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Is our Internet future in danger?

Galen Gruman and Tom Kaneshige | Nov. 12, 2008
There are signs of the free "broadband" ride being nearly over.

But metered billing has quickly come under fire. AOL tried metered billing in the early days of the Internet, and consumers ultimately rejected it; AOL introduced an unlimited usage plan in 1996.

As Time Warner Cable turns back the clock, Free Press's Turner complains, "Its overage fees with rates are completely divorced from what it actually costs Time Warner to provide that data. I don't think you'll see a shift to caps and overage fees -- consumers really don't like surprise bills." Agrees Telwares's Voellinger: "A cap isn't the answer to this. You don't want to limit what people can do."

Broadband and service providers need to be more efficient

It's easy to blame consumers for overusing bandwidth, but it's unfair to single them out.

Consumers do in fact pay for the bandwidth they use, at least partially, notes Free Press's Turner. Content providers pay their Web hosts (or dedicated Internet providers if they host their own Web servers) based on the traffic they use, so customers pay them based on usage. Thus, a video provider pays more to serve up its offerings than a simple Web site does. And this usage-based money moves throughout the broadband ecosystem, with each Web host paying its dedicated Internet provider based on usage, each dedicated Internet provider paying the backbone providers based on usage, and each backbone provider paying the intermediate and last-mile providers based on usage. Even if a content provider like Facebook doesn't charge its customers directly, it is paying for the traffic they use through the fees it pays directly and indirectly to all the infrastructure providers between it and those customers.

However, such indirect payments to the carriers don't foot enough of the bill, says Forrester's Pierce. The providers pay for the bandwidth of what they put into the Internet, but because content and services are used repeatedly, that upfront loading cost represents just a fraction of the downstream consuming cost. For example, if Netflix or Apple uploads a video, it pays for the traffic for that single upload, not for the multiple downloads by users, she notes. That's why carriers are increasingly focused on charging users for their consumption.

Pierce suggests that content providers should pay more upfront, building the cost in to their pricing. She notes that's exactly how's Kindle e-book reader service works: pays Sprint a fee for every e-book sold, since Sprint delivers the content to Kindles over its 3G cellular network. Such a deal was fairly straightforward in the Kindle case, she acknowledges, because only Sprint's network is involved. But Pierce suggests that the same approach could be adapted to the existing system in which content providers indirectly pay carriers for traffic through their Web hosts and dedicated Internet providers. This approach would also have the advantage of allocating the costs to those who actually consume the content.


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