Internet Pricing: The Next Policy Frontier

[Commentary] In the past few years, broadband providers have begun shifting toward tiered service plans (sometimes known as usage-based pricing) that offer customers a fixed amount of data each month for a fee. On average, less than 2 percent of users exceed the most commonly-used tier of 300 GB; nearly 80 percent of consumers never exceed even 50 GB per month. Nevertheless, some critics such as Public Knowledge and the New America Foundation are concerned that this trend may bring higher prices and reduced service. Most recently, NAF analyst Benjamin Lennett asked whether tiered service plans are a plot by cable companies to eliminate Internet-based competitors such as Netflix, which alone generates one-third of all North American download traffic. But a closer examination shows these concerns are largely exaggerated. Usage-based pricing is not inherently anticompetitive or anti-consumer. Rather, it is an alternative method of spreading costs across a network’s customer base.