NCTA's Powell: Usage-Based Pricing About Fairness, Not Capacity

Says principal purpose is to monetize high fixed costs

By John Eggerton -- Broadcasting & Cable, 1/17/2013 12:23:51 PM

National Cable and Telecommunications Association president Michael Powell told a Minority Media and Telecommunications Association audience that cable's interest in usage-based pricing was not principally about network congestion, but instead about pricing fairness.

That came in a panel session billed as the first assemblage of four former FCC chairs -- Powell is a former Republican chair -- at the MMTC Broadband and Social Justice Summit.

Asked by MMTC president David Honig to weigh in on data caps, Powell said that while a lot of people had tried to label the cable industry's interest in the issue as about congestion management. "That's wrong," he said. "Our principal purpose is how to fairly monetize a high fixed cost."

He said bandwidth management was part of it, though a more serious issue with wireless.

But he pointed out that the cable industry had to spend a bunch of money on its network before the first customer was signed. So, for a business that requires "enormously high" fixed costs -- digging up the streets, put the wires in -- and operational expense, "it is a completely rational and acceptable process to figure out how to fairly allocate those costs among your consumers who are choosing the service and will pay you to recover those costs."

And he said that from paying their electric bills to bellying up to the buffet at a restaurant, consumers are familiar and comfortable with usage-based pricing. "If you buy a hot tub and string it up with a whole bunch of inefficient lighting and run it all night long, you are going to pay more than your neighbor who puts his thermostat at 68% and tries to conserve energy. It's only right. If you want to go to the Denny's buffet and fill up your bowl, you are going to pay more than the person who chooses broccoli spears."

Powell pointed out that most capacity is used by a high-end elite being subsidized by the rest. He suggested that usage-based pricing was one way to spur broadband adoption. For people with affordability challenges, you want to be able to offer them product that suit their uses at lower prices so you can get more people on the network. "We worry about the 30%-35% who aren't on the Web yet, but aren't willing to entertain pricing approaches that might bring them there in a cost-effective way," he said.

Powell said another reason to have usage-based pricing is to encourage Web app designers to be more bandwidth efficient. "If you have an unlimited pricing model, you can basically say: 'I can build an app or a service and I don't really concern myself with how much bandwidth consumption it will take...There is no disciplining element."

Also on the panel was former Republican chair Dick Wiley and Democrats Reed Hundt and Michael Copps.

Wiley seconded Powell's argument about cost, and said they could help to bring broadband services to historically disadvantaged consumers. He also put in a plug for public-private partnerships for adoption like Connect to Compete, the program, based on the Comcast model, of subsidizing computers and broadband service to low income homes with school-aged children to "bridge the digital divide." He said the marketplace was responding with solutions that were "perhaps better than Washington could bring to it.

Copps raised what he called a "little yellow flag of caution." He said the commission should approach data caps with a little more "questioning" attitude. He said he does not opposed to people paying more for using more. But he also said that the focus should be more on building out broadband infrastructure to all citizens, and after making that investment it is a better time to focus on usage-based pricing or caps. "I am more interested right now in getting the abundance of high-speed broadband out there," he said.

Hundt said "the right policy for all the governments in the world" is to have broadband delivered "faster, better, cheaper." He said the next FCC chairman will have to think about the economic model that will get that result. "And it doesn't mean faster, better, cheaper for 5% or 10%, it means for 100%," he said.