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Moffett: FCC Neutrality Rules A Green Light For Usage Billing
Though the FCC insists they'll keep an eye out for predatory pricing
by Karl Bode 03:52PM Wednesday Dec 01 2010
As we've talked about for years, investors absolutely lust after the idea of ISPs ditching flat rate pricing here in the States and shifting to a low cap, high overage pricing model. That's not to be confused with real per byte pricing, where people would only pay for what they use, given the majority of their customers would only have to pay $5 a month. No, the dream investor pricing model for the States is much like what they have in Canada, where users overpay for flat rate service, then have expensive per GB overages tacked on top.

This allows ISPs to charge more money for the same product, while simultaneously allowing them to both cash in on -- and/or deter -- the use of Internet video. All of this occurs while the cost of bandwidth and hardware continue to drop, so it's fairly clear why investors are so bullish on the idea. Again, while real per byte billing might be a good idea, the proposals we've seen so far in trials by companies like AT&T and Time Warner Cable are something else entirely, and offer little consumer value.

Sanford Bernstein analyst Craig Moffett really, really wants the cable industry to impose new metered pricing, likely to bolster company and client holdings. Moffett, who recently proclaimed TV cord cutters were lame, old and poor (they're actually usually young and educated), has already proclaimed he thinks that if people cut TV service, cable will have "no choice" but to start heavily metering broadband. In an investor note today, Moffett interprets this morning's ambiguous FCC neutrality announcement as a green light for carriers to begin imposing their dream overage pricing models:
"Broadband rationing is now the order of the day," Bernstein Research senior analyst Craig Moffett says that the FCC's just-circulated order on codifying and expanding network neutrality guidelines "specifically and expressly endorses usage-based pricing for broadband." "The tacit endorsement of UBP is, in our view, the biggest news of the day, and must be viewed as very positive for terrestrial broadband operators," Moffett said. "We would expect the introduction of UBP plans from major cable MSOs to follow in short order, and we would expect that their stocks will respond well to such introductions."
Usually you don't get such frank terminology from investors, Moffett interestingly using the phrase "rationing" to correctly illustrate how carriers dream of constricting and further monetizing connections with pricing models utterly detached from real world costs. Left out of Bernstein's equations and certainty of a metered future is the fact that many consumers aren't stupid. Time Warner Cable already tried to impose overpriced overages on customers, and the result was one of the biggest telecom PR disasters in recent memory.

While it's not out of the realm of possibility a broadband company imposes a usage-based pricing model that has consumer value in mind, offering such a tier would run contrary to the entire point of usage-based billing: to generate more revenue from the exact same service while exerting power on the content and Internet video ecosystem through artificial scarcity.

Update: The FCC tells GigaOM that they'll remain watchful for predatory pricing practices:
It looks like the FCC isn’t ready to give up its consumer advocacy on usage-based pricing plans. An FCC spokeswoman emailed me a statement attributed to a senior FCC official that said, "Usage-based pricing can create more choice and flexibility for consumers. But practices that are arbitrary, anti-consumer, or anti-competitive would cause serious concern. The FCC will be a cop on the beat for consumers."
Of course with an FCC that's frightened of its own shadow and bends over backwards not to upset major carriers, taking any serious stand against carrier last mile pricing is very unrealistic. The only thing standing between investors and executives and these expensive new pricing plans? You.

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San Antonio, TX

2 recommendations

reply to sonicmerlin

Re: UBP can be fair

said by sonicmerlin:

That doesn't make sense. Bits aren't a limited commodity. They're infinite.

Do you have a hard-drive that holds an infinite amount of data? Does your network card transport data at Infinity/Bps?

Bits themselves may be infinite but the infrastructure that stores and transports them is finite. I may be able to create a quadrillion bits of data but if I want to move it from point-A to point-B there's going to be some kind of cost for infrastructure, storage, hardware, electricity, etc...


San Antonio, TX

2 recommendations

reply to FFH5
Agreed. It can be fair and I would actually welcome it if done properly. We do pay for gas, electricity, water, and all our other utilities based on our usage. Plus under a UBP model we wouldn't have to mess with "lite" "basic" "standard" "turbo" "extreme" speed tiers.... everything could just run at full throttle and the ISPs could compete on cost-per-gig.

Sadly these companies haven't given the public much confidence because the "experiments" they've run don't pass the financial smell test (I'm looking at you Time Warner).

But if I paid $10 for a "connection" and something like $0.10 per GB then that would actually put me close to what I already pay for. Even if I decide to take the plunge and become a cord cutter and do nothing but Netflix streaming, I'd still come out ahead in savings and the ISP would still get their fair share for my increased usage.

And heck, if I was buying all my video separately directly from the source (i.e. Netflix/Hulu/ESPN3/etc)... then Comcast or Time Warner would come out smelling like roses by no longer being involved in the nasty carriage-disputes we've been seeing lately.