Issue Overview
Fair Broadband Pricing
The growth of the Internet is nothing short of remarkable. Innovation and investment are creating new online services, and the demand for higher capacity networks continues to escalate. According to Cisco, bandwidth demand will grow four-fold in the next three years alone.
From bringing the best experts in the world to our children’s classrooms, to providing home-bound patients with access to doctors many miles away, innovators are discovering new ways the Internet can make our lives better. But broadband capacity isn’t an infinite resource. Rather, it is a feat of human engineering that was and remains expensive to build, maintain and expand.
Since Americans are accustomed to paying for what they use, some broadband providers are developing usage plans that promote fairness by asking high capacity Internet users to shoulder a greater proportionate share of network costs. But instead of applauding increased consumer choice and common sense pricing, some critics want to force average users to pay a flat fee akin to a “universal” service, no matter if they are an occasional visitor or frequent “super user.”
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Our Position
LET'S WELCOME EVERYONE ONLINE
Demanding that all Americans pay for the same amount of broadband service utilized by only 1 percent of subscribers contradicts cable’s ability to welcome any user online. Allowing consumers to choose the best broadband plan to suit their needs promotes fairness, saves customers money and encourages adoption to a wider audience than more restrictive “universal” pricing plans. The continued expansion of broadband networks and usage-based tiers will provide consumers with significant benefits without asking that they subsidize the efforts of a select few.
Countdown
Why the Critics of Tiered Pricing Are Wrong
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1
“Universal” one-size-fits-all pricing isn't fairer
When nearly 40 percent of the nation’s downstream bandwidth is utilized by one percent of broadband subscribers, it’s unfair to ask lighter users (i.e. paying bills online or checking email) to subsidize super-user activity. Tiered pricing allows online business owners, bloggers and new media entrepreneurs to enjoy powerful broadband networks that deliver an enormous return on their investment. By forcing every user to pay more, universal pricing creates an unfair precedent that will also slow broadband adoption efforts.
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2
High Fixed Costs Require Ongoing Investment
Despite the hundreds of billions of capital investment that providers have made to expand and enhance America’s broadband network in the last decade, arguments supporting universal pricing fail to address the role future investment plays in pricing. Measuring gross margins on broadband service is an irrelevant exercise in a capital and labor-intensive business. The true challenge lies in recovering the fixed costs of the network investment while planning for future modernization and expansion.
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3
Tiered pricing doesn't create artificial scarcity
Critics of tiered pricing have begun accusing broadband providers of applying usage limits to pad profits. This claim belies reality. Providers, in any industry, want customers to use and enjoy their service as much as possible so they continue to subscribe. Cable broadband providers price services to allow any user to subscribe and enjoy the Internet, while universal pricing advocates seem to favor only those that demand the most services.
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Assessment
ADDRESSING ANTICOMPETITIVE CLAIMS
Tiered or usage-based pricing (UBP) has drawn scrutiny from some groups believing universal one-size-fits-all pricing to be a more fair approach when accommodating the diverse range of broadband users. A further examination shows that the claims outlined by those opposed to fair broadband pricing don’t stand up.
BILLION - Investment that wired broadband providers have made over the last decade towards capital upgrade and expansions of America’s broadband networks. Tiered-pricing helps allocate these costs fairly.
- If
- Then
Usage based or tiered pricing becomes common for broadband service
- Consumers will pay for actual amount of bandwidth they use
- Americans that haven't subscribed will have another incentive to join
- Web applications and services will be incented to disclose their data requirements