Usage-based Internet service: Sometimes competition in name only

The National Cable and Telecommunications Association (NCTA) held its annual Cable Show in Boston at the end of May. The opening remarks by Michael Powell, ex-chairman of the FCC and current head of the NCTA, were quite good, but he glossed over a basic conflict of interest present in today's cable business. Julius Genachowski, the current FCC chairman, did an even better job of ignoring this issue.

Powell reported that TV services have been a success, with the average person watching about 147 hours a month. He noted that the cable companies had spent almost $200 billion in wiring America for broadband Internet service and now reach 93% of the homes. He also noted that consumers do not actually want to be tied to the cable itself. Powell said that we consumers "want the ability to get the content we have paid for here, there and everywhere." Finally, he admitted that there "is also a place for Internet video providers to compete and complement the cable model, and consumers may even cut the cord."

Later in the program Powell had an on-stage conversation with Genachowski. According to press reports (the transcript does not seem to be online), Genachowski supported the idea of cable Internet data caps and said that "usage-based pricing with be healthy and beneficial" for broadband services. He was also reported as saying that usage-based pricing would be fairer to users and would encourage competition.

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In a world isolated from the reality of the current broadband service picture, everything that Powell and Genachowski said is true. Indeed, if there were actual competition for residential broadband Internet service having different pricing models could encourage competition and potentially result in better and lower-cost service for consumers. But, in today's America, there are very few places where real competition for residential broadband Internet service exists. At most, there may be two providers, a cable TV company and a telephone company, and they have discovered that they can make far more money by not competing.

But the lack of true competition is not the real problem with the idealistic picture that Genachowski paints. There is a fundamental and inescapable conflict of interest in today's broadband service world: Most of the companies that bring you the Internet are content providers. The clearest example is the cable TV companies. Their original and basic business is to be the delivery system for the 147 hours of TV programming per person per month that Powell touted. If I decide to get some or all of that programming from another source the cable company is out most of the revenue I might be providing it, even if I get my Internet service from the same company. Usage caps and usage-based pricing for Internet service mean that Internet-based TV suppliers are at a disadvantage. Usage caps can easily be set low enough that watchers of Internet TV run out before the end of the month. (see "Comcast: Unexplained bandwidth caps") Usage-based billing has the same effect - it can easily be set to ensure that Internet-based TV is uncompetitive.

The cable TV companies can get away with this by saying that their own TV service is not via the Internet (see "Google/Verizon: Will a parallel non-Internet help the 'Net?") and thus do not fall under the cap or usage-based billing. True competition would come if the cable companies had to treat their own content in the same way that they treat everyone else's.

Requiring customers that use more of a service pay more sounds just. But ignoring the fact that such users often are paying more to begin with to get higher-speed service, and ignoring the inherent conflict of interest when content providers that are also connectivity providers start to move to such plans is disingenuous at best.

Disclaimer: Some of Harvard's neighbors occasionally accuse the university of being disingenuous in talking about its plans for the future, but I do not know of any classes teaching disingenuity or how to recognize it. So the above is my observation.

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