Pay-as-you-go Internet plan from FCC is raising questions
Wednesday, December 8, 2010
As details emerge about the Federal Communications Commission's controversial proposal for regulating Internet providers, a provision that would allow companies to bill customers for how much they surf the Web is drawing special scrutiny.
Analysts say pay-as-you-go Internet access could put the brakes on the burgeoning online video industry, handing a victory to cable and satellite TV providers.
The practice is legal but had been discouraged by the FCC and by protests from consumers and public interest groups. But wireless companies are moving rapidly in that direction - all major cellphone providers offer subscribers tiered data plans for Internet service. AT&T does not offer flat-rate wireless plans for new customers.
And although FCC Chairman Julius Genachowski said last week that his "net neutrality" proposal would generally prohibit broadband service providers from tampering with Internet traffic, he added that he is open to new billing models that charge by how much data a user consumes.
Public interest groups say that trend will lead to a widening gap in Internet use in which the wealthiest would have the greatest access. And it could place limits on how much consumers use Web video, which eats up an enormous amount of bandwidth and could carry higher costs under a tiered pricing plan.
"The question is how this will be enforced because it has the potential to do a lot of harm," said Art Brodsky, communications director for Public Knowledge.
By blessing tiered pricing practices, Genachowski said he wanted to strike a balance between consumer protection and promoting "network investment and efficient use of networks, including measures to match price to cost such as usage-based pricing."
An FCC official said in a statement that it would be a "cop on the beat" for "arbitrary, anti-consumer, or anti-competitive tiered pricing plans."
The FCC will vote Dec. 21 on the proposal, which could could tilt fortunes toward cable and telecom companies battling to keep users from abandoning paid television services for new Internet options such as Apple TV and Hulu.com, analysts say. Those providers are struggling to manage overburdened networks that are seeing a surge in streaming video traffic from sites such as Netflix, which alone occupies 20 percent of all peak broadband traffic in the United States.
"If people are forced to pay per kilobit it's like they are forced to pay per word of a book," said Todd Weaver, chief executive of Ivi, a Seattle-based video streaming company.
Craig Moffett, an analyst at Bernstein Research, wrote in a note to investors Tuesday that the impact of pay-as-you-go broadband access "can't be overstated."
"Usage-based pricing will preserve, and even enhance, the economics of cable's infrastructure . . . even if consumers eventually get some, or even all, of their video content over the Web," Moffett wrote.