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Cutting the Cord on Cable TV

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Stephen Gallagher found a way to shave hundreds of dollars a year off his cable bill. He got rid of his Cablevision premium package this Spring. Gallagher now relies almost exclusively on the internet to watch TV programs and movies.

"Right now, I have NetFlix which I pay $10.99 a month for. I watch television shows for free on Hulu and I kept the basic cable package which is about $12 a month. So, my total tv bill is $23 per month, " said Gallagher.

Gallagher, a government employee, realized he was mostly watching Netflix and could catch TV shows on Hulu for free. He could not justify paying $80 a month anymore for cable - even if that means running to a friend's house or bar to watch live sporting events.

The math works right now. But, what if you had to pay one dollar per hour of streaming video on Netflix?

It could happen if internet service providers (ISP) begin charging for the amount of bandwidth you use or cap it. Basically, the free ride would be over.

The issue has become a live wire for Netflix.

The company has been lobbying Congress and the Federal Communication Commission to keep data flowing freely. In April, Netflix CEO Reed Hastings sent a letter to the House Energy and Commerce Committee.

He wrote, "We don't think ISPs should be able to use their exclusive control of their residential customers to force us to pay them to let in the data their customers desire [and already pay for]."

Canadian regulators have already embraced usage-based billing and bandwidth caps.

When Netflix entered that market last year, Canada's cable companies brought down their data cap levels and hiked overage fees. Netflix is worried the same thing could happen in the U.S.

Janney Montgomery Scott Analyst Tony Wible said data in this country and around the world is becoming more of a utility. Cable companies do not have the financial incentives to improve their capacity if it only helps their competitors. To clear the traffic on the internet highway, they may soon start adding "pay-as-you-go" fees depending on usage.

"We are already seeing some signs things are going this way here. In the wireless area, AT&T is already using usage-based billing once the iPhone started crashing its network. Now you have to pay for the gigabites," said Wible.

Plus, he said cable will always have the edge because they own the pipes - and landlines should always be faster than wireless because data can travel at the speed of light.

And, that's how fast you could see consumers switch back to cable if streaming video costs skyrocket.

[Editor's Note: CNBC's parent company is majority owned by the cable company Comcast. Cadie Thompson and John Carney are subscribers to Time Warner Cable in Brooklyn. Stephanie Landsman lives in New Jersey and the editors of NetNet have never been to her house. But she probably has cable too.]

Stephanie is Squawk Box producer. Follow her on twitter @StephLandsman

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