Did the FCC just bless a capped, two-tier Internet?
The US is behind in high speed internet, and there are few forces of competition driving any of our ISP’s to improve that. At the same time the way we transport content is changing — eventually Content Delivery Networks and Content Engines will replace the old local TV station and possibly even Satellite broadcasting.
Right now someone could pop up the purely internet equivalent of TBS or other regional commercial paid “Superstations” and Showtime / HBO premium equivalents with relatively little investment in content delivery network, and I would submit that some of those new entrants are already born and beginning to grow. [Think Netflix, Hulu, Chow, Itunes, Amazon, Google TV, etc.]
Looking at the receiving end, more and more people are unplugging from cable tiers and instead going to an “on Demand” one time rental market as well as a streaming purchase model [Netflix, Redbox, Itunes, Amazon, Steam, etc. etc.] The other trend rearranging traditional prime time market share is online gaming content delivery networks [WoW, Steam, Aeon, Conan, Halo, etc.] So if Netflix is X percent of prime time traffic, Online Gaming Y percent, and standard cable tier one way traffic Z percent but shrinking, where’s the sweet spot in pricing where everyone benefits?
To foster investment in really needed new local broadband technology such as FIOS there has to be profit in it, and you can’t kick the provider around. At the same time you don’t want to let the guy who has the sunk-capital old cable plant and no plans to upgrade in the public right of way to price gouge. (haven’t Sumner, Ted, and others ridden their cash cows long enough?)
Hence the FCC’s dilemma, and the continuing net neutrality wars.
Moffett added, “We would expect the introduction of UBP [usage-based pricing] plans from major cable [ISPs] to follow in short order, and we would expect that their stocks will respond well to such introductions.”
NCTA, the influential lobby for the major cable operators, today quoted Moffett and expressed its own support for UBP as a way to “focus on what best serves consumers.” CEO Kyle McSlarrow says he doesn’t support any particular model (and likes flat-rate himself), but that ISPs need the flexibility to experiment in order to help “price-sensitive consumers at the lower end of the socioeconomic ladder.”
In response to Moffett’s quotes, a senior FCC official sent us a statement making clear that data caps, overage charges, and the like would be watched carefully for signs of price gouging in the limited-competition wireline ISP market.
“Usage-based pricing can create more choice and flexibility for consumers,” said the official. “But practices that are arbitrary, anti-consumer, or anti-competitive would cause serious concern. The FCC will be a cop on the beat for consumers.”
But Genachowski does support the idea, and the ISPs are glad of that explicit support. There’s nothing wrong with the idea, in our view, when implemented fairly, but it’s not popular with the public in large part because past attempts to implement it have correctly been viewed as a massive cash grab by ISPs that already make insanely high profit margins.