Usage-Based Pricing Expected to Remain Key Focus of Wireline, Wireless Carriers

Usage-based pricing for broadband appears to be becoming more or less “inevitable,” said Steve Pociask with the American Consumer Institute. Pociask said some studies say 10 percent of users use 90 percent of the network’s capacity. A few subscribers’ usage patterns are 100 times average, he said. If carriers lowered prices for those who use less bandwidth and raise prices on “bandwidth hogs,” the inevitable result would be more people using broadband, he said.

"Really what this is about is coming up with a scheme to do rationing,” Pociask said. “We have a valuable resource. We want to encourage investment in that resource.” The challenge is to give consumers the tools to monitor their use. “Without that there’s going to be a lot of fear, there’s going to be problems,” he said.

Usage tools are critical, since most consumers use far less bandwidth than the levels at which caps would kick in under any system contemplated by carriers, said Walter McCormick, president of USTelecom. “It’s important in a well functioning market that the consumer be full informed,” McCormick said. “Consumers typically don’t want to pay for what they're not using.” McCormick contrasted the dynamic in broadband to a gas station where one customer pulls up to fill a lawnmower and a second an 18-wheeler and they both pay the same amount. “At some point the guy who is just filling his lawnmower is going to say, ‘I think something’s wrong here, I think I'm paying for what I'm not using,'” he said.

Dan Brenner of Hogan Lovells questioned whether caps will be imposed by all providers, at least in the cable industry. “Mostly it’s a problem [of] a very few number of users who are large users,” he said. “Bandwidth hogs are the heavy drinkers. If you're a restaurant you may find them kind of annoying customers, but in the end their tabs are a lot larger than people who are drinking one glass of wine.” Industry has to ask, “how can we accommodate these large users and make them pay for what they use.”

But Brenner questioned whether caps are inevitable for many cable customers. Comcast has made clear that it has no plans to embrace usage-based pricing, he said. Instead, like most cable companies, Comcast’s focus has been on average revenue per user and getting as much profit as possible from each of its customers. The FCC’s December 2010 open Internet order allows carriers to impose caps, he said. The FCC was “much more concerned about the two-sided model where content providers had to pay,” he said. “They didn’t outright forbid it, but they said they were concerned about it.”

Even if most people agree that people who use more bandwidth should have to pay more, such users are “vocal, they're active on the Internet, and they may find, based on the past behaviors of big companies, something nefarious that isn’t there,” Brenner said. Most consumers “aren’t crazy about everything else the cable companies do, but they really like” broadband, he said.

"This is the new marketplace right now,” said Eric Reed, vice president of market issues at Verizon. “This is not the old analog days where you just provided a particular service and the consumer accepted that.” Usage charges make less sense for FiOS than 4G services offered by Verizon Wireless, Reed said. “Spectrum is limited,” he said. “Capacity is also limited. We all know the debate that’s going on in Washington right now” about putting spectrum to its best use.

A second panel Monday examined the exploding use of mobile-to-mobile applications and what it means for carriers. “M2M has a Rorschach blot effect for many different people, it means so many different things to so many different parts of our industry,” said Jonathan Spalter, chairman of Mobile Future. M2M also raises spectrum issues, Spalter said. “It’s remarkable what’s been going on in the M2M world,” he said. The next three years, it’s anticipated that data increases for M2M will be at 258 percent, which is more than tablets, it’s more than smartphones, he said: “We at the same time know there is a looming spectrum crunch.” While what M2M means is still evolving, “what we know fundamentally is that the M2M world is in a period of real hypergrowth,” Spalter said.

"In the near term, absolutely, if you do the math and look at all the applications and all the projections for data growth -- you'd say there’s absolutely a crunch,” said Stan Simpliciano, T-Mobile senior director for MVNO/M2M. “I don’t know if we have an answer for that. I know we're all struggling toward it.” Simpliciano said at one point carriers worried about a similar crunch in wireline capacity and built huge “cavernous” central offices in major markets to get ahead of growth. “Now what you have in these cavernous buildings is a little box sitting in the corner,” he said. Wireless carriers will hopefully find the same kinds of technical solutions to solve their problems, he said.

"The spectrum problem is just going to get worse,” said Gary Miles, division president at customer experience systems company Amdocs. “I live in the U.K. I won’t name my provider, but during peak hours I can’t even surf the Internet because it’s so congested and I think M2M is going to make it worse.” One solution would be directing most M2M traffic to use the network during non-peak hours, he said. “You can start to smooth the peaks a little, which would be helpful and important,” Miles said. He predicted M2M will continue to grow in importance, with uses ranging from home security to healthcare. “More and more devices are going to become IP-addressable -- whether that’s machine to machine or machine to human,” he said.

"You can have tiered services and different quality of service for data,” said Mike Ueland, general manager at Telit Wireless Services. “You can have different packages and plans."

CES Notebook

"I hope you share my excitement and belief in the cause of innovation,” said CEA President Gary Shapiro Tuesday, during a CES keynote address. “The cause of innovation is closely linked to the most important issue of our day -- the health of the global economy. We can’t escape the news that many countries face tough economic times from government overspending.” Shapiro said that last year CEA forecast sales growth of 3.5 percent in the Americas for consumer electronics. By the latest accounting, growth hit 7.9 percent in the U.S., he said. Sales growth should hit 3.7 percent in 2012, he said. “It’s not just about” entertainment, he said: This year “will be marked as a turning point about how innovation is solving major problems in the world.” He cited electric cars, energy-use measurements and increasingly energy efficient consumer devices, all in evidence at CES. “Our products are using less energy every year,” he said. Shapiro also highlighted the importance of wireless devices. “Of course we are fighting for more spectrum to ensure the continued success of wireless broadband innovation,” he said: “We're also running out of Internet addresses and we must plan for the transition” to IPV6. Shapiro reiterated CEA’s opposition to the Stop Online Piracy Act, asking CEA attendees to “join the nerd army” to fight such legislation. “Remember, it’s your Internet and it’s your government,” he said.

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Also speaking Tuesday, Qualcomm CEO Paul Jacobs said his company has been in the consumer electronics industry for more than 25 years. “Our mission really is to continually push the boundaries of what’s possible in mobile,” he said. “During our last fiscal year, we invested approximately $3 billion in research and development. That’s fueled a lot of innovation.” Mobile communications has changed how people socialize, read, listen to music and access the Internet, Jacobs said. “How many of you have been looking at your phones since I started speaking?” he asked. “Go right ahead, because unlike most speakers, I'm good with that.” All CE companies “are already in the mobile business or they soon will be,” he said. “This is a revolution."