Editorial: We Need Usage-Based Pricing

If the phone and cable companies stopped predatory pricing and advertised what they really offer, there would be no need for new laws—only the enforcement of the laws that already exist.

by Alex Goldman ISP-Planet Managing Editor [February 27, 2007]

ISP prices are set by companies that don't care about profit. AOL's latest price for its value-added services is free, and its dialup price is $9.95 per month. The phone companies don't need to make money on internet service when they can raise rates almost at will and impose surcharges disguised as taxes. Cable, too, gets to raise rates regularly.

Companies that rely on internet service for profit are left to compete with others that charge monopoly prices in other business lines. This allows them to charge prices that are lower than cost in an effort to stifle competition. That's predatory pricing (for more, see page 5 of Larry Summers' FCC filing).

Even with all their advantages, the phone companies feel they need to engage in illegal and anti-capitalist business practices such as slamming, stealing the customers they cannot win on the open market.

Billing
This article will not argue for anti-trust remedies, expensive lawsuits, or thorough audits of phone companies' cost claims or subscriber numbers. Instead, all we are suggesting is that users pay for what they use.

In 2000, when DSL prices dropped to $39.95 per month, we argued that the price was too low.

Now we have a slightly different argument. Phone and cable companies advertise prices that are lower than the actual monthly fees, and get away with it. "There are laws; they just aren't enforced," Martin Geddes (of Telepocalypse) told last year's Freedom to Connect conference. "The issue is getting the FTC, not the FCC, to take on the issue."

The issue is bandwidth caps. Rather than charge based on usage, phone and cable companies are throwing customers off the network if they take advantage of the advertised (but never delivered) unlimited monthly usage.

There are laws that are not enforced. Simply prevent ISPs that have usage caps from advertising unlimited usage. More honest ISPs instead charge a per-gigabit fee after a certain level of usage. Customers should be informed when they have used their free bandwidth allotment.

At the moment, usage-based pricing exists mostly in areas with only one broadband provider—rural areas and third world nations.

Small government
Forcing phone and cable companies to advertise what they actually offer requires no new laws, no new bureaucrats, no new agencies. The laws and agencies that exist will suffice.

In the long term, usage-based pricing would enable ISPs to offer services anywhere, as the WISPs that charge based on usage are already able to serve areas that the phone and cable companies insist are unprofitable (which is ironic, since the phone and cable companies set their retail prices lower than the wholesale prices, and the wholesale prices reflect actual costs).

In the long term, if an actual free market in internet connectivity existed, government could be made much, much smaller. But that day is not today.

—End