There have been some updates on Time Warner’s data caps since we started covering them.

First, Wired’s Epicenter blog took a look at some of the justifications for the caps. In Ryan Singel’s “Time Warner Cable Earnings Refute Bandwidth Cap Economics,” Wired breaks down Time Warner’s economic justifications for the data caps – and call them “fuzzy math.”

A close look at Time Warner Cable's books shows no significant link between its high-speed data costs and network usage.

For 2008, the most recent period available, Time Warner Cable reported that its high-speed data costs actually declined by 12 percent to $146 million. Meanwhile subscribers increased by more than 10 percent to 8.4 million, and high-speed data revenues climbed to more than $4 billion….

In previous public statements, TWC has said that flat-rate plans are unfair to its customers and that those who just check their e-mail pay the same amount as those who watch streaming video and download movies and that the company needs the extra cash to make the network faster.

These claims, however, do not appear to stand up under scrutiny….

"The conspiracy theorists are saying it’s because they want to keep their customers captive to their video services," says Vince Vittore, a principal analyst at The Yankee Group. "I tend to fall towards the side that they are trying to keep people captive."

In addition to Singel’s article, Saul Hansell at the New York Times interviewed Landel Hobbs, COO of Time Warner Cable, and Hobbs was put into the uncomfortable position of convincing its investors what it doesn’t want to admit to its customers.

Mr. Hobbs tried to strike a balance, saying that while the company is concerned about the cost to maintain its broadband network, investors should not be worried. He said it was “absolutely not” true that Time Warner’s profits were being squeezed by the cost of heavy broadband users…

“[Average Revenue Per User] continues to grow,” [Hobbs] said. “Broadband data is such a great product. I think there will be some customers who don’t use much that will select the lower tier. But over time, they will use more and move up to the higher price plans.”

Additionally, Hansell also brings up the biggest elephant in the room – why make customers pay variable costs for data when Time Warner pays fixed costs?

I tried to explore the marginal costs with Mr. Hobbs. When someone decides to spend a day doing nothing but downloading every Jerry Lewis movie from BitTorrent, Time Warner doesn’t have to write a bigger check to anyone. Rather, as best as I can figure it, the costs are all about building the network equipment and buying long-haul bandwidth for peak capacity.

If that is true, the question of what is “fair” is somewhat more abstract than just saying someone who uses more should pay more. After all, people who watch more hours of cable television don’t pay more than those who don’t.

Mr. Hobbs declined to react to my hypothesis about how costs are almost all fixed costs. He did invite me to meet with an engineer to go over the details, an offer I want to take him up on.

What may be most frustrating is that, according to Nate Anderson at Ars Technica, in “The Price-Gouging Premiums of Time Warner Cable’s data caps,” is that those fixed costs – even to upgrade the network – are quite low.

TWC claims that the caps are needed to "make improvements to infrastructure" that are necessary for higher speed access, but it's hard to see how. Comcast is aggressively rolling out DOCSIS 3.0 upgrades across its service area. In Chicago, it already sells a 50Mbps plan for $139.95—only 56¢ per GB. [Comcast has a 250GB cap across all tiers of service. –ed]

Besides, the dirty secret of these DOCSIS 3.0 rollouts is that they're cheap. Cable companies need to upgrade hardware at the head-end and may need to send out a new cable modem, but this is hardly expensive. A New York Times piece last week quoted industry insiders who said the job could be done for between $20 and $100 (the latter figure includes a new cable modem).

Landel Hobbs also issued a statement online, talking more about the specifics of the plan for Austin and the other test areas. [We had calculated our numbers in Thursday’s article based on the Beaumont plan, however the new numbers do not change the overall results much – 60GB is not that much more than 40 when you average it over 31hrs/wk. --ed] After yesterday’s deadline, we were aware of a statement by Hobbs with more specifics.

Some recent press reports about our four consumption based billing trials planned for later this year were premature and did not tell the full story. With that said, we realize our communication to customers about these trials has been inadequate and we apologize for any frustration we caused. We’ve heard the passionate feedback and we’ve taken action to address our customers’ concerns.

To be perfectly candid, Time Warner certainly had tons of opportunities to set the record straight – including with us, when we interviewed Alex Dudley, their VP of PR, before then. Either the right hand doesn't know what the left is doing over there, or this is a bit of “slight of hand” where Time Warner seems to be changing their plans based on the backlash without admitting that they're changing the plans based on the backlash.

