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December 21, 2012

Should Toll-Free Calls be Illegal?

By Gary Kim, Contributing Editor

"Should toll-free calls be illegal?" is probably a rhetorical question for most people, but by analogy is the same sort of policy a proposed piece of legislation sponsored by Rep. Ron Wyden (D-Ore.) would make law.

Although the bill also deals with less controversial items, such as ensuring that service providers are accurately measuring consumer data usage when they also use data caps, one element of the bill would outlaw even some voluntary business agreements between content or application providers and Internet service providers.

Specifically, the bill would ban third parties from subsidizing end user data in the same way that third parties now pay for toll-free calls.

The “Data Cap Integrity Act” would also require the Federal Communications Commission (FCC (News - Alert)) to review whether an Internet provider's data cap is designed to limit congestion, or an attempt to monetize usage “in ways that undermine online innovation.”

The bill also tries to ensure that ISPs “cannot, for purposes of measuring data, discriminate against any content.” Presumably, that means using the same sort of reasoning underpinning network neutrality, that no end user or application provider could subsidize use of bandwidth, in the same way that advertising defrays the cost of delivering content on a broadcast TV or broadcast radio network, newspaper, magazine or Internet application.

Aside from the usual questions about how any agency can determine that a data cap is, or is not, designed to “make money” rather than “manage congestion,” there are some broader philosophical issues about how much should the FCC and state commissions be explicitly involved in the ways Internet service providers run their businesses.

The question is not simply rhetorical. The FCC does, from time to time, invoke the right to broadly shape the pricing, packaging, terms and conditions under which communications services can be offered.

Special access rates, consumer protection rules and carrier of last resort obligations are examples. Entry rules provide other examples. All such rules virtually dictate whether contestants can lawfully be in the business, and if they are, what prices are permissible, at least for some services.

“This bill is intended to help consumers manage their data more effectively and ensure that data caps are used only to serve the legitimate purpose of addressing congestion,” Wyden said.

But data caps, or any other usage policies, are not different in character from metering of electricity use, or purchases of most other consumer products, which are generally sold by the unit, which is to say, on a consumption basis.

A data cap, one might reasonably argue, is simply a way of matching retail prices to unit consumption. That does not mean it is unreasonable to ask whether the unit prices are usurious or not.

But neither is the mere existence of a usage cap unfair. To be sure, some consider the existence of caps to be unfair to consumers.

But some argue that caps and usage-based pricing are not inherently unfair, and do result in higher consumer welfare, and are not simply attempts by ISPs to “protect their profits.”

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Edited by Braden Becker
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