Broadband Usage Pricing: Let It Flourish

[Commentary] Are Internet data-usage limits and overage fees a way for service providers to extract more dollars from their heaviest-consuming users -- or are they tools that will increase consumer choice and competition in the market? The reality is, they’re both. And ultimately, usage-based pricing models will result in healthier competition among ISPs. Two different policy papers, released within days of each other, reach diametrically opposite conclusions on this issue.

Taking a pro-industry stance is “The Economics of Usage-Based Pricing in Local Broadband Markets.” The paper, funded by the National Cable & Telecommunications Association, argues that usage-based broadband pricing gives ISPs incentives to invest in their infrastructure, to access small markets and to offer lower-priced tiers.

That’s hogwash, according to the second paper, “Capping the Nation’s Broadband Future?” published Dec. 17 by New America Foundation’s Open Technology Initiative. Data caps and usage-based pricing exist precisely because there’s not enough broadband competition in the U.S., according to the paper’s authors. “Data caps may offer an effective means for incumbents to generate more revenue from subscribers and satisfy investors, but making bandwidth an unnecessarily scarce commodity is bad for consumers and innovation,” the OTI paper says.