Time Warner Cable socks Internet customers with new modem fee

Time Warner Cable is seeing growth in its broadband Internet business but steady losses in TV viewers. So how is the company responding?

With a hefty new fee for Internet cable modems, of course.

The dominant cable provider in Southern California is rolling out a $3.95 monthly fee for use of its cable modems for high-speed Internet access. The modems were previously offered at no charge.

Tech-savvy types are free to buy their own modem from a list of approved models, ranging in cost from about $50 to $150. But that requires, among other things, a degree of comfort in installing the device, which many customers may lack.

Wall Street seems to think most people will stick with their Time Warner Cable hardware. UBS, a major investment banking firm, estimated last week that Time Warner will pocket as much as $370 million in extra annual revenue as a result of the new fee.

To be fair, Time Warner is only following its competitors in charging a modem fee. Comcast, for its part, charges a modem rental fee of $7 a month.

But that doesn't make the pill any less bitter to swallow, particularly in light of a glaring contradiction in Time Warner's rationale for socking Internet customers with an additional $47.40 in annual costs.

Milinda Martin, a company spokeswoman, said the fee was intended to cover "system enhancements and upgrades, as well as repairs and replacements."

But the fee is being applied only to customers with broadband access, not those who use Time Warner's modems for phone service. Phone-only customers face no additional cost for using the same equipment.

I asked Martin how the company explains that discrepancy.

She declined to comment.

My guess is that because Time Warner already has a bunch of Internet customers, it's comfortable hitting them with a new fee. Many people find it a hassle to change service providers once they get things up and running.

Phone customers, I suspect, will remain in the clear until Time Warner believes it's lured a sufficient number into the tent. Then they too will feel the pinch.

Time Warner reported this week that it lost 140,000 residential TV subscribers in the most recent quarter. That's more than the 128,000 that analysts had been forecasting.

Meanwhile, the company added 85,000 Internet customers.

Time Warner Cable Chief Executive Glenn Britt said the numbers make clear that Internet service is where the action's at.

"Our operating results were driven by continued strong performance in residential high-speed data and business services," he said.

Britt also said Time Warner remains focused on "ramping capital returns" to shareholders.

That $3.95 modem fee? Consider yourself ramped.

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