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May 23, 2012

FCC Chairman Endorses Usage-Based Pricing Model for Broadband

By Beecher Tuttle, TMCnet Contributor

The gradual push by broadband providers to institute usage-based pricing models received a major surge in momentum on Tuesday when the chairman of the Federal Communication Commission (FCC) publicly endorsed the initiative.

Speaking at the cable industry's annual NCTA Show, FCC Chairman, Chairman Julius Genachowski (News - Alert), backed the cable industry's proposal to replace unlimited data plans with tiered pricing models, similar to the recent initiatives of wireless carriers like AT&T (News - Alert) and Verizon.

Cable companies have been pushing for tiered data caps for some time but have met significant resistance from consumers, who generally perceive the new plans to be veiled price increases, according to Reuters (News - Alert). Providers like Comcast and Time Warner are particularly sensitive to the situation because unlimited data plans give consumers greater reason to walk away from their cable subscription.

Users are beginning to leave behind their expensive cable subscriptions for more cost-effective Web alternatives like Netflix, which is hurting the bottom line of cable providers in two different ways. Not only are they losing the customer, they are also forced to deal with the additional costs associated with high bandwidth usage from alternative Web services.

Without a usage-based pricing system for broadband, cable companies feel they are basically paying for customers to walk away from their cable subscription.

Genachowski sided with the cable industry on Tuesday, stating that usage-based pricing could be "healthy and beneficial" as it would increase competition and be more fair to all users, especially those who don't stream video content but pay the same price as so-called data hogs.

Comcast and Time Warner (News - Alert) each recently launched trials of usage-based pricing models but have yet to announce any specific plans for a nationwide launch. With the FCC's backing, the entire cable industry may eventually make the jump.

Genachowski's comments received a harsh response from Free Press Policy Director ,Matt Wood (News - Alert), who told Reuters that "the FCC's apparent endorsement of these plans only makes sense in a world with real broadband competition. Unfortunately, the wireline broadband market is at best a duopoly and is trending toward a cable monopoly."

Perhaps the most adamant opponent of usage-based pricing is Netflix, which would surely be crushed by any initiative to discourage excessive broadband usage. Netflix has publicly condemned Comcast for reportedly favoring its own XFinity streaming services over rivals, a charge that Comcast has vehemently denied, according to Reuters.

Edited by Brooke Neuman
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