The following is a guest post by Daniel Lyons, an assistant professor at Boston College Law School who specializes in the areas of property, telecommunications and administrative law.
While much of the broadband world anxiously awaits the DC Circuit’s net neutrality ruling, consumer groups have quietly begun laying the groundwork for their next big offensive, this time against usage-based broadband pricing. That movement took a significant step forward this week as the New America Foundation released a report criticizing data caps, and as Oregon Senator Ron Wyden introduced a bill that would require the Federal Communications Commission to regulate broadband prices.
But as this blog has noted before, these efforts are misguided. Usage-based pricing plans are not inherently anti-consumer or anticompetitive. Rather, they reflect different pricing strategies through which a broadband company may recover its costs from its customer base and fund future infrastructure investment. Usage-based pricing allows broadband providers to force heavier users to contribute more toward the fixed costs of building and maintaining a network. Senator Wyden’s proposal would deny providers this freedom, meaning that lighter users will likely pay more for broadband access and low-income consumers who cannot afford a costly unlimited broadband plan will be left on the wrong side of the digital divide.
In a working paper I published with the Mercatus Center in October I had already debunked the arguments that the New America Foundation relies upon to make their case. NAF suggests that broadband providers should be unconcerned about costs because gross margins on broadband service are high, and the marginal cost of data transport is relatively low and falling. This is largely true, but also largely irrelevant. For broadband providers, as many other networked industries, the challenge is generating sufficient revenue to recover their fixed costs and fund future network investment. Broadband providers have invested over $300 billion in private capital in the past decade to build and upgrade the nation’s broadband networks. And because Internet traffic is expected to triple by 2016, analysts expect them to continue to invest $30–40 billion annually to expand and upgrade their networks.
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