There have been rumblings in the Internet space for a while that providers want to move to a usage based model as opposed to the current “all you can eat” approach. This is not a new idea, and in fact the entire industry started out charging by usage following in step with the first monster provider America Online. AOL charged customers by the minute for years until smaller startup companies such as FlashNet Communications and others began offering unlimited access and absorbing large chunks of market share because of it. Out of necessity to compete all ISP’s migrated to the new model.
Now it looks like cable companies are interested in returning to the old ways of doing business. Comcast is the first to step up and make a change in pricing, and considering they are the largest U.S. cable operator it’s a big deal. Comcast has announced that it will be dropping its current plan in two markets and replacing it with a 300 gigabyte base plan where users pay $10 for every 50 gigabytes they go over. This is a lot of data throughput, but a line is being drawn for customers. The impact to other businesses that rely on streaming such as Netflix or Amazon Instant could be enormous. Streaming a 2 hour movie can range between 3 and 6 gigabytes. This, plus normal Internet use and downloads, can eat up data rather quickly.
The FCC Supports the Change
Shockingly Julius Genachowski, the head of the Federal Communications Commission, said he supports this move for the cable companies. Grenachowski said, “Usage-based pricing would help drive efficiency in the networks”. He followed that this type of pricing would encourage more competition and be fairer to consumers. While it would appear that this is absurd at first glance, he might actually be right in most cases. Very few customers will ever cross the 300 gigabyte limit now or in the near future, which means the average user is in many ways subsidizing heavy users that do everything on the Internet. This could change but as of now the 300 gigabyte line is in the distance for the vast majority of users. Remember however that 10 years ago a heavy user downloaded around 10 gigabytes of data in a month. In 5 years 300 gigabytes might not do the job.
There are many skeptics to this change. Free Press Policy Director Matt Wood is concerned that this new pricing model makes no sense given the current cable Internet market and could have a negative impact on consumers. Wood said “Broadband providers should be free to try different pricing strategies; unfortunately, the wireline broadband market is at best a duopoly and is trending toward a cable monopoly”.
It is important to note that this is not the first time a cable company has attempted this change. In 2009 Time Warner launched a trial similar to the one Comcast is rolling out. The trial placed caps on existing tiers of service that ranged from 5 gigabytes all the way to 40 gigabytes at the highest level. Overage charges would accrue at $1.00 per gigabyte over the limit. The test garnered so much negative feedback they dropped the pricing model.
Although the Time Warner test was a failure in 2009 it doesn’t mean Comcast can’t pull it off today. And if they do eventually roll a usage pricing model out to all markets then the FCC might be right about increased competition in the Internet space, just not what they are looking for. If the past can teach us anything about the Internet business it is that an unlimited model will be more popular than a usage based one even if it costs a little more to most consumers in the end. This was true of Internet access and it’s true today of mobile data plans. Consumers are willing to pay a little more to not worry about running out of bandwidth, or data, or time. If cable companies all move to this new pricing then it is certain smaller companies out there will begin providing unlimited plans in the relevant markets. If a DSL provider turns up marketing in the Comcast trial areas right now with an unlimited plan it is likely they will convert customers. If this is the kind of competition they are looking for then keep it up.