Usage based broadband pricing: It's good for you?

Metered broadband access is inevitable and may even be good for adoption of speedy Internet access.

Metered broadband access is inevitable and may even be good for adoption of speedy Internet access.

That's the argument from Bernstein analyst Craig Moffett in a research note. Moffett sets the scene:

  • The FCC's open Internet push allows for metered broadband.
  • AT&T has introduced usage caps across its wireline business. DSL customers are limited to 150 GB of monthly consumption. U-Verse subscribers get 250 GB, or the same as Comcast. Users will be charged an extra $10 a month if they exceed the cap and it's $10 per 50 GB after that.
  • AT&T has already introduced tiered wireless plans.
  • Time Warner Cable has a few usage based pricing pilots underway.

Referring to the AT&T's move last week on DSL and U-verse caps, Moffett said: "This move marks the beginning of the end of unlimited broadband."

The end of unlimited broadband will annoy a lot of tech watchers, but give broadband providers another model. And this model has no incentive to penalize Netflix or any other potential rivals to cable. Moffett writes:

The goal of moving to usage based pricing is not to undermine competition from Netflix (or anyone else… although it certainly wouldn't be good news for Internet video). And it is most decidedly not to simply "raise prices for broadband" as Public Knowledge or New America would have it (although it might well do precisely that, too). Instead, it is nothing less than to re-align the entire business model of today's infrastructure providers with the next generation of communications… so that broadband providers might stop fighting against the tide and embrace it instead.

With usage based pricing, broadband providers, and Cable operators in particular, can create an "iso-profit" curve, where the amount they make from a physical connection is about the same whether someone uses that connection for linear video or, alternatively, web video. The goal is not to stifle competition, but instead to create indifference not just to the end state of video by-pass, but indeed for all points along the way. The adoption of usage based pricing would be transformational to the debate for Cable operators, inasmuch as it would essentially indemnify them against all potential outcomes.

Add it up and Moffett argues that metered broadband will actually increase adoption. Broadband adoption is in the 63 percent range today. A sizeable chunk of America refrains from broadband due to costs. Usage based pricing changes that equation and allows more people try out broadband.


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