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April 20, 2009

Do Network Costs Justify Tiered Pricing for Internet Access?

The Time Warner Cable back down on tiered Internet pricing has brought out a debate on what this all means and where the industry is going with pricing.  One one side is the New York Times, which argues that the "reaching capacity" position is phony given the little investment it takes to add capacity.  New technologies increase consumer speeds and capacities without significant costs to the networks.  Moreover, quotes from industry seem to validate the Times' position.    

On the other side is TelephonyOnline who suggests that consumers need to be educated as to the problem, given an opportunity to see how caps could affect their bills, and pick a pricing plan that works for them.  Their position is that only the high use customers should rightfully pay more.  Unstated, however, is how a pricing plan would charge more for what consumers are already getting anyway.  It sounds as if conditioning consumers will get them to go along.

I think the New York has the better position on this one given that costs for providers do not rise much, if at all, with increased use of their networks.  It always comes down providers trying to get more money out of the "tubes" that carry the data.  What's holding this back is the threat of congressional or FCC action that might inhibit industry action.  What's really needed here is for laws and regulations to foster even more competition among players as a way of keeping prices low and access open.  When Time Warner Cable tested caps, it did so in markets where it faced little opposition.  Customers could have weighed in on the test with their wallets if they had viable alternatives.  The market for Internet access needs to be opened full throttle to correct this situation.

April 20, 2009 | Permalink


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