Paying for the bandwidth we consume

Editor’s Note: Welcome to Reality Check, a feature for RCR Wireless News’ new weekly e-mail service, Mobile Content and Culture. We’ve gathered a group of visionaries and veterans in the mobile content industry to give their insights into the marketplace. In the coming weeks look for columns from Tom Huseby of SeaPoint Ventures, Laura Marriott of the Mobile Marketing Association and more.
There was an interesting front page story in last Friday’s Washington Post regarding Comcast subscribers who had their Internet service discontinued by Comcast because they were considered to be “excessive downloaders” that were hogging bandwidth and slowing down the network, particularly in the neighborhoods where they lived.
What interests me about the article is how much greater are the implications of bandwidth hogs are for wireless networks, where bandwidth is scarcer than on the wireline side, particularly as wireline networks are upgraded from copper and coaxial cable to fiber optics. And, as we know, there have been similar stories of discontinuances of service on the wireless networks of all-you-can-eat data plan subscribers who have exceeded limits deemed to have threatened the ability of the network to function for the good of all subscribers (or at least for the economics of the plan).
In the case of the disconnected Comcast subscribers, the article states (without clear attribution) that a subscriber would have to download the equivalent of 1,000 songs or four movies per day to earn network-access sanctioning. While on the online music side, at current prices per song, that sounds like a lot (about $30,000 worth of music per month) on the video side, maybe not so much (less than $2,000 worth of video per month). But in either case, there is something wrong when a business that is selling bandwidth has to say “no” to what is in effect its best customer. What other business treats its biggest consumers that way? (Okay, there may be some all-you-can-eat buffet restaurants out there that have run into similar situations, but that only serves to underscore the point. not many.)
The problem for Comcast, as with other wireline and wireless ISPs, is how they have priced their good. Flat-rate pricing for Internet access and bandwidth use might have had its place during the development of the Internet, but as we move into the phase of ubiquitous access, and wide disparities of usage and file size develop, particularly on the more scarce wireless bandwidth side, long-term economic network viability and fairness demand that people pay for the bandwidth they consume. Today, it is probably accurate to say that customers who pay a flat-rate fee for access and use the Internet mostly to check their e-mail and do some shopping and research are probably subsidizing-maybe to a significant extent-those who do those things plus spend lots of time downloading audio and video content, when measured by the bandwidth consumed.
In situations where bandwidth is plentiful, like in the wireline world, and the fee seems reasonable (especially in the absence of knowledge of the size of the subsidy), consumers may be willing to go blithely along (though the Comcast actions clearly signal that bandwidth on some wireline networks is not without limits, or at least are not without affects on promised quality of service).
But as those fees rise to accommodate the bandwidth demands of Internet video consumers, pricing access according to usage will be the best way to determine the true value of individual applications as well as prevent customers of limited usage from paying substantial subsidies for high bandwidth users. This goes in spades for wireless networks, though the fact that there is some tiered pricing around data services for handsets (video and navigation services are in addition to access fees), if less so for data cards so far, indicates recognition of those conditions.
Of course, economists of the Internet have long preached the virtues of paying for the bandwidth you consume as a determinate of value. In the late 1990s, I invited Hal Varian, an economics professor at Cal Berkeley who was conducted bandwidth demand research using student Internet access over wireline, to address the wireless industry, believing his work to be much more relevant to networks of the far scarcer wireless bandwidth. At the time, wireless digital networks were not ubiquitous and speeds were fairly limited, so Varian could not easily extend his research to wireless networks. Today, particularly as “open access” is being touted as a network paradigm, I believe it would be particularly instructive for consumers to have a better sense of what it costs to do what they want to do most, and see what that does to usage.
Much is made of the fact that consumers prefer flat-rate pricing because they know what it is going to cost each month, and that is understandable. But it also creates (potentially) huge subsidies between users. My question is: If consumers were aware of the amount of the subsidies they might be paying, would they be as opposed to paying for the bandwidth they actually use as is generally believed?
You may contact Mark directly at [email protected]. You may contact RCR Wireless News at [email protected].