Usage-Based Pricing and the Flexibility to Innovate


Yesterday, FCC Chairman Julius Genachowski  delivered remarks about proposed FCC rules to preserve an open Internet; the rules will be voted on at the FCC’s next meeting on December 21.

As I indicated in a statement regarding Chairman Genachowski’s proposal, we are pleased with much of what the Commission will be considering.  One particular aspect of his remarks, however, is worth highlighting.

Chairman Genachowski  noted:

Our work has also demonstrated the importance of business innovation to promote network investment and efficient use of networks, including measures to match price to cost such as usage-based pricing.

This approach reflects a responsible and considered view of a fast-moving and highly dynamic marketplace but it doesn’t assume that there is any one “correct” answer.  I made a similar point last year in an interview conducted by Ars Technica’s Nate Anderson:

…Internet pricing models are now on everyone’s collective mind. Is metered and/or capped Internet the future?

McSlarrow doesn’t defend any model; he’s not even partial to metering, having happily lived under flat-rate plans himself for many years. He also won’t defend particular business plans, like those advanced by Time Warner Cable. But what he will defend is cable’s right to experiment.

“I’ve lived under a flat rate plan,” he said, “but I don’t assume… that’s it’s necessarily impossible to believe that you could have a different model in the future.”

That means experimentation, and lots of it, done in the most transparent way, with full input from consumers. Without even doing the tests, McSlarrow says there’s simply no way to know whether certain business models will work better than others.

I also wrote on this very blog:

None of us knows with certainty what works best for consumers. As broadband providers, we face daunting and ever-changing challenges in ensuring that we do our level best to provide consumers with what they want, when they want it. But our goal has been, is, and will be to communicate with our customers in an open and transparent manner; to try new models that can be used to attract new broadband users and more equitably spread costs among high and low volume users, and – at the end of the day – to let the consumer make the ultimate choice of whether new models survive and thrive or are thrown into the dustbin of history.

Even though the cable industry first rolled out high-speed Internet access in the mid 1990s, this is still a relatively young business.  While 70 million Americans now subscribe, broadband adoption continues to be a key challenge.

Some consumers don’t see the need to go online.  Others are constrained by cost.  Still others want to use the service they have in cutting-edge ways.  And the ability to pigeonhole companies and their business plans as being one thing or another is breaking down, particularly in an environment where Internet applications, content, and services change the way we behave as consumers, provide new opportunities for providers and consumers and alter how we all interact with both traditional and new devices and features.

The key point is that that we need to focus on what best serves consumers.  With all this change, it is necessary to have the flexibility to test new business models – and perhaps new pricing plans – in order to see if they make sense.

A usage-based pricing model, for instance, might help spur adoption by price-sensitive consumers at the lower end of the socioeconomic ladder.  As Sanford Bernstein analyst Craig Moffett noted in a report issued yesterday, “{u}sage-based pricing for broadband would have profound implications.  At the low end, it would allow cable operators to introduce lower priced tiers that could boost penetration and help in efforts to serve lower income consumers.”

As I’ve said before, I’m not arguing for or against any particular model.  All I’m really confident about is that the marketplace is changing and that companies will have to adapt to that change.  Chairman Genachowski should be commended for recognizing the close connection between driving network investment and efficiency, providing consumers more choices, and permitting broadband providers to experiment with different business and pricing models.

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  • Matt

    No one wants low cap high overage pricing plans!!!!!!!!!!! Companies are already making plenty in the flat rate model.

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  • David

    Why don't you just admit the truth, it's about making money and making your investor's happy. It has nothing to do about the consumer except what can you do to squeeze more money out of them. Compared to the rest of the world we're a joke.

  • Scott

    There won't be any chance of talking your Cable Industry executives out of going down this path in the quest for increased profits and salaries.. but as a consumer I'll be satisfied to know in the long run you'll only be increasing customer churn and further losing your customer base to the telco's and fiber competition that continue offering unlimited internet.

    You already have enough problems as-is with customers refusing to pay the inflated subscription prices for Cable TV, just what exactly do you think is going to happen when their $100-200 "package" deal shows up in the mail with a total of $300-$500 for the month due to internet overage fees?

    Eventually this will get political and the lack of competition in the market will come to the forefront, and don't say I didn't tell you so when your Industry finally get the government regulation it deserves.

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  • Tom

    This is simply insane. This will be the death of innovation on the web in the United States. The only ones that will be able to afford high speed internet access will be the large corporations. YouTube will cease to be as will NetFlix. No one is going to pay $200, or more, per month for internet access. You are out of touch with your customer base if you think that we would be willing to pay more for your already overprice services.

  • Why don’t you just admit the truth, it’s about making money and making your investor’s happy. It has nothing to do about the consumer except what can you do to squeeze more money out of them. Compared to the rest of the world we’re a joke.