Sling, DISH Network's (NASDAQ:DISH) streaming service, has the potential to be an industry killer.
It's the first digital service that offers a package of live television channels -- including ESPN and other popular offerings -- which costs dramatically less than the price for conventional cable. Starting at $20 a month for roughly 20 channels, Sling TV gives cord cutters a real option to cut the cord but still have live access to many top shows.
Add an HDTV antenna to a Sling subscription, and people living in many parts of the country would have access on their television set to the major broadcast networks, as well as many of the most-popular cable channels, for $20 a month. Compare that with the $99.10 the average American household now spends on its cable bill, according to research from Leichtman Research Group.
To make matters worse, the LRG research shows that the average cable bill has risen by 39% since 2010, and that makes cord cutting more attractive. DISH's Sling should be an attractive option for more people, which should frighten the cable industry.
But while dropping traditional pay TV is possible, even easy, cord cutters still need Internet access. That, says Sling CEO Roger Lynch, is something big cable -- Comcast (NASDAQ:CMCSA) specifically -- is using to make sure its revenues don't suffer even if people drop their cable subscriptions.
What is Lynch charging?
Essentially, Lynch said ina recent interview with CordCutting.com that cable and Internet providers such as Comcast are using data caps to make sure they get their money even if people drop cable. Lynch told the website his company was focused on legal issues related to net neutrality: "We see concerning things happening if you look at cable companies like Comcast now instituting data caps that just happen to be at a level at or below what someone would use if they're watching TV on the Internet -- and at the same time launching their own streaming service that they say doesn't count against the data cap. It's something we've been warning Washington about for years, and it's a risk to OTT in general."
Comcast has been selectively testing 300 GB data caps in certain markets. Customers who exceed the cap pay $10 per 50 GB chunk of added data. There are also more expensive plans offered with higher base levels of data.
Why is this an issue?
The Comcast data cap essentially operates as a tax on cord cutters. As Lynch charges, the cap appears to be set where it won't affect cable customers who also use streaming services, but it would kick in for cord cutters.
Sling streams at speeds of 1.8 to 4.5 Mbps, Ars Technica reported. That means at the higher end of that spectrum -- 4.5 Mbps -- it would take about 148 hours of streaming to use 300 GB. "That might sound like a lot, but Nielsen last year found that the average American adult spent four hours and 32 minutes watching live TV per day and another 30 minutes watching time-shifted TV each day," the news site reported.
It's not perhaps as blatant as Lynch is charging, but it's a cap system designed to make sure that even if people cut the cord, Comcast still gets paid. That's a major disincentive for people considering cutting the cord. And if you add in the cable giant's exempting its own streaming products from cap limits, it may well create an unfair playing field.
What happens next?
Big cable is mounting what could be considered a smart defense against cord cutting, and Lynch may be right to suggest that it's both intentional and, in the case of exempting their own products, a net neutrality violation. In the short term that could put Comcast customers stuck with a data cap from being able to cut the cord. That will hurt Sling adoption and help traditional cable look viable for a little longer.
In the long run, however, it's not a viable strategy. Comcast and the other ISPs are increasingly facing competition. Whether it's from improving products offered by telephone companies or alternative carriers selling high-speed fiber products. As that happens, Comcast and the rest of the industry won't be able to force people to pay more for Internet service.
That may take time, but ultimately, any consumer who can choose between a capped service (which may cost more even before a user goes over his or her data allotment) and an uncapped one is going to choose the option with unlimited data. Comcast is playing a bit dirty, or being smart in protecting its revenue, depending on how you look at it.
Ultimately, though, it won't matter, and both pay television and Internet services will become commodities in which multiple players will force prices lower and end the monopolistic practices Comcast has been able to use to its advantage.
Daniel Kline has no position in any stocks mentioned. He has a Sling TV subscription provided for free to media which he uses when he travels on occasion. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.