NCTA president, and former FCC chair, Michael Powell recently told a Minority Media and Telecommunications Association audience that usage-based pricing isn’t about congestion, but “how to fairly monetize a high fixed cost.”
He said that charging more to customers who use the Internet the most “is a completely rational and acceptable process to figure out how to fairly allocate those costs among your consumers who are choosing the service and will pay you to recover those costs.”
Time Warner Cable recently announced its intentions to make its Essentials broadband service, which provides a $5 discount to customers who agree to stay below 5GB/month in data usage, available nationwide. We’ve voiced our concerns about the program (which really only offers about $1/month in savings when you factor in that you currently must rent a modem from TWC) because a $5 discount for customers who can only use 1/50 of the broadband of regular customers doesn’t seem to add up.
“If usage caps were about ‘fairness,’ carriers would offer the nation’s grandmothers a $5-$15 a month tier that accurately reflected her twice weekly, several megabyte browsing of the Weather Channel website,” writes DSLreports.com’s Karl Bode. “Instead, what we most often see are low caps and high overages layered on top of already high existing flat rate pricing, raising rates for all users. Does raising rates on a product that already sees 90% profit margins sound like ‘fairness’ to you?”
As for Powell’s assertion that there is such a high fixed cost involved in setting up broadband networks, the December report from the New America Foundation claims that the overall cost of providing Internet service has decreased over the last five years, at the same time as user numbers have grown and the use of broadband-heavy applications like streaming video have become commonplace.
“Despite the substantial decrease in the cost of operating a network and transporting data, consumers have not seen a resulting decline in the cost of service,” wrote the NAF, “nor have many providers increased the usage caps to reflect the decline in costs for Internet connectivity.”
Thanks to David for the tip!