sense with the way that customers break out naturally rather than make assumptions for them.”

It was clear that Time Warner’s last experience with tiered pricing antagonized its customers, and Time Warner has learned a lesson. The lesson may not be that tiered pricing is bad, but rather that a punitive plan that charges people when they use too much isn’t likely to win fans. Hence the discount offered in this plan. “It’s opt in, so it takes some of the sting out of it,” said Dudley. “We honestly tried to make it about, ‘If you want to save $5, great.'”

If not, it’s not something TWC will penalize you for. The plan also has a grace period, and is flexible so customers can switch off the plan if they see they are going to go over that month, so they can avoid overages. The plan charges $1 for every gigabyte over the plan up to $25 more. However, Dudley explained that TWC’s median user is roughly in the 10 GB per month range, so this plan isn’t going to net a lot of users — something he admits.

Would you, could you pay for speed?

If Time Warner does take this data to heart when thinking about pricing, I’d rather it focus less on the data we use and more on the quality of broadband. As someone who consumes 125 gigabytes per month, according to the TWC meter (which is audited by a third-party), I’m clearly a huge user of broadband. Penalizing me for that will make me search for a new provider (not that there are many) or turn me into someone who writes letters to the FCC, my local politicians and complains on my blog. Yes, I’ve done all of that.

However, if Time Warner Cable were to offer me better service and asked me to pay more for that, it’s likely I’d bite. Right now I pay for a 30Mbps down service, but I might be enticed to pay for a faster tier if it meant my Netflix (s nflx) streams wouldn’t freeze as often or I wouldn’t have to share a node with 100 other people who stream content between the hours of 8 p.m. and 10 p.m.

Of course, the truth is that these methods are all about ISPs capturing as much revenue as possible, especially as video and voice become more and more accessible via a single broadband connection. Where I used to pay Time Warner roughly $150 a month for cable and Internet, I now only pay about $50. If it can entice me to pay more that’s in its best interest — although it’s nice to see that the company is realizing that the key here is enticing me to pay more rather than forcing me to pay more because I hit some arbitrary cap.

“They way [the previous tiering plan] played out was a big tell that those types of punitive systems don’t sit very well with users,” said Dudley. Hence the carrot of the Essentials plan, which Dudley said Time Warner will gradually roll out to the rest of the cable provider’s footprint over the next 12 months or so. At that time it will have more data and maybe will start thinking about new ways to price broadband. We’ll be watching.