IP Democracy: Is Consumption-Based Broadband Billing the Answer?

Broadband Reports breaks a story that I (sort of) got wind of last week: Time Warner is testing a broadband usage-based system in at least one cable system. The cable operator is mounting a test effort to charge customers who consume a lot of bandwidth more for their extra use of the pipeline.

However, the primary goal of a consumption-based system isn't to generate new revenue streams. It is to implement a pricing-based way of managing the network, particularly given that efforts on the part of cable companies to "throttle" applications or to otherwise implement traffic prioritization have already caused stinging backlash among consumers and in Washington.

Although some folks think a broadband usage meter would be decidely anti-consumer, in fact it's the opposite, economists say. The most efficient way to solve any bandwidth bottleneck is through pricing and not through awkward mechanisms such as traffic throttling.

Indeed, I mentioned this metered bandwidth rumor yesterday to Wharton's Gerry Faulhaber (who will serve as a moderator at The Internet Video Policy Symposium) and he drew the parallel between this kind of metered system and the 2003 imposition of $8 tolls placed on cars that drive into the center of London. Two months following the implementation of the toll, traffic into the heart of London dropped 20%, relieving congestion on the city's overburdened thoroughfares.

But, political and technical realities may make metered broadband usage a greater idea in theory than in practice. First, consumers are accustomed to flat-rate, all-you-can-eat broadband service pricing and any deviation from this well-accepted concept is likely to spark suspicions of why broadband providers would change pricing models.

It doesn't help that emerging third-party Internet video services, such as Hulu, the joint venture by NBC-U and News Corp., or even Google-owned YouTube, would be the first Internet services to feel the pain of metered billing. Given that cable and phone companies are the leading multichannel TV video service providers as well as the top broadband service providers, it's almost certain that web-based video service rivals would see anti-competitive intent in metered usage.

Moreover, it's not easy to measure bandwidth consumption. Unlike increments of time, which mobile voice providers use as the basis for their metered usage billing plans, bandwidth is messy and subjective and it's hard to pinpoint exact levels of usage.

Time Warner will presumably get answers to the measurement question in its test-bed(s). Whether consumers, competitors and regulators will accept metered plans won't be as easy to answer.

Posted by Cynthia Brumfield on January 16, 2008 5:59 PM to IP Democracy