How Internet TV Could Cost You Thousands of Dollars a Month

Ah, the promise of Internet TV - a world where consumer choice rules and hated cable companies are history.

But that's not how it's working out. In fact, if America's top two telecom companies - Verizon Communications Inc. (NYSE: VZ) and AT&T Inc. (NYSE: T) - have their way, Internet TV will become nothing more than a fresh profit generator that will cost consumers a fortune.

Internet TVBoth companies have made it their long-term strategy to move away from wired connections to wireless connections. That's because the telecoms can charge much more for data delivered over a wireless network than a wired one.

Ideally, AT&T and Verizon would love to see everyone using their cellular networks to access Internet TV. The goal is to be able to charge customers for the wireless data "pipe," just as they do now with smartphones.

To see exactly why AT&T and Verizon are licking their chops at a future where wireless Internet TV is commonplace, take a look at some figures calculated by Bruce Kushnick, executive director of the telecom watchdog group New Networks Institute.

Internet TV: You'll Be Charged by the Hour

By plugging the typical American's TV viewing into the smartphone data plans offered by both AT&T and Verizon (which, curiously, are identical), Kushnick came up with some alarming results.

For example, a typical Netflix Inc. (Nasdaq: NFLX) user watches 46.5 hours of video per month. Standard definition video consumes 1 gigabyte of data per hour. The telecom data plans both charge $375 per month for 50 GB of data, so that's $375 - much higher than a typical cable bill.

But most people who have Netflix will want to watch their programs in high definition, which triples the data usage to 139.5 GB for the same amount of hours viewed. Now you're paying $1,050 for one month of TV viewing.

It gets worse. According to Nielson, Americans watch an average of 142 hours of television every month. For that amount of wireless Internet TV viewing, Kushnick calculated a monthly bill of $1,125 for standard definition and a whopping $3,225 for high def.

"While Verizon and AT&T are claiming wireless broadband is the future and is a new technology, truth be told if this is the future, we're hosed," Kushnik wrote in a July 19 blog post on the Huffington Post website.

Obviously few if any customers would pay more than $3,000 a month (or even $1,000 a month) to just watch TV. But AT&T and Verizon would love the ability to put millions of Americans on a wireless data meter so they can squeeze a lot more profit out of them than they do now with smartphones.

Here's why they're so keen on this, and what they've done so far to make it happen...

Why AT&T and Verizon Want Wireless Internet TV

Both AT&T and Verizon have multiple reasons for getting rid of the legacy copper wire networks and replacing them with wireless broadband.

For one thing, maintaining the old copper networks is expensive. And as noted above, the wireless networks rake in a lot more money. About 70% of Verizon's revenue comes from wireless, while AT&T gets 56%.

And it's much more profitable.

Last week Verizon reported its Q2 2015 earnings. Profit margins from the wireless segment were 43.9%. Profit margins from the wireline segment were 23.5%.

Another motive is shedding the regulations that applied to the old telephone system. Those rules required companies to provide service to poor customers and restricted pricing. Internet-based services are not subject to these rules.

Such powerful incentives have put customers in the crosshairs of AT&T and Verizon.

Both companies are skimping on the maintenance of the old system and using its decreasing reliability to push customers to newer technologies. In some cases, they've resorted to bullying tactics.

In Carbon Hill, Ala., AT&T is attempting to shut down the copper network entirely, forcing customers to wireless service or go without a phone. Verizon has been pushing customers in New York and New Jersey to surrender their copper wires in favor of wireless.

While in some cases the telecoms have fiber optic services, in others the only choice is wireless. And realizing that wireless networks are the golden goose, both have dramatically slowed investment in fiber optics.

"The Money Is in Watching Cat Videos on iPhones"

"As far as [Verizon CEO] Lowell McAdam and [AT&T CEO] Randall Stephenson are concerned, the money is in watching cat videos on iPhones. They're putting all their money into wireless subsidiaries and letting wireline subsidiaries rot," telecommunications consultant Fred Goldstein told Ars Technica last year.

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In some areas, Verizon FiOS or AT&T U-Verse is the primary cable TV provider. That's where the specter of wireless Internet TV comes in. And you can bet that both companies will keep pushing the wireless option on more and more customers as time goes on.

At first they'll probably offer wireless services at about the same price as their fiber optic services. But as even the fiber optic is phased out, the gigabyte meter will kick in, pushing monthly bills higher and higher.

Plus, wireless broadband will be marketed as "video everywhere." It will allow you to watch TV on your phone or tablet over the cellular network anywhere you can get a signal - a compelling feature, to be sure.

But in the long run, customers will pay dearly for it. And don't think if your provider is a cable company like Comcast Corp. (Nasdaq: CMCSA) or Time Warner Inc. (NYSE: TWX), you'll be safe.

The cable companies already aren't happy with "cord-cutters" who drop their television bundles in favor of "over-the-top" Internet TV services. How better to recoup that money than by following the example of the telecoms and putting a meter on data usage?

With the telecoms leading the way, Internet TV won't offer deliverance from the nightmare of American cable TV - just a pricier version of what we have now.

The Bottom Line: Verizon and AT&T envision a future where customers will pay for television viewing by the gigabyte, whether they watch on their phones, their tablets, or in their living rooms. To do this, their long-term strategy is to push customers from wired to wireless services. And when they succeed, the cable companies will follow.

Follow me on Twitter @DavidGZeiler.

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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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