Interesting piece here from Slate’s Farhad Manjoo on why AT&T should dump unlimited data plans and end what he calls the “iPhone all-you-can-eat buffet.” He notes that: “The typical smartphone customer consumes about 40 to 80 megabytes of wireless capacity a month. The typical iPhone customer uses 400 MB a month. AT&T’s network is getting crushed by that demand.” Because “some iPhone owners are hogging the network” and causing “a slowed-down wireless network,” Manjoo recommends a congestion pricing model as a method of balancing supply and demand:
How would my plan work? I propose charging $10 a month for each 100 MB you upload or download on your phone, with a maximum of $40 per month. In other words, people who use 400 MB or more per month will pay $40 for their plan, or $10 more than they pay now. Everybody else will pay their current rate—or less, as little as $10 a month. To summarize: If you don’t use your iPhone very much, your current monthly rates will go down; if you use it a lot, your rates will increase. (Of course, only your usage of AT&T’s cellular network would count toward your plan; what you do on Wi-Fi wouldn’t matter.)
To understand the advantages of tiered pricing, let’s look at AT&T’s current strategy of spending billions to build more network space. Why won’t this work? For the same reason building more roads doesn’t reduce traffic—more capacity increases the attractiveness of driving, which brings a lot more cars to the road, which leads to more gridlock.
Congestion pricing and metering is something I’ve written quite a bit about here in the context of wireline broadband (1, 2, 3), but Manjoo is equally correct that it could be applied for wireless data plans. It has the added value of taking pressure off lawmakers to impose Net neutrality regulation since pricing of the pipe becomes an effective substitute for most other forms of network management. In other words, price, don’t block bandwidth-hogging customers and applications. The problem, Manjoo explains: Continue reading →
In response to my essay last night about this new Free Press campaign to layer price controls on the Internet by banning metered prices via Rep. Massa’s new bill (the “Broadband Internet Fairness Act“), George Ou and Richard Bennett reminded me of some of the contradictory statements that the (Un)Free Press crew have made on this issue. Indeed, if you look back at what Free Press and their chairman have said about the matter over just the past 18 months, they seem to be whistling two very different tunes.
For example, George Ou reminded me of what Free Press had to say in its November 2007 filing in the FCC’s Comcast-Bit Torrent proceeding:
“More importantly, if Comcast is concerned that the collective set of users running P2P applications are affecting quality of service for other users on a cable loop… they could also charge by usage.” (p. 29)
[…]
“Indeed, in many nations, network providers do meter, and bill their customers on the basis of amount used. So the transaction costs of doing so must not be prohibitively high. Indeed, a network provider can apparently meter cheaply because, in most networks, users’ traffic to and from the Internet passes through a single gateway, the network access server.” (p. 31)
And Richard Bennett reminded me of what Tim Wu, chairman of the Free Press, had to say about metering to the Washington Post just one year ago:
“I don’t quite see [metering] as an outrage, and in fact is probably the fairest system going — though of course the psychology of knowing that you’re paying for bandwidth may change behavior.”
So, what gives? Will the real Free Press please stand up? Does the Free Press believe in pricing freedom or price controls for the Internet?
You really have to hand it to the folks over at the (Un)
Ah yes, “Internet fairness.” Who can possibly be against it? Well, before you rush to click send on that UnFree Press form letter, let’s be clear what this effort is really all about. Free Press claims that the Massa bill is needed because “phone and cable giants [are] weighing schemes to hike prices, shut down the free-flowing Web and keep user innovation in check.” How are those companies doing that? Tiered pricing! Rep. Massa says that, “Time Warner has announced an ill-conceived plan to charge residential and business broadband fees based on the amount of data they download.” Oh my God, no… you mean some people might be charged for the costs they impose? What’s next? Are we going to force people to pay for their own energy use by metering gasoline, electricity, or water? Think of the horror! (This is sarcasm, folks. All those things are metered currently. And yet, somehow, the Earth hasn’t spun off its axis.)
Like all the other propaganda produced at the Free Press techno-spin factory, their latest crusade is based on a combination of outright lies and blatant economic ignorance. Metering broadband access is not an effort “to restrict Internet use,” as Free Press claims. Rather, like every other metered system under the sun, it’s an effort to price a scarce resource in such a way so as to
maximize use. Broadband operators don’t sit around all day scheming to find ways to decrease network usage. They wouldn’t make any money that way!! They need to find business models that encourage increased uptake while also investing in and growing their networks to meet new demand and competitive challenges.
Moreover, there are other pro-consumer reasons for companies to consider metering options. Unless it is your goal to allow some particularly aggressive users to be subsidized by all other users, it is sometimes sensible to price usage based on demand. If you don’t, you potentially create a perverse incentive for a small handful of over-grazers to to be feeding at the trough at everyone else’s expense. As economist Russell Roberts aptly noted in the title of a famous 1995 Wall Street Journal editorial, “If You’re Paying, I’ll Have Top Sirloin.” Thus, you would never want to make the “all-you-can-eat” pricing model the only option for the provision of a scarce resource. Even if you choose not to deploy it, it is useful to have the metered pricing model available in case you need to charge the over-grazers at some point.
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The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.