Tuesday, March 22, 2011

Data Plans: Pricing Flexibility to Pay for What You Use

By Deborah Taylor Tate

Aside from its proposed acquisition of T-Mobile – a rather large aside -- AT&T recently has been in the news for plans to charge its heavy-using broadband subscribers a bit extra when they download large amounts of data that exceed certain monthly thresholds. Quick to pounce on those plans were critics that typically oppose any usage-based pricing plans that allow broadband subscribers to pay only for the amount of their own use.

But building and operating broadband networks involves real costs. Usage-based pricing arrangements allow broadband companies to recover those costs while allowing subscribers to economize by paying only for the service they actually use. Adopting government price controls on broadband to prohibit that kind of flexible pricing could actually stifle innovation by leading to network congestion by heavy users and by reducing the amount of revenues available for future investment in network upgrades.

According to news reports, AT&T will cap broadband data use at 150GB per month for its DSL subscribers and 250GB per month for its U-Verse subscribers. Apparently, the average AT&T DSL subscriber uses approximately 18GB per month. The company expects less than two percent of its subscribers will be affected by its data cap policy, which will involve $10 charges on subscribers for every 50GB that they consume past their allotted monthly limit. And TR Daily reported on March 14 that "AT&T also plans to notify customers when they hit usage thresholds equal to 65%, 90%, and 100% of their caps and to offer customers historical usage reports and multiple usage tools to enable subscribers to track and manage their usage."

In response, Free Press claimed that AT&T's data use and charging plans bear no relation to network costs and will stifle innovation. Criticisms of this kind, however, treat broadband as if it were a cheap or almost "free" kind of service.

Last year, in my FSF Perspectives paper "A Tangled Web: Moving from 'Open and Free' to 'Safe and Secure,'" I observed that proponents of proposed network neutrality regulation using the term "open and free" to define the debate were in fact obscuring the reality of how broadband infrastructure and services are financed and delivered in our economy:

"'Open and free' sounds really good. However, no American really believes anything in life is 'free' anymore — certainly not in the context of an incredibly sophisticated global Internet and high-end devices being unveiled almost daily. Consumers pay for computers, cell phones, wireless devices, Xboxes, BlackBerrys, laptops and now the new iPad. In addition, most pay a monthly subscription to connect these devices to a broadband or Internet provider. A family with the most basic plan might spend over $1,000 annually; families with fiber and the maximum number of movie channels spend thousands. In legal terms, 'free' is a red herring; it doesn’t exist for most consumers."

I went on to write:

"[M]assive movie downloads and video gamers (not to mention pornographers) may cause an online traffic jam, yet up until now, they have not had to pay for causing it. In fact, most light Internet subscribers would probably like the option of paying only for what they use while heavy users pay for traffic jams or damage to the Internet superhighway. We all want to ensure that a doctor in the midst of delicate tele-surgery would have confidence that the highest quality of dedicated bandwidth would allow the safest possible outcome for a patient.

On the other hand, a grandmother who e-mails periodically, shops online once a month and looks at baby pictures should probably not be paying the same as a 24/7 so-called bandwidth hog. Even The New York Times recognized that huge file- sharing platforms are used for 'pirated copies of movies' — i.e. illegal content downloads. But whether you are a grandmother, a small business or a multinational corporation, you should want the government working to ensure the safety and security of personal data and the protection of our children, and that we continue to have a robust, efficient and ever-expanding broadband architecture for the future."

In December, the FCC proceeded to impose its controversial net neutrality regulation. I maintained the FCC's efforts were (and remain) a troublesome distraction from more important priorities — such as ensuring the Internet is safe and secure and protecting businesses, individuals, and even our government from cybercriminals and malicious attacks.

That being said, the net neutrality framework that the FCC ultimately adopted was premised on the agency's rejection of calls to "prohibit broadband providers from offering their subscribers different tiers of service or from charging their subscribers based on bandwidth consumed." Instead, the Commission concluded: "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." (See page 41, paragraph 72 of the FCC's Order.)

Whatever one thinks about the FCC's latest attempt to regulate how broadband companies can manage their own networks, even the agency's regulatory framework acknowledges the benefits of usage-based pricing to consumers. Pricing plans like AT&T's are entirely permissible, even under the FCC's pro-regulatory policy.

Congress and the FCC should preserve the kind of broadband pricing freedom that allows companies the flexibility to recover the costs of doing business while allowing consumers to pay for the amount of service they actually use.