Law Technology

Could Use-Based Broadband Pricing Help the Net Neutrality Debate?

By David Robinson

Yesterday, thanks to a leaked memo, it came to light that Time Warner Cable intends to try out use-based broadband pricing on a few of its customers. It looks like the plan is for several tiers of use, with the heaviest users possibly paying overage charges on a per-byte basis. In confirming its plans to Reuters, Time Warner pointed out that its heaviest-using five percent of customers generate the majority of data traffic on the network, but still pay as though they were typical users. Under the new proposal, pricing would be based on the total amount of data transferred, rather than the peak throughput on a connection.

If the current, flattened pricing is based on what the connection is worth to a typical customer, who makes only limited use of the connection, then the heaviest five percent of users (let’s call them super-users as shorthand) are reaping a surplus. Bandwidth use might be highly elastic with respect to price, but I think it is also true that the super users do reap a great deal more benefit from their broadband connections than other users do — think of those who pioneer video consumption online, for example.

What happens when network operators fail to see this surplus? They have marginally less incentive to build out the network and drive down the unit cost of data transfer. If the pricing model changed so that network providers’ revenue remained the same in total but was based directly on how much the network is used, then the price would go down for the lightest users and up for the heaviest. If a tiered structure left prices the same for most users and raised them on the heaviest, operators’ total revenue would go up. In either case, networks would have an incentive to encourage innovative, high-bandwidth uses of their networks — regardless of what kind of use that is.

Gigi Sohn of Public Knowledge has come out in favor of Time Warner’s move on these and other grounds. It’s important to acknowledge that network operators still have familiar, monopolistic reasons to intervene against traffic that competes with phone service or cable. But under the current pricing structure, they’ve had a relatively strong argument to discriminate in favor of the traffic they can monetize, and against the traffic they can’t. By allowing them to monetize all traffic, a shift to use based pricing would weaken one of the most persuasive reasons network operators have to oppose net neutrality.

Share This

Full post as published by Freedom to Tinker on January 17, 2008 (boomark / email).