Is pay-as-you-go the devil?

by on March 2, 2006 · 16 comments

The WSJ reports today that “Large phone companies and telecom-equipment makers are developing plans that would blow up the flat-fee structure for high-speed Internet access and instead charge customers different rates based on how much bandwidth, or Internet capacity, they use.” This makes eminent sense to me and seems to address ISPs’ concerns about who is paying for their networks. That is, instead of charging content providers such as Google or Yahoo!–with whom they have no relationship–for access to their networks, they can charge their customers, with whom they do have a relationship.

Theoretically, Google may not have a choice but to pay up if it wants users of a certain ISP to be able to connect to its site. (Actually, that’s debatable, because I doubt consumers would stand for an ISP that didn’t allow them access to Google.) However, under this new scheme, customers are the ones footing the bill and they in turn do have a choice of ISPs.

Some, including Techdirt, are already arguing that this is a nefarious plan. They argue that content providers could still be extorted: “Google, if you pony up, our users will surf for free–if not, it’s gonna be $50 per megabyte.” Once more I’ll ask: What customer will stand for $50 per MB to access Google?

It has been pointed out that there may not be sufficient competition to give consumers real choice. First, I genuinely curious to know how much competition will be enough? Where I live I have a choice of broadband from two cable companies, the phone company, and possibly pay wi-fi. If the FCC can manage to get its act together, we can expect Wi-Max and other wireless broadband systems. Second, it seems that the alternative to working to foster competition is government regulation. What’s after net neutrality regs? Price regulation for ISPs?

I do agree with Techdirt on one thing. Pay-as-you-go pricing for network access has never worked well. For whatever reason, American consumers hate it. I think they don’t like the uncertainty of it. (Maybe if I click this link or stay on too long I’ll get a huge bill.) So it will be interesting to see how this pans out.

  • http://www.blindmindseye.com MikeT

    Jerry,

    They’re talking about charging Google, not their users. Google, pay $0.001/mb or we’ll cut your bandwidth on our network down. You’re also assuming something which has no signs of materializing. What makes you think that in a market with only 2-3 broadband providers in any given area that they’ll not all play by the same rules? If there are no real choices in that one area, that all 3 benefit from, then customers cannot get what they want. Maybe one of them would do it as a differentiator, but I doubt it. They’re just too short-sighted.

    As I said on my blog, this is about preventing fraud, not property rights. Google’s not screwing anyone. They pay for their bandwidth and I pay for mine. Who the hell is the telecom to get between us when ultimately one of us pays them? I pay them to access Google, thus what is their complaint? Google pays their telecom for the ability to provide a service. If they don’t like the fees, then change them.

  • http://www.blindmindseye.com MikeT

    Jerry,

    They’re talking about charging Google, not their users. Google, pay $0.001/mb or we’ll cut your bandwidth on our network down. You’re also assuming something which has no signs of materializing. What makes you think that in a market with only 2-3 broadband providers in any given area that they’ll not all play by the same rules? If there are no real choices in that one area, that all 3 benefit from, then customers cannot get what they want. Maybe one of them would do it as a differentiator, but I doubt it. They’re just too short-sighted.

    As I said on my blog, this is about preventing fraud, not property rights. Google’s not screwing anyone. They pay for their bandwidth and I pay for mine. Who the hell is the telecom to get between us when ultimately one of us pays them? I pay them to access Google, thus what is their complaint? Google pays their telecom for the ability to provide a service. If they don’t like the fees, then change them.

  • http://www.techdirt.com/ Mike Masnick

    Jerry,

    You’re right that American consumers hate the uncertainty. To them, that’s a cost — and it’s a cost that makes them hesitant to figure out how useful the connectivity really is.

    The $50/MB may be an exaggeration, but the point still stands, that they could use this as a way of breaking network neutrality from a different direction (and to MikeT above, this article is about charging consumers, not about charging Google).

    Finally, your anecdotal point about how you happen to have choice is a good sign — but the majority of Americans don’t yet have that much choice in broadband access. I am hoping we get there, but for most people there is only one or two choices — and there’s monopoly pricing to prove it.

    I am very hopeful that wireless technologies will eventually help break the logjam, but it won’t happen for a while. The technology just isn’t that good and the spectrum just isn’t that available.

    So, yes, for the time being, for many of us, we face a monopoly or a duopoly — and it’s a big problem.

  • http://www.techdirt.com/ Mike Masnick

    Jerry,

    You’re right that American consumers hate the uncertainty. To them, that’s a cost — and it’s a cost that makes them hesitant to figure out how useful the connectivity really is.

    The $50/MB may be an exaggeration, but the point still stands, that they could use this as a way of breaking network neutrality from a different direction (and to MikeT above, this article is about charging consumers, not about charging Google).

    Finally, your anecdotal point about how you happen to have choice is a good sign — but the majority of Americans don’t yet have that much choice in broadband access. I am hoping we get there, but for most people there is only one or two choices — and there’s monopoly pricing to prove it.

    I am very hopeful that wireless technologies will eventually help break the logjam, but it won’t happen for a while. The technology just isn’t that good and the spectrum just isn’t that available.

    So, yes, for the time being, for many of us, we face a monopoly or a duopoly — and it’s a big problem.

  • http://www.blindmindseye.com MikeT

    Sorry, I did need to “RTFA.” The last proposals I saw were to charge Google, Amazon, etc. Mike Masnick is correct, though, that competition isn’t the norm in many parts of America. In rural Virginia, you’re lucky if you have one or two providers. Three is practically metropolitan.

  • http://www.blindmindseye.com MikeT

    Sorry, I did need to “RTFA.” The last proposals I saw were to charge Google, Amazon, etc. Mike Masnick is correct, though, that competition isn’t the norm in many parts of America. In rural Virginia, you’re lucky if you have one or two providers. Three is practically metropolitan.

  • http://www.techliberation.com/ Tim

    I’m not comfortable with lumping together “monopoly or duopoly.” Obviously neither is as good as a market with a lot of alternatives, but generally speaking a duopoly is more like a competitive market than a monopoly.

  • http://www.techliberation.com/ Tim

    I’m not comfortable with lumping together “monopoly or duopoly.” Obviously neither is as good as a market with a lot of alternatives, but generally speaking a duopoly is more like a competitive market than a monopoly.

  • naiserie

    I guess that’d be one way of solving the p2p problem…

    Also, regarding the “ISPs’ concerns about who is paying for their networks”…I’m fairly certain the ISPs owe tax payers around $200 billion worth of undelivered networks. I’ll happily pay for my 100+ gigabyte usage/month from my share of that pot.

  • naiserie

    I guess that’d be one way of solving the p2p problem…

    Also, regarding the “ISPs’ concerns about who is paying for their networks”…I’m fairly certain the ISPs owe tax payers around $200 billion worth of undelivered networks. I’ll happily pay for my 100+ gigabyte usage/month from my share of that pot.

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