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AT&T's Desperate Shot at Netflix

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Unlimited data? It's so 2010. For AT&T, the future is in data caps.

That's why this week — in line with its recently announced wireless data plan caps — AT&T announced it will limit the amount of data its DSL and UVerse broadband subscribers can access per month.

AT&T will cap broadband use at 150 gigabytes a month for DSL and 250 gigabytes for UVerse (fiber optic line) users, and will charge $10 for each additional increment of 50 gigabytes.

These are lots of numbers and bytes to throw around, so to make it simple: AT&T is throwing into question the future of online movies and TV, sharing audio and video, real-time online gaming, streaming live sports and pretty much every other bandwidth-intensive online activity. Roughly translated, that's just about everything we do on the Web these days, and much of what innovators are trying to create.

Take online video. Every day, more Americans cut the TV cable cord, opting instead to watch "Glee" or "The Office" on Netflix or Hulu on their own schedule, without having to pay for a DVR. While you still can't get every show or movie you want online, these sites are growing quickly, they're convenient, they're much cheaper than one-size-fits-all cable packages, and all you need is a high-speed Internet connection to access them.

We still pay broadband providers a fee for Internet access, of course, and the video services pay on the other end to put their products online. But these cable/telephone/ISP conglomerates are accustomed to having captive audiences who they force to pay for expensive "bundled" cable packages with hundreds of channels they don't want in order to get the few that they do. Now, with the cord cutters only asking for Internet service, the telecoms are feeling threatened.

AT&T is doing everything it can to prop up the walls of its cable fortress, including capping those cord cutters' data usage. It claims that these caps will only affect about 2% of DSL consumers, and they won't impose fees until you hit the cap three times.

But if you're moving to a life of nothing but online video, you could incur those fees quickly. Here's how:

According to a GigaOM report, streaming a single movie like Moulin Rouge uses about 3.5 GB in data, and a single TV show like "Weeds" uses about 800 MB. With a data cap of 150 GB a month, this works out to a maximum of about three hours a day of video watching.

However, the typical American watches five hours of TV a day. If that viewing takes place online, that's five hours of streaming video per person, which would hit AT&T's cap rather quickly. And that's just now; online video consumption — particularly Netflix — is rising at a terrific pace.

AT&T is keenly aware of this. If it can slowly nickel and dime consumers, making it more expensive to try to escape from its old, outmoded cable fortress than to stay put, it can prop up those walls, and make consumers "enjoy" its cable services once again.

That's the future not only for Netflix and Hulu users, but also the millions of sports fans watching their favorite teams online and online gamers dependent on high-bandwidth connections.

And here's the rub: AT&T doesn't need to cap data to keep making money. As British Telecom (BT) has shown, it's possible to do away with usage caps completely and still run a profitable business. In fact, BT owes its profitability to investing in better service. Compare that to AT&T's apparent strategy: do nothing and hope your customers don't notice that they're paying more for worse service.

Rather than trying to outdo its competitors by investing in better pipes, AT&T is taking advantage of its status as the owner of the outmoded pipes to squeeze out video upstarts like Netflix and Hulu, and making it harder and more expensive for its customers to access their services online. It's a terrible model, and one we can be sure the rest of industry will be following in short order.

AT&T knows it's losing the future. Its strategy? To slow down the future's inevitable arrival, one overage charge at a time. Squeeze a few more dollars out of the customer, while squeezing the life out of budding competitors.

Washington, are you listening? If not for the consumers, then at least for the entrepreneurs who politicians on both sides of the aisle claim to love, it's time for the Government Accountability Office — and possibly even Congress — to investigate these anti-competition, anti-innovation, anti-free market practices.

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