Democracy & Technology Blog How to Price the Net (II)
The Wall Street Journal this morning updates the evolving story of how bandwidth pricing might change as more content and applications move from the traditional phone and cable TV networks onto the Net.
The phone companies envision a system whereby Internet companies would agree to pay a fee for their content to receive priority treatment as it moves across increasingly crowded networks. Those that don’t pay the fee would find their transactions with Internet users — for games, movies and software downloads, for example — moving across networks at the normal but comparatively slower pace. Consumers could benefit through faster access to content from companies that agree to pay the fees.
The size and structure of the fee systems remain to be worked out, and the regulatory implications aren’t clear. But already, the phone companies are meeting heavy resistance from companies that say making them pay for priority delivery of their content amounts to holding them ransom, thus hurting competition and, ultimately, the consumer.
“They want to charge us for the bandwidth the customer has already paid for,” said Jeffrey Citron, chief executive of Vonage. Customers who already pay a premium for high-speed Internet access, he said, will end up paying even more if online services pass the new access charges to consumers. “The customer has to pay twice. That’s crazy.”
Google, Vonage, and many other Internet companies are seeking “net neutrality” legislation to regulate how network operators manage and price their bandwidth. Jeffrey Citron is a brilliant guy — hey, I’m a happy Vonage customer; I pay him $50 a month — but his claim that the network providers want to charge twice for the same product is false.
As more and more content and data moves over the Net, and as the nature of that content — rich video, voice, high-definition video conferencing — requires more reliable connections with very little latency and jitter, a few things happen: One, network operators must spend billions of dollars on new fiber-optics, electronics, and software to meet this bandwidth surge. Two, revenue from the service providers’ traditional products — telephone voice or cable TV channels — goes away. This has already happened with voice (long distance does not really exist anymore) and will begin to happen soon with cable (the Net radically affects the cable company’s position as content middle-man). But just because the traditional products of the phone and cable companies are being disrupted does not mean these firms are not providing a valuable service. As more and more of our lives move to the Net, that connection to the wider-world becomes ever more valuable. For years I have been saying that far from broadband prices going from $40 per month down to $10 per month, as many hoped and suggested, I thought broadband prices might go up. A reliable big pipe through which you get your entertainment, news, and education, and over which you conduct your business and interact with family and friends, is worth a lot of money. If the companies head in this direction, they won’t be “charging twice for the same product,” they will be charging more for more bandwidth and more reliable service. Whether they charge the end user, the content provider, or some mix of the two is a matter of business strategy. Not a matter of regulation as Citron and others would like. Someone has to pay for the many tens of billions of dollars the telecom and cable companies are spending to provide these new, advanced network services. Mr. Citron wants them for free. Hey, so do I. But that’s not the way it works. Mr. Citron knows that, and so do all the Silicon Valley companies feigning horror. They are just taking a shot at duping politicians into giving them a free lunch.
Although the phone and cable companies will still be in the content business to varying degrees (the less the better from my perspective), they will chiefly be in the business of connectivity. I had been very worried that the telecom and cable companies would try to do it all — that is, integrate content and conduit while ignoring the vast diversity and creativity of content and applications out on the Net. The new direction they seem to be headed — charging for connectivity , not focusing only on in-house content or blocking the content of others — makes me think they are starting to get this key concept of the Net: that millions of content producers across the globe can do it better than can the phone or cable companies using a “walled garden” approach.
Consumer groups are, typically, apoplectic about these changes and are, typically, clueless.
“They want to radically change the way they sell telecommunications service,” said Mark Cooper, research director of the Washington-based Consumer Federation of America.
Yes, Mr. Cooper, that’s what the Internet is doing: forcing all sorts of companies to adapt to a radically different world. If the telecom and cable companies did not adapt, they would go out of business and leave Mr. Cooper’s precious consumers in far worse shape.
-Bret Swanson