The heart of tech is coming to the heart of the Mediterranean. Join TNW in València this March 🇪🇸

This article was published on December 29, 2012

The FCC’s new chief economist is a keen advocate of ISP data caps and usage-based pricing

The FCC’s new chief economist is a keen advocate of ISP data caps and usage-based pricing
Alex Wilhelm
Story by

Alex Wilhelm

Alex Wilhelm is a San Francisco-based writer. You can find Alex on Twitter, and on Facebook. You can reach Alex via email at [email protected] Alex Wilhelm is a San Francisco-based writer. You can find Alex on Twitter, and on Facebook. You can reach Alex via email at [email protected]

The FCC has appointed Steven Wildman as its chief economist.

Steven Wildman, the James H. Quello Professor of Telecommunication Studies at Michigan State University is the acting chairman of that school’s Telecommunications, Information Studies and Media Department. Wildman replaces Marius Schwartz, who according to The Hill will return to Georgetown.

According to the FCC’s Chairman Julius Genachowski, Wildman’s role is “critical to the agency’s work and its understanding of complex economic issues related to the communications sector.” In short, Wildman will be the senior voice in grokking key issues that face the FCC, helping it to formulate and direct policy in the areas that are under its purview.

What Wildman believes, then, becomes critical.

Wildman, according to the FCC’s statement, has a “stellar record as an economist and has conducted important research on broadband adoption and spectrum management.” Spectrum management is a key issue in Congress at the moment.

However, broadband adoption is also quite important, and Wildman’s views on certain ISP issues might not line up with your own. As discovered by DSLReports, the FCC’s new chief economist is a firm believer in data caps:

“[D]ifferential pricing based on usage and quality suggests that the effects of well-designed UBP plans on consumers are likely to be beneficial, as are the effects of UBP on investments in the broadband infrastructure.”

Broadband caps are beneficial, Wildman argues, in terms of generation investment in broadband infrastructure. Keep in mind that the FCC noted specifically that Wildman will be key in helping it develop policy concerning broadband adoption. Infrastructure investment is a part of that adoption. Therefore, the views of its new economist on data caps may directly influence the agency’s regulation of such matters.

In short, as the issue falls under his listed domains of influence, Wildman’s advocacy in favor of ISP data caps could lead to leniency on behalf of the FCC on the issue. That’s not encouraging.

Usage-based pricing demands data caps, essentially, as users pay for data in certain quantities, capping their total allowance per fee period.

Quite obviously, Wildman is a very well-credentialed individual, and certainly one of gravity and intelligence. However, his take on usage-based pricing is antithetical to the progress of Internet-based technology, and raises net neutrality concerns when services such as Netflix are stacked against content delivery vehicles owned by companies that are at once ISPs and media progenitors. Data caps in this sense can be viewed as anticompetitive.

An initial reading of Wildman’s recent paper concerning usage based pricing yields an interesting, if somewhat flat discussion of second-degree pricing. Wildman doesn’t fully address the fact that the ‘versioning’ he references is already in place, through the use of price tiers to determine speed. The idea that quantity should be introduced alongside speed from a data perspective is not exactly one that springs to mind organically.

He posits that “the burden of proof should be on those alleging harm” by usage-based pricing. This is a misunderstanding of how Internet service has functioned thus far, and takes a short view on where the Internet itself could go; charging users incrementally for data access, and not for speed – or perhaps both – limits the effectiveness of the Internet by introducing artificial gateways that lower demand, and thus technological progress. Any increased revenues that could be reinvested into infrastructure would be for naught for most, as the added bandwidth would not be available to the user as they would curtail their usage to avoid penalization under usage-based pricing.

Changing the price structure of Internet service from speed to data consumed would lead to a long-term retardation of the progress of development of the Web itself. Mobile Internet has long struggled from this specific constraint.

As an example: consumers can now select unlimited SMS plans at low-cost. This helped birth Twitter, not to mention Twilio and so forth. Arguing in favor of increasing friction in consumer usage of the Internet is not proper policy.

Wildman’s Impact

Returning to his paper, Wildman argues that “[w]hen increasing citizen access to and usage of broadband has become a national policy priority, the value of low cost-low cap options as inducements to try broadband for the first time should not be ignored.”

Thus, we can anticipate that he will advocate along such lines as the FCC chief economist. This isn’t trivial.

Internet access has a history of speed increments, and usage constraints, to a point. Dial-up access came with speeds that depended on your in-computer modem, just as AOL charged by the hour. However, it’s hard to recall the Internet being charged, on an in-home subscription basis by the megabyte. In fact, such pay-to-play scenarios tend to crop up on cruise ships and at airport kiosks, and not in the homes of consumers.

There is a cost to providing more data to consumers, as more capacity is required. That in mind, the differential tiers that would likely be erected under a persistent usage-based pricing schema would likely far outstrip these marginal costs. Thus, consumers would be negatively incentivized on a functional basis from consuming Internet on a cost basis, or even a cost-plus-markup basis.

Again, parallels from the mobile communications market provide context in this case. Tiered SMS plans have markups in the thousands of percent. Consumers could likely expect little better under an ISP-led system of tiered pricing.

Boiling down to save space: the marginal cost of providing more data to a user on a monthly basis would move their bill only slightly; the addition of 50 gigabytes to a high-speed data plan would likely be marked up enough that it would provide sufficiently large reverse incentive to Internet usage to provide a net negative to the Web as a whole when weighed against potential infrastructure benefits due to higher per-customer revenues.

We’ll see what impact Wildman has at the FCC.

Back to top