Limited bandwidth: Is 'Pay-as-you-go' the only answer?

SAN JOSE, Calif. -- The Internet is outgrowing itself, and can only continue to thrive if users begin paying for the resources they use, especially bandwidth, networking guru Robert Metcalfe declared Tuesday.

"Bandwidth is a scarce resource, it will always be scarce," Metcalfe said, speaking at an International Data Corp. conference here. He proposed that the only way to solve the bandwidth crunch -- which, according to IDC research, is the top stumbling block holding back Internet growth -- is to institute a "pay-as-you-go" system by which the amount users and Internet companies pay depends on the resources they use.

'Sooner or later, the light users are going to get tired of subsidizing the heavy users.' -- networking guru Robert Metcalfe

Metcalfe, who invented Ethernet and founded 3Com Corp., has earned a reputation as something of a modern Malthus, with predictions the Internet will soon come to a grinding collapse. He did little to dispel that image in his talk and in conversations with the Internet executives attending the conference.

He said even though PC microprocessors are continuing to double in power every 18 months and the capacity of fiber-optics appears to be doubling every 12 months, Internet traffic is doubling every four months.

What do you think about installing a pay-as-you-go system for using the Internet? Will it help solve the bandwidth blues? Add your comments to the bottom of this page.

Indeed, many of the findings presented at The Internet Executive Forum, which examines the future of the Internet economy, suggest the online world will continue its robust growth.

$954 billion economy predicted
John Gantz, an IDC senior vice president, announced new findings that indicate the Internet economy is now at $200 billion worldwide, and by 2002 will reach $954 billion -- larger than the economies of Greece or Portugal.

But Metcalfe said that to reach that mark, "we're going to have to solve the bandwidth problem."

The current system of flat-rate pricing, he argued, is not capable of supporting improvements in infrastructure and the rollout of high-bandwidth Net access to the mass market.

"Sooner or later, the light users are going to get tired of subsidizing the heavy users, which is the way it works now," he said.

Net charges could decrease
He said if the system were operated correctly, the bills to the user could even be lower than the typical $20 a month, while supporting a more advanced infrastructure, because of the competition that would be encouraged. Other parties besides users, such as advertisers, could also pay some of the bills, he said.

Metcalfe said four systems need to be put into place for the "pay-as-you-go Internet" to work: a settlement system, services that track users' bandwidth usage and compile bills, an e-postage system and a system to bill users for large downloads.

He dismissed the idea that consumers will not accept a pay-per-use system: "Now I have another reason to be mad at the [telecommunications companies], because they've given a bad name to metering."

A member of the audience responded to Metcalfe's call for the breakup of local exchange carriers by suggesting "we shouldn't throw the baby out with the bath water."

"I have a short answer to that question," Metcalfe said. "There is no baby! It's all bath water."

There is no baby
Some agreed the pay-per-use idea makes sense, arguing, for example, that if the higher costs meant a more reliable infrastructure, companies would rely on it more for business-critical uses.

The new pricing plan might be a hard sell for consumers, however.

"Think of a cell phone," said IDC Internet analyst Barry Parr. "Once you go to flat rate pricing, you make more calls, you give your number out, you want people to call you. Flat rate pricing increases utilization, it gets people to think of it more as a medium for communicating than as an expensive resource."

Even if pay-as-you-go doesn't come to the Internet, the speakers Tuesday argued that many other changes certainly will.

Rapidly changing factors such as the increasing use of non-PC devices for accessing the Internet (such so-called "information appliances" as personal digital assistants and set-top boxes) mean that overall, the economics of the information-technology business are going to go topsy-turvy in the next four or five years, according to IDC Senior Vice President Frank Gens.

More changes coming
"Those who made the biggest gains in the old business model have the most to lose from a shift in economics," said Jeffrey Rayport, associate professor of business administration from Harvard Business School.

He named Microsoft and Intel, but said Intel is especially vulnerable since its chip-manufacturing operations are "hardwired into the digital economy."