June 17, 2008
Who Should Bear the Cost of the Bandwidth Hog?
Posted by Christine Hurt

In Sunday's NYT, an article reported that Time Warner, Comcast and AT&T were all pursuing strategies aimed at curbing so-called bandwidth hogs -- Internet users whose high-volume usage threatens to slow down everyone's Internet experience.  The Internet companies like to frame the problem as a free rider problem -- if everyone pays the same price for unlimited Internet usage, then a few MMORPG enthusiasts who also download movies and video clog up the works for those who just want to check email and get directions.  Users tend to fall into two, disparate camps:  using Internet for checking weather, headlines and email uses less than 5 gigabytes a month.  However, downloading one movie uses 5 gigabytes by itself.  So, it makes sense to charge varying amounts depending on usage, just like electricity, water, long distance, cell phones usage, etc. 

Except that I don't think electricity and telephones are good analogies.  The electric company provides power and also delivers it.  When you pay for the usage of electricity, part of that is for the infrastructure used to deliver it, but also part of your charge is for the actual product:  power.  When you download a movie from Netflix, your internet provider is someone different.  You have a merchant on the one hand and a delivery service on the other.  The burden of that delivery is borne by the internet provider, who has to come up with a way to charge you for it.  The internet provider would really be happy if you didn't download that movie.  (For example, Comcast's strategy is to slow down the Internet for bandwidth hogs, incentivizing less usage.)  But the merchant, Netflix, will not be happy with that result.  So, if internet providers begin charging "by the byte," then the online merchants who want to sell you products that must be delivered via the internet (music, TV, video, news, books) will lose business as the delivery charge rises.  As consumers feel incentivized to ration their own Internet usage, then online providers will feel the pinch.

So, here's my prediction.  Online providers such as Netflix, iTunes and television companies will borrow from one of two models.  One may be "free shipping," a la Amazon and Zappos.  The second may be something like the "toll free number," which allowed consumers to call out-of-town businesses back when long distance was almost prohibitively expensive. 

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Comments (2)

1. Posted by Kirk Hartley on June 18, 2008 @ 7:36 | Permalink

Interesting points but there are others too.

In urban areas like Chicago and Philadelphia, there are ongoing efforts to role out wireless for the whole region and provide an option away from Comcast etc. This would be great for the urban poor who literally cannot afford and do not have Internet acces, but we cannot afford to let interested, smart kids grow up without Inernet access. Free riders may exist on that kind of network too, and it seems far preferable to not let them disrupt such networks.

In my opinion, the Internet is so developed for commercial use that it seems time to stop worrying too much about imposing usage fees, whether through "toll fee" analogs or a tax in high frequenct users, with exemptions fo rnon-profits and govs and edus. Frankly, we collectivley have various "commons" that I'd like to see the government make some money off of so PROVIDED the money goes in a real lock box for education and scientific research purposes. Those who can affor to downlaod movies for $ x wil not be deterred by a 50 cent per movie fee that gets paid - digitally - to the lock box.

I'm liekwise frustrated when the government sells of licenses for other, more limited "commons," but does not retain a piece of the action on a going forward basis. For example, sales of radio wave frequencies. I'd like to see sales of frequency include a right to 1% of teh gross reveneus generated from such use (but the gov would have no management or other rights) and put that money also into a lock box for education and science.

The same model perhaps also could be imposed by dveloping nations that need revenue, and which no doubt will at first be served by many multinationals that can well afford the fees as can their excess use customers who no doubt will be well to do customers. The wealth gap is growing to incredible extremes and the bottom end is suffering - it seems to me we need to find ways to help get money and information to the lower end,a nd Internet access is one way to do that.


2. Posted by Boris on June 22, 2008 @ 12:22 | Permalink

One thing you have to remember is that for Time Warner & Comcast, this isn't just about the business of being an ISP, this is about killing off your competitors.

I got Netflix when they started their OnDemand service and moved up Vista Media Center (whole TV system was from 1992) when a Netflix Media Center plugin came out.
I don't have cable.

So, Netflix, BitTorrent, et al compete directly with Comcast both as a cable provider (more people on basic vs super-duper cable) and Comcast's OnDemand system (Netflix has a better overall selection, although new movies aren't available).

If Time Warner & Comcast can control the oxygen supply for competitors like Netflix & iTunes, they can protect their business models.

I am not sure what AT&T's angle is as last time I really looked at them they were being broken up.

Verizon on the other hand knows that fast internet is the way to get to their cable rivals. Fibre to the home is excellent. And they are rolling out "per second" services in NY & DC that would hit the Comcast monthly caps in 2-3 days.

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