Debunking the Carping over Broadband Usage-Pricing

Activist carping about the commercial Internet being commercial is revving up again, this time with the carping focused on framing new broadband usage-pricing innovations by Time Warner Cable and AT&T, as somehow a violation of the “open web.”

To cut to the quick and translate what is really going on politically here, this activist carping is the latest attempt to revive and re-fight the manufactured net neutrality debate between:

  • Free Culture activists, who broadly seek to force everything on the “free and open” Internet: software, content and bandwidth, to be “free” (as in no cost to the user), and to be “open” as in “public” (as in no property, permission, or payment needed to do anything one wants on the Internet); and
  • The commercial Internet, which sees the Internet as “free,” where “free” means ensuring user freedom of choice, and where “open” means competitive as in open market, not government-owned or price-regulated.

While the most radical activists say they are against broadband usage-based pricing because it is not egalitarian or neutral, and therefore unfair, what they are really opposed to is market pricing, because in their utopia where “free” is defined as no cost, there should not be prices to be paid at all.

These activists know that attacking the free market, competition, and private enterprise directly as they would like to do, is a big political-loser advocacy approach, so they carp on usage-pricing as unfair to people who might have to pay for what they think should be free or unlimited.

  • The problem with the activists’ upside-down definition of fairness is that most people don’t agree with their fairness definition or frame.
  • If you ask most anyone if it is fair that everyone pay the same price when they use and enjoy vastly different amounts of a good than others do — they will judge that to be unfair because most everyone believes it is most fair for people to pay for what they consume. Those who consume more than others, pay more than others.
  • The reason for this general view is that Americans are inherently individualists, in that they understand that people have very different wants, needs and means than other people, and that market competition provides different choices to best meet individuals’ different wants, needs, and means.

Moreover, broadband usage pricing has been around and accepted for well over a decade. Broadband providers have long offered different broadband speed tiers at different prices — faster speeds for a higher price. Paying by speed is a rough form of usage-based pricing because one can consume much more data overall with higher speeds.

  • Four years ago, Comcast introduced yet another rough form of usage-based pricing — a broadband data cap.
  • Yesterday, Time Warner Cable unveiled a new usage-based pricing plan where light users get a $5 monthly discount on their choice of three of the lower-speed tiers priced at $34.99-54.99 a month, but pay a dollar more per gigabyte over the cap — up to a maximum of $25 more.
  • Today, per the Wall Street Journal ATT indicated it is “effectively ending unlimited data plans… and will slow download speeds for unlimited 3G and 4G LTE smartphone customers who exceed 3 gigabytes and 4G LTE users who exceed 5 gigabytes of data in a given month.” This is yet another variation of usage-based pricing being employed to adapt to the rapidly changing market.
    • AT&T has long argued it needs more spectrum; and acquiring more spectrum was the primary impetus for its proposal to acquire T-Mobile, a transaction that the FCC blocked late last year.
    • In January, the FCC also signaled in its lobbying to Congress on the spectrum auction legislation, that it sought the authority to preemptively micro-manage the wireless market to effectively limit the spectrum AT&T and Verizon could buy to meet their customers’ exploding demands for bandwidth, so that smaller competitors that are not bumping up against the headroom of their spectrum holdings could acquire more spectrum.
    • Facing an FCC so hostile to AT&T’s legitimate needs for more spectrum, it is not surprising why AT&T has resorted to a more usage-based pricing to reasonably manage its network capacity, in order to ensure quality of service for all customers.

It is also very important to note that when the FCC passed its controversial Open Internet order 3-2, (which is likely to be overturned upon appeal this year), the FCC expressly did not prohibit usage-based pricing.

  • Open Internet Order: Para 72. “…prohibiting tiered or usage-based pricing and requiring all subscribers to pay the same amount for broadband service, regardless of the performance or usage of the service, would force lighter end users of the network to subsidize heavier end users. It would also foreclose practices that may appropriately align incentives to encourage efficient use of networks.220 The framework we adopt today does not prevent broadband providers from asking subscribers who use the network less to pay less, and subscribers who use the network more to pay more.

In sum, the commercial Internet trend towards broadband usage-based pricing has been obvious for many years, because it has been viewed as technologically and economically inevitable for anyone that understands the explosion of demand for bandwidth and the tens of billions of dollars of investment required annually, to buy spectrum, add cell sites and upgrade networks to next-generation capacity.

Activist efforts to block broadband usage-pricing and re-open the net neutrality/Title II regulation debates, faces a steep uphill climb. That’s because usage-based pricing is the norm in most every industry, and it is a common sense and normal competitive practice.

  • Moreover in wireless, it is the Federal Government’s fault that there is not sufficient spectrum supply to keep pace with exploding consumer demand.
  • Thus it would be irresponsible and indefensible for the FCC to backtrack on its support for usage-based pricing, because usage-pricing is the single best economic tool available to reasonably manage broadband network capacity.

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