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Usage-Based Internet Access Not Coming Anytime Soon

While flat-rate access may be appealing to many, it jeopardizes competition and may put some ISPs out of business.

Despite shifts in market dynamics, government has blocked multiple attempts to establish bandwidth caps and usage-pricing models for broadband Internet services. While flat-rate access may be appealing to many, it jeopardizes competition and may put some ISPs out of business.

To implement usage-based pricing or not to implement usage-based pricing? That is the question that many Internet service providers (ISPs) are now asking themselves. With bandwidth requirements growing and the way that businesses deploy applications changing, many carriers are trying to craft new business models that make sense going forward. However, their examinations are falling prey to political pressure, which could end up hurting rather than helping small and midsize businesses.

Time Warner Cable was the latest carrier to falter as it tried to put a bandwidth cap plan in place. The company had been tinkering with various options and running trials in New York, North Carolina, and Texas. After a public backlash, the carrier decided to shelve its plans, but that decision doesn't mean that such plans have been buried for good.

While Time Warner shelved its plan, the company -- as well as many industry observers -- still believes that "consumption-based billing" may be the best pricing plan in the future. The carrier now plans to conduct an educational campaign designed to make it clearer to customers how much bandwidth they use and how they could be impacted by such a change in the future.

Bandwidth caps have been a controversial issue since the summer of 2007. As it watched peer-to-peer (P2P) application providers such as BitTorrent chew up oodles of bandwidth, Comcast began limiting bandwidth hogs' consumption and later tried to alter its pricing policies, so such companies would pay for their gluttony.

The change came after the ISP had determined that its old business model no longer made sense. Many carriers put flat-rate plans in place, an "all you can eat approach" where customers paid a set fee and could use as much bandwidth as they desired each month. However, that approach may no longer be viable for several reasons. First, flat-rate plans were popular when customers were mainly transmitting small amounts of textual data. That is no longer the case. Video transmissions haves become common, so many companies now transmit large files -- some even regularly send multi-megabits-per-second high-definition files.

New businesses that are based on the notion of unlimited usage have emerged. In addition to P2P suppliers, cloud computing services have become quite popular. Here, applications are divvied up between customers' and vendors' computers, and the Internet becomes the corporate network connecting the two. These applications also use large amounts of bandwidth.

In response to the changes, AT&T, Comcast, and Time Warner have been dabbling with usage-based pricing. The problem is that carriers that have tried to implement such plans have encountered tremendous resistance. Special-interest groups have emerged with the goal of trying shape the future of the Internet according to their own images. For some reason, these groups view flat-rate pricing as a model that carriers must maintain in perpetuity.

These groups have garnered some political support. U.S. Rep. Eric Massa, D-N.Y., has talked about introducing a bill to prohibit usage-based pricing, and a fellow New York Democrat, Sen. Chuck Schumer, issued a press release patting himself on the back for helping to thwart Time Warner's plans.

Critics claim that the usage-based pricing plans are ploys designed to raise more revenue for the carriers at the expense of customers. They think that many customers will exceed the minimum usage boundaries and pay more for Internet access.

On the flip side, the new model is fairer than the current one: Heavy users should pay more than the cursory customers. Can you think of any other market where heavy users pay the same rate as occasional customers? The higher prices could also possibly enable carriers to lower their rates and expand broadband access to a wider group of companies and consumers.

One irony is that tiered pricing models are already commonly used with broadband services. Many carriers have broadband pricing for businesses that's higher than the prices paid by consumers. The business customers receive some perks, such as better customer service or a higher likelihood of network availability. So the critics have been inconsistent; not all Internet users pay the same rate. Yet for some reason, they have developed an affinity for flat-rate pricing programs and want to force carriers to support them, even when market dynamics have shifted and such business models are no longer viable.

Why anyone supports the government forcing carriers to support nonviable business is hard to understand. It seems like critics are ignoring basic business principles: Markets change and business plans need to as well in order to remain viable. Such thinking could dramatically impact small and midsize businesses' networks by eventually driving ISPs out of business.

Paul Korzeniowski is a Sudbury, Mass.-based freelance writer who has been writing about networking issues for two decades. His work has appeared in Business 2.0, Entrepreneur, Investor's Business Daily, Newsweek, and InformationWeek.

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