This is a common problem that all network providers are experiencing and must address. Several other providers have instituted consumption based billing, including all major network providers in Canada and others in the U.K., New Zealand and elsewhere.

This is true, but it ignores the fact that in Canada, major network providers, such as Bell Canada, are legally required to resell the Internet connections to smaller network providers, all of which set their own rules for usage. These small network providers, such as TekSavvy have thrived because customers flee Bell Canada for the uncapped services (TekSavvy offers 5Mbps/800kbps unlimited service for $39.95CAD/mo). Bell tried to cap wholesalers' customers as well, but failed.

Additionally, services in New Zealand (where Kiwis pay an obscene $20NZD/GB) are... complex. First, unlike the U.S., the companies there have a legitimate excuse for charging more for bandwidth; as New Zealand is two islands out in the middle of nowhere, connected only through undersea cables which New Zealand's companies have mostly had to finance. (Additionally, there are political considerations, as Telecom New Zealand, which is New Zealand's largest company, has close relationships with the conservative elements of New Zealand politics. Nothing untoward or unethical, but certainly a great deal of lobbying power.)

Internet demand is rising at a rate that could outpace capacity within a few years. According to industry analysts, the infrastructure may not be able to accommodate the explosion of online content by 2012. This could result in Internet brownouts. It will take a lot of money to fix the problem.

The most famous of these studies came out at the time the Net Neutrality debate was just beginning, and it turned out to be connected to the “Internet Innovation Alliance” which essentially was a front organization for telecommunications companies.

Rather than raising prices on all customers or limiting usage, we think the fairest approach is to move to a tiered model in which users pay more if they use more.

The problem, of course, is that this does, in fact, raise prices on all customers and limit usage. Usage limiting may be de facto – via a person's ability and willingness to pay – rather than de jure, like the Comcast cap, but it is still a limit. Or more accurately, a disincentive. As for raising prices on all customers, this is the big one – the caps proposed for the higher usage customers are too low, obviously, but the caps proposed for low usage customers are also way, way too low. Customers who were doing fine on a 728kbps line but using more than 5GB/mo will find that they have to upgrade to a higher tier of service – paying more for something they don't need – in order to get to a more reasonable cap.

This is a price hike that Time Warner desperately does not want to look like a price hike.

To accommodate lighter Internet users and those who need a lower priced option, we are introducing a 1 GB per month tier offering speeds of 768 KB/128 KB for $15 per month. Overage charges will be $2 per GB per month. Our usage data show that about 30% of our customers use less than 1 GB per month.

When the bandwidth caps were announced, I used Tomato Firmware to track 10 minutes of idling – nothing except for standard windows services – no updating software, no instant messengers, no web browsing – nothing – to see how much bandwidth was consumed idling. It came out to around 2GB a month. Simply idling. I think Time Warner's “usage data” for “30%” of their customers is incorrect. We go more into this in part 3 of the series on Monday.

We are increasing the bandwidth tier sizes included in all existing packages in the trial markets to 10, 20, 40 and 60 GB for Road Runner Lite, Basic, Standard and Turbo packages, respectively. Package prices will remain the same. Overage charges will be $1 per GB per month.

We will introduce a 100 GB Road Runner Turbo package for $75 per month (offering speeds of 10 MB/1 MB). Overage charges will be $1 per GB per month.

Again, price hikes without calling them price hikes. At the very least, they're “shrinking the size of the candy bar.”

Overage charges will be capped at $75 per month. That means that for $150 per month customers could have virtually unlimited usage at Turbo speeds.

Again, we currently get that now – at $60/mo. That's really what it comes down to – for someone paying $60/mo, $150/mo for the exact same service will simply never seem reasonable.

There really are two issues here – the first is the cultural issue of bandwidth caps stunting Internet usage and development, combined with issues of making people pay twice for online content, and what can be seen as anti-competitive maneuvers against competitors of Time Warner's cable TV and VoIP offerings.

The second issue is – will people put up with being, quite frankly, price-gouged by a monopoly? We conclude with how much these data caps will end up costing you – and costing your enterprise network in terms of performance – in the conclusion to our 3-part series on Monday.