The Challenge of Pricing the Internet

I love it when one of issues that we're hard at work on here at the Internet Innovation Alliance makes its way into the public discourse. And there's no better way to get people interested in an issue than to get them thinking about their wallets.

That's what happened earlier this month, when Time Warner Cable announced plans to test a multilayered pricing system for its high-speed broadband service in a system that would charge the bandwidth hogs a higher fee. Initially, the testing will be confined to a small group of customers in Texas but Internet users around the country are already crying foul.

Based on the early response to Time Warner's planned test, I see a few key issues. First, customers are worried this new pricing system is actually a scheme to collect more revenue overall by charging heavy users higher fees, while not giving the lightest users any discount.  There's also a fair amount of confusion over what constitutes "heavy" Internet use. By Time Warner's measure, only 5% of its customers account for half of all data traffic. But that's a figure that's probably subject to constant change, as more and more people start working from home, and discover YouTube and other sites that let them use their computers like entertainment consoles. Which brings me to the third key issue about this new pricing system: people worry that if pricing for high bandwidth consumption gets too high, it could stifle the development of new video downloading services and other bandwidth intensive businesses. Clearly, this is an area that needs to be thoroughly considered before any sweeping changes are imposed.

The Internet is increasingly being regarded as a utility, and most utilities like phone and gas and electric services do charge their customers a fee based on usage. It seems to make the most sense to do it that way. If Internet providers can come up with a pricing system that not only charges premiums for high use, but provides incentives to people who occasionally step away from their computers and watch movies the old fashioned way -- on DVDs -- customers would be more likely to support it.