A new Federal Communications Commission inquiry on data caps does raise some obvious issues, as the action is driven by complaints by internet users about the very existence of such caps, which might be likened to rationing of a resource, says FCC Chairwoman Jessica Rosenworcel. At least so far, the concerns seem directly related to data limits related to the cost of service plans.
In the press release announcing the inquiry, the FCC included complaints such as “We can't afford $190 a month for unlimited internet.” Other cited complaints revolve around “excessive costs” or present data caps being insufficiently capacious.
On the other hand, differing prices based on differing consumption volume is a fairly-standard principle in most businesses and industries, though some subscription services, such as linear video, satellite radio or other audio streaming services routinely operate on an “unlimited consumption” model.
So do many mobile phone voice and texting service plans, at least for domestic usage.
As a rule, consumers seem to expect volume-related pricing for physical goods and most intangible products, whether that is water, electricity, groceries, fuel or clothing.
And, for providers, total costs of creating and providing a service or product matter, not only the cost of one particular part of the value chain. Some observers focus only on the marginal cost of providing the next unit of consumption, not full costs (capital investment and all operating costs).
The total cost of providing an internet access service arguably differs for large, dominant providers and smaller local providers.
Though network Infrastructure, bandwidth and transit costs are of high importance for all ISPs, smaller, regional ISPs might tend to find that bandwidth and infrastructure costs dominate, whereas larger ISPs might find that marketing, research and development costs, and regulatory compliance may take on greater importance.
Customer premises equipment, labor, marketing and customer acquisition costs generally are of medium importance for all ISPs.
But large ISPs might find the costs of regulatory compliance, research and development as well as energy costs to be of more significance, compared to how those issues pertain to small ISPs.
The point is that the marginal cost of providing the next unit of capacity or consumption might not be the only measure, or the best measure, of cost and its relationship to consumer pricing. Providers can affect some of their total costs. But many fundamental costs, including network infrastructure, are relatively inelastic.
Other costs have some elasticity, but can be hard to contain in highly-competitive markets. So the actual marginal network cost of producing the next unit of capacity might not be the best metric for assessing the “fairness” of access pricing.
The larger issue, perhaps, are the sustainable business models allowing internet service providers to continually expand capacity, providing the needed usage support for consumers, at prices those consumers consider fair and reasonable. All of that is dynamic.
To the extent that “cost of use” is a financial problem, governments routinely use subsidies of various types to support consumption of essential or important goods by some citizens who would not otherwise be able to afford such goods.
As always, the issue of “who pays” has to be answered in the concrete. To the extent that ISP sustainability literally requires profits, providers have to keep working on efficiencies so they can keep costs “reasonable.” And observers debate the degree to which customer usage volume actually matters.
Logically, marginal costs exist when customers use more of a resource. But how much marginal cost exists is an issue. Fixed or sunk costs might actually predominate. But again, subsidy programs can be created that address the needs of specific populations deemed to require support.
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