Perhaps it’s the air or the water. But something about Washington encourages the otherwise sane to talk jibberish even — no, especially — when the subject is markets. Or so it seems when reading some of the jeremiads against Federal Communications Commission Chairman Julius Genachowski’s recent proposal for ending the long-running battle over regulating the Internet.
A case in point: the charge that the chairman is abandoning sacrosanct principle in blessing the idea that it’s OK for telecoms to charge by the byte. Washington is probably the only place in America where paying for what you consume (“usage-based pricing” in econ-speak) is suspect. No, wait; there’s Disney World, too. But you get the idea.
Nobody complains when Starbucks charges more for a vente cappuccino than for a tall, and even your average 7-year-old knows it will cost more for the whole family to see the new “Harry Potter” movie than for the single teen ahead of them in line. Why shouldn’t the same concept apply to the Internet, when a minute of streaming video can use 1,000 times as much bandwidth as a two-page e-mail?
Against this common sense, Art Brodsky of Public Knowledge claims that linking what customers pay to how much they consume is just “an excuse for not building out your network.” Brodsky concludes — though without the benefit of serious bean-counting — that usage pricing could drive up the cost of Netflix streaming service about fivefold, to $60 a month.
That seems high, but we really don’t know. Reed Hastings, the CEO of Netflix, apparently isn’t worried. He recently told a reporter that usage-based pricing “doesn’t particularly scare us.” And he cited Netflix’s experience in Canada, where tiered-pricing plans have proved “pretty generous.”
What we do know is that the telecoms need a way to make a buck as they expand their networks, to accommodate the exploding demand for video. The investment will be especially daunting for the mobile carriers, which must build advanced generation wireless networks — so-called 4G and LTE systems — to be able to serve up video in high definition for millions of new smartphones and mobile tablets. While it might be possible to raise everybody’s rates equally to recoup the cost (provided the government prohibited discounts to light users), it would be wasteful and unfair.
Other critics complain that the Genachowski framework would give network operators the option to offer specialized services including “paid priority,” which would guarantee the quality of bandwidth-sensitive apps like VoIP calling and movies on demand. Right now, streaming movies occasionally break into pixel soup, and Internet phone calls way too often reverberate with echoes. Genachowski would allow operators to prioritize access when networks are overloaded — and to charge accordingly.
Seems reasonable to us. Why shouldn’t Netflix, Hulu and Skype (more precisely, their customers) be able to buy such enhancements in the same way everybody can choose between overnight delivery and ground shipping when they send stuff by FedEx?
More to the point, what’s really the alternative? One-price-fits-all Internet service is like one-size-fits-all clothing. All right in a pinch, but you wouldn’t want to live with it.
(This post was also published in San Jose Mercury News.)
I cannot understand why “net neutrality” would somehow prohibit carriers from charging people by the unit or by usage tiers. Net neutrality is basically a common carriage issue, even if the term is not politically correct in some circles. Common carriage is a concept that is at least 650 years old; maybe almost twice that old if one goes back to Justinian laws. Historically, local monopoly telephone service is the only common carrier service in the US that charges “buffet” rates. Every other common carrier and public utility service charges more money for more usage one way or another. Even in Washington, strange as you may think this to be, at two other regulatory agencies with a long regulatory history: the Federal Energy Regulatory Commission and the Department of Transportation’s Surface Transportation Board (formerly the Interstate Commerce Commission).