In a piece in today’s New York Times, Brian Stelter focuses on “usage-based pricing” for broadband access, a growing trend that the story’s headline suggests will have “sweeping effects.” Early on, Stelter sums up the issue this way:
The strategy, called usage-based billing, is advantageous for the companies that control the digital pipelines. But it may be detrimental for customers who are watching more and more video on the Web every month, as well as companies like Netflix that distribute it. Some fear that as customers become more aware of how much broadband they’re using each month, they’ll start to use less of it, and in that way, protect traditional forms of entertainment distribution and discourage new Internet services.
As Stelter notes, it’s not just news and entertainment that will experience these “sweeping effects.” “The futures of entire industries — commerce, health care and transportation,” he points out, “are being built atop a broadband foundation.”
This means that, to a significant degree, the future of these industries (and their customers) will be subject to decisions made by “the companies that control the digital pipelines.” Unfortunately, the digital pipeline business is seeing less and less competition these days, as DSL and wireless speeds fall ever-farther behind what cable can deliver. This means that, in a growing number of local markets, cable operators are becoming de facto monopolists when it comes to delivering the kinds of speeds demanded by more and more businesses and households.
As Stelter notes, companies delivering web-based services that compete with cable TV for households’ entertainment budgets are increasingly aware of the problem, but lack good options for dealing with it.
The Netflixes of the world are wary of these moves, though there may be little they can do. Concerns about both caps and usage-based billing have already caused one would-be online video competitor, Sony, to rethink its plan to sell a bundle of cable channels over the Internet.
In contrast, cable operators–as monopoly providers of high-speed access–have plenty of leverage and flexibility to protect and expand their revenue streams as households and businesses rely increasingly on broadband connectivity.
[Time Warner Cable] and others like it, could change the pricing plans if many people begin to drop cable TV— essentially making up for losses on the television side by making broadband more expensive. Such changes to pricing, if they occur, would happen gradually and carefully, executives say privately. But they are already working to change consumer expectations.
In a blog post commenting on Stelter’s article, Susan Crawford gets to the heart of the problem related to usage-based pricing and, more generally, to what she describes as the “looming cable monopoly.”
The cable operators have a built in, giant conflict of interest. They want to make sure that only their own premium video products are successful, and they can twist all the dials to make sure that happens. They can re-define services (calling their own content “specialized” and exempting it from caps or usage-based billing), they can withhold programming (particularly sports and live specials and first-run premium content) in concert with their colleagues, or charge so much for it that it won’t make sense to compete with them online, they can treat the bits coming from non-partners badly through their control over in-home devices as well as the pipe itself…endless endless ways to control.
As Stelter reports, unregulated monopoly metering of Internet access isn’t just a problem for web-based providers of entertainment TV services.
“It’s like locking the doors to the library,” said Nicholas Longo, the director of Geekdom, a new collaborative work space for small companies in San Antonio….“If we had an unlimited pipe, there’s so much more we could do,” said Yuri Zapuchlak, a co-founder of Vidmaker, a video editing tool that exists “in the cloud,” meaning that the videos are uploaded and downloaded from the Internet in real time.
The bottom line question, as I see it, is: as a nation of households, businesses and non-profit public and private organizations, virtually all of whose future ability to thrive is dependent on Internet access that is affordable, reliable, non-discriminatory and high-speed (in both directions), do we want that access to be controlled, metered and priced by an unregulated, vertically-integrated monopolist with “a built-in, giant conflict of interest?”
