Why Bandwidth Pricing Is Anti-Competitive

[Commentary] At the recent annual gathering of the National Cable Television Association, there was an ominous shift on the issue of charging residential customers based on how much high-speed data they download. While the question used to be whether or not to bill based on consumption, the talk now is of how and when to do it. Such a shift is bad news for consumers and threatens to slow down the innovation powering today's Internet economy.

Wireline bandwidth is an almost unlimited resource due to advances in Internet architecture. Adding more capacity is easy. The marginal cost of providing an extra gigabyte of data -- enough to deliver one episode of "30 Rock" from Netflix -- is less than one cent, and falling. That's a very different sum from what AT&T in May began charging customers of its DSL and U-verse services. AT&T is adding new charges that are 20 times the price of providing the service. Twenty cents a gigabyte is a far cry from the $4 or $5 being charged for the same amount of data by some cable companies in Canada, where consumption-based billing has long been an accepted practice. But it sets a dangerous precedent for much larger charges in the future. Consumer access to unlimited bandwidth is good for society. It fosters innovation, drives commerce, and advances political and social discourse. Given that bandwidth is cheap and plentiful and will only grow more so with time, there is no good reason for bandwidth caps and fees to take root. Consumers and regulators need to take heed of what is happening and avoid winding up like the proverbial frog in a pot of boiling water. It's time to jump before it's too late.

[Hyman is general counsel of Netflix]