Electricity and Communications Both are about 1.5% of GDP But Business Models are Different

U.S. retail sales of electricity amount to about $391 billion annually. U.S. gross domestic product, on the other hand, is $25 trillion or more. In other words, retail electricity represents about 1.5 percent of GDP. 

Why do we care? Retail communications services about 2006 represented about three percent of GDP, including video and all other services. These days, communications represents about $400 billion in annual service revenues (including subscription television services), roughly the same annual revenue as booked by the retail electricity business. 

So communications represents about 1.5 percent of GDP. 

So why does that matter? In Europe, access providers argue they should be getting a share of hyperscale app provider revenue. But that makes about as much sense as electrical utilities arguing they should get a share of home or business heating and cooling revenues, as those uses represent a disproportionate share of electricity demand. 

The clear difference is that electricity is paid for by end user customers on a usage basis: use more, pay more. 

Internet access, voice and text messaging are sold on the basis of flat price for a reasonable amount of usage. Within some fair use limits, higher usage does not generate more revenue. That is a key problem for internet service providers, especially as higher use does not generate proportionally higher revenues. 

ISPs could fix that problem by metering usage. Consumers would not like it--they never do--but that pricing scheme fixes the “usage and revenue” problem for ISPs. 

The obvious retort is that consumers do not like metered (usage-based) pricing or that competition does not allow usage-based pricing. The former is a true statement. The latter might not be true. Consumers respond to price signals for home broadband just as they do for all other products. 

But the argument that access providers deserve a share of revenues earned by other industries is problematic. Do as other utilities do: charge based on usage. Is internet access the only utility service unable to do so?