Is Usage-Based Internet Access Inherently Unfair?

Though understandable, given the “no incremental cost” nature of much Internet content, information and applications, one might argue the way many think about the Internet is out of sync with the way they think about most other products they buy and use. 

Most of the criticism about usage-based pricing is that it somehow is "unfair." Much of the criticism takes the form of complaints about ISPs somehow taking advantage of consumers. It is argued there is no need for metering, for example.

In other cases, some critics imply or allege that metered pricing is simply a way for ISPs to make more money from their customers.

Are usage-based charging mechanisms inherently unfair and detrimental to continued development of the Internet? Some think so. And there is Internet precedent for such thinking, to be sure. AOL found usage exploded when it, and other dial-up access providers, shifted from metered usage to flat fee pricing.

One might object that this encouraged use of the Internet but at the “expense” of increased direct costs for Internet access providers. So there is good reason to argue that directly metered use of Internet access might actually discourage people from using the Internet.

But that isn’t generally the way usage is rated, these days. Consumers generally understand and seem comfortable with “buckets of usage” that provide cost predictability, but also allow users to buy less or more access in line with their needs.
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Usage based pricing might actually be a good thing for the overwhelming number of consumers, to the extent that lighter users pay less, heavier users pay more, and suppliers have accurate information about how much more capacity to add, where and when, which in turn ensures that investment is adequate to support anticipated growth of demand.

In fact, one might argue, the worse scenario is where usage and pricing are not related in some relatively direct way, as that distorts both demand and supply.

One frequently hears warnings about outsized growth of broadband access demand, the implication being that a crisis might develop if “something is not done.” Some predict that 1,000 times more mobile bandwidth will be needed by 2020, for example.

But both suppliers and consumers are rational about their bandwidth choices, when there is a clear link between consumption and out of pocket costs, and when consumers can act on that information.

Even if future supply were not an issue, it would still make sense to allow consumers to make choices about how much “Internet access” they really want to purchase, as that would send clear signals to suppliers about how much to invest in new capacity..

The problem with “unlimited” plans is that such retail pricing does not automatically send accurate supply and demand signals, and does not trigger the normal decision-making consumers always make when considering how much of any product to buy.

Nor do we often remember that demand for Internet access is dynamic, not static. Raise the price, and consumers will buy less, lower the price and they will buy more.
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To an extent, changes in device profiles also make a difference, as typical bandwidth consumption on a PC is far higher than on a smart phone or a tablet.

And users clearly are shifting Internet activities to smart phones and tablets. At some point, that could slow data consumption growth rates, even if, over time, bandwidth consumption grows.

Demand will grow, but probably less robustly than many forecasts predict. Mobile data consumption, even among smart phone users, is well below 1 Gbyte a month, according to Sandvine.


An analysis by the U.S. Federal Communications Commission suggested that, in the first half of 2009, the median fixed network (half used more, half used less) broadband user consumed almost two gigabytes of data per month. Mobile users consumed only hundreds of megabytes.

The 2009 study suggested that, overall, per-person usage is growing 30 percent to 35 percent per year. That doesn’t necessarily directly suggest how much an “account” or “home” might consumer, though.

The FCC study does not directly correlate a single person’s usage with the account details, as it is a “per-capita” measure. Such “per-person” measures are useful, but not entirely accurate if services are purchased “by location,” instead of “by person.”

n other words, a single user might have one access account, while a family might have three to five people sharing a single account.

As a rough metric, a typical 2.5-person household, sharing one account, might have consumed about six gigabytes a month, based on the 2009 data.

If the 30 percent annual growth rate remained intact through the end of 2012, that might imply 2014 median usage of about seven gigabytes per person, or 17.5 Gbytes per household account, using the 2.5 persons per home assumption.

Other 2010 estimates for current consumption were roughly in the same range as the 2009 FCC figures, adjusted for annual growth.  Comcast said in December 2010 that a typical user consumed about two to four gigabytes a month, far below the 250 gigabyte cap for a Comcast residential account.

That would be right in line with the FCC’s base of two gigabytes, and a growth rate of 30 percent annually.

Actual data consumption for most users of fixed network broadband is not all that high, in other words. True, demand will grow. But so long as price signals can be sent, supply should satisfy demand.