Setting the record straight on usage-based pricing

[Commentary] There is nothing inherently anticompetitive about usage-based broadband pricing. Rather, it is one of many potential pricing strategies by which a broadband provider can distribute its fixed costs across its customer base.

Wireline broadband access has historically been sold on a flat-rate, all-you-can-eat basis, a legacy of the dial-up era when AOL used an unlimited access plan to dominate its competition. The unlimited flat-rate model worked when most consumers used the Internet mostly to check email and surf webpages. But today’s users are far more diverse in both the quality and quantity of activities conducted online. Sandvine’s latest report notes that the top 1% of Internet users in North America account for 12% of downstream, and a whopping 47% of upstream, traffic. By comparison, the bottom 50% of users account for only 7% of total traffic. In this environment, usage-based pricing may be an attractive alternative to flat-rate pricing.

Ultimately, usage-based pricing represents one of many potential strategies by which a broadband provider may differentiate itself from the competition and respond to evolving online consumption trends. While antitrust regulators should remain vigilant and investigate specific practices that might constitute anticompetitive harm – just as they do throughout the economy – society benefits when broadband providers experiment with new and potentially more efficient ways of delivering their product to consumers.

[Lyons is an associate professor at Boston College Law School]