Metered Broadband On the Way

September 29th, 2009 by · 3 Comments

Talking at the FTTH Conference and Expo, Verizon CTO Richard Lynch said out loud what is almost certain to be many ISP’s response to network neutrality:

At the end of the day the concept of a flat-rate infinitely expandable service is unachievable. We are going to reach a point where we will sell packages of bites. Now I’m not announcing a new pricing plan. But we have already gone this way in wireless because that is where the resource is most constrained.

In other words, unlimited broadband will soon be a historical concept.  Of course, it’s not a new development.  For some consumers this is already the case explicitly as usage caps are in place, and in other cases it is more implicit.   There are two lines of reasoning justifying this, one of which is for public consumption and the other not so much.

The public face of bandwidth caps will hinge on the obvious truth that infinite bandwidth is not economically viable, that in order to pay for the bigger pipes ISPs will have to ration them and make the bandwidth hogs pay for extra.  Just where the caps need to be in order to make the economics work out is not clear.  If one looks at Japan and Korea, it seems like a whole lot of bandwidth can be delivered economically before caps are needed.  But frankly, the price is not likely to be determined that way in the US market, which leads us to the less public line of reasoning.

If you can’t stop network neutrality in the battle against over-the-top video, just make sure your own video doesn’t travel over the network and then limit the network – neutrally of course.  In other words, video offerings like those of Comcast and Verizon FIOS are separate and therefore ‘unlimited’, but if there is a usage cap on internet access then competing services like Netflix or whomever else are definitely limited.  Will it be magic or even coincidence that the usage caps put in place by ISPs to help them keep pace with traffic growth just happen to hamstring over-the-top video offerings?  I rather doubt it.

But it won’t be quite that easy.  If usage caps do become the next big thing, the magnitude of the cap is actually more important to consumers than the maximum theoretical speed itself.  Different ISPs will have different attitudes toward over-the-top video, if caps are set too low those who don’t have competing offerings could use higher caps to gain marketshare.  That is, assuming there is sufficient competition in the first place.  Hmmmm.

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Categories: Cable · Government Regulations · ILECs, PTTs · Internet Traffic · Video

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3 Comments So Far

  • carlk says:

    Robert, is the essence of your message that, a RBOC, Cable or any ISP will simply price their services to levels that will slow down demand whilst individual consumers change their habits to reflect personal economics?

    Wouldn’t this result in defiance of network neutrality by creating a “discriminate consumer” because of infrastructure owners “changing the rules in the middle of the game”?

    They must not have heard James Baker when Bush was elected over Gore. “It’s not fair to change the rules in the middle of the game.”

    Would not a new business model based upon a revenue sharing relationship, one between content and infrastructure owners keep demand robust and innovation high versus the potential for a creating a dearth consumer especially during more difficult economic times?

    The risks to both sides of the aisle seem to point more towards partnerships rather than attempting to use insect repellent on the ants whom the Ecosystem is dependent upon.

    • Rob Powell says:

      A revenue sharing agreement is probably precisely what they want, but it’s not on the table right now and if they don’t find a way to slow down the effect of net neutrality why would the content providers agree to it?

  • Vincent says:

    It’s clear that an initial reaction from access providers will be like you describe, introduce metered packages of bytes. But I doubt if that model will survive in the long run, given that there is a lot of competition from other ISPs -sooner or later one will break the mold with an unmetered package leaving the others to follow or lose market share.

    I think that as this sinks in, access providers will indeed (like you wrote about as well) turn to the content providers and start the age-old discussion of ‘my eyeballs beat your content’ and vice versa. Paid peering is on the rise already, settlement-based peering seems to be around the corner.

    I think that in the end, smaller content providers will lose out, having to pay access providers for the content they deliver. The big boys like Google and Yahoo can leverage the argument that without access to their content, end users will simply leave the ISP.

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