Columbia law professor Tim Wu doesn’t like usage based pricing for internet services. In his article in yesterday’s Globe and Mail, he provides a clever soundbite: “A nation that spends its time worrying about bandwidth caps is not a nation that leads.”

Different people do use the Internet in different amounts. And there are, in fact, perfectly reasonable ways to deal with variable demand. Operators can offer faster connections for those who want more and offer discount plans for light users. An ongoing bandwidth limit is much preferable to a monthly cap.

Implicit is a view that usage based billing should be banned. Professor Wu is credited with coining the term net neutrality and he has recently been named as a senior advisor to the US Federal Trade Commission. His perspectives on usage-based billing seem to be at odds with the US Federal Communications Commission. In its landmark Order on Net Neutrality issued late last year [pdf, 1.0MB] the FCC wrote:

prohibiting tiered or usage-based pricing and requiring all subscribers to pay the same amount for broadband service, regardless of the performance or usage of the service, would force lighter end users of the network to subsidize heavier end users. It would also foreclose practices that may appropriately align incentives to encourage efficient use of networks.

Professor Wu’s solution restricts the types of offers that could be made to target light volume users or perhaps lower income broadband users. He says that budget offerings should only be low bandwidth, rather than restricting volume of use. I suppose dial-up service would be his idea of the ideal low-bandwidth budget offering.

His proposal for a budget priced product offering is one suggestion, but it isn’t the only one. And we should heed the warnings of the FCC before imposing any constraints on the flexibility of operators to develop commercial offers.

It is difficult to understand how consumers can benefit from restrictions in the types of offers available to them.

How can it possibly be in the interest of end-users to have only one price structure in the marketplace? Why would we say to someone seeking a low price internet solution that they should not even be able to consider trying out a high bandwidth application? Not every high bandwidth customer has a need for their applications the same way; shouldn’t we let the internet service providers develop their own market plans and let users make informed purchase decisions?

Restricting light volume or low income internet users to dial-up speeds doesn’t sound very reasonable to me. I don’t think we want the government restricting internet pricing models.

If asked, would you agree that a government agency should be able to stick hot pokers in your eyes, how would you answer?

Personally, I am surprised that 1 in 4 Canadians think this is OK. That is how I read the recent survey released by Angus Reid. The survey was portrayed as a poll on Canadians’ views on the CRTC’s usage based billing decision, but it really didn’t do that at all.

After all, it was a survey of members of the Angus Reid online panel – not average Canadians. This panel may have tested fine for political polling, but there should have been some kind of bias expected when asking internet users if they want their rates to go up.

The survey didn’t get the question right either – in fact, the survey didn’t even get the name of Canada’s regulator right, let alone describe the decision correctly. The way the question was phrased, I have to ask what kind of people agreed with a price increase. They are the ones that I suggest would also allow the government to stick hot pokers in people’s eyes.

Hopefully Angus Reid did this work on a pro bono basis. Besides helping to grab headlines, “free” is more than this study was worth.

Let’s stop talking about only having two choices for internet services.

It is part of the big lie propaganda. Yes, most Canadians have a choice of two wires coming into our homes for internet service. That is double the number that most of the world enjoys. In Canada and the US, we have facilities based competition powering investment in continually improving the services being offered.

Most of the rest of the world has only one choice.

And like most of the world, we also have hundreds of others that offer internet services to the public, companies that make use of those two sets of wires. That means that the internet service providers (ISPs) also have a choice of suppliers, a choice that isn’t available in most countries.

On a technical level, the ISPs can choose between aggregated connections and connecting their own equipment to unbundled loops. ISPs in Ontario and Quebec can reach their end-users all over Ontario and Quebec by connecting at one single point in Toronto. They don’t have to put equipment in every switching centre, engineer their backbone network, lease long distance connections, manage the traffic. They just need a local interconnection in Toronto and pay Bell about $20 per month and let Bell do all the work for them.

The main point is that there are lots of choices for consumers, including choices of different types of service from each of the service providers. 

Which makes me wonder, why did the alternate ISPs tell all of their customers that their caps were being lowered to 25GB, regardless of how the customers were connected (including those on unbundled local loops). Why did the alternate ISPs not pass on the reduction in the basic GAS tariff; after all, if they decided to pass on the potential cost increase for excess bits, why were they keeping all of the cost reductions for themselves?

Update: I have been informed that Yak had prepared to apply usage based pricing only to its GAS customers. Yak appears to have suspended accepting customers that cannot be served from its co-locates in a limited number of areas. Co-locate based Yak customers continue to enjoy flat rate unlimited service.

A discussion on broadband shouldn’t be constrained to a narrow perspective.

I noticed a reading list on another communications policy blog that supposedly represented a “wide range of commentary and articles”; a quick scan shows that the “wide range” is reminiscent of Henry Ford’s wide range of colours for the Model T.

Here is a first attempt at a broader range of views on broadband billing:

• Make the heaviest online users pay their fair share, by University of Calgary Haskayne Business School Dean Len Waverman
• The public is right to be cynical of Internet usage regulators, by editor of The Tyee David Beers
• It’s time for foreign competition in Canadian telecommunications, Globe and Mail 
• Why not a metered Internet?, by Iain Marlow of the Globe and Mail
• Internet usage debate, Part 1: The real myths, by Teksavvy’s Rocky Gaudrault
• Internet usage debate, Part 2: $8B to keep pace, By Bell Canada’s Mirko Bibic
• Counterpoint: Net users will pay a lot more, by ACI’s Michael Garbe
• Pay for usage, by Bell Canada’s Mirko Bibic
• The 25-gigabyte Internet myth, by National Post’s Terence Corcoran
• Billing reversal risks bad policy,  by National Post’s Terence Corcoran
• Usage-based billing. And cooing, Globe and Mail editorial
• Paying by the megabit, National Post editorial
• Fake competition, Michel Kelly-Gagnon & Martin Masse of the Montreal Economic Institute

I am happy to augment this list as readers write in – or send your additions through the comments to this post.

Thank you to my readers who suggested these pieces that I missed in the first listing:

• Second guessing the CRTC comes at a price, by former CRTC vice-chair Richard French
• Bits, bytes, bills and Bell, Rita Trichur of the Globe and Mail
• Seeing Red Over Metered Internet, by Jamie Sturgeon of Financial Post
• Hey Brother, Can You Spare a Gig, by Matt Hartley of Financial Post
• Paying so much for bandwidth, getting so little, Tim Wu in Globe and Mail
• New Digital Divide? Internet caps far higher in Western Canada, by Jamie Sturgeon of Financial Post
• Rocky’s myths, Letter to Financial Post by James Cripps
• UBB, wholesale or retail, is dead, by Greg O’Brien of Cartt.ca
• Incumbents fire back at UBB critics, by Dave Webb of itWorldCanada
• UBB fairest way to price Internet use, Bell says, Matt Hartley, Financial Post
• Telcoms tell MPs usage-based billing is needed, by Julian Beltrame of The Canadian Press
• Tolls on the Information Highway, Video of February 10, 2011 episode of TVO’s The Agenda with Steve Paiken
• The Internet should be fair – not free – to everyone, Macleans Editorial

Over the past week, some pseudo-engineers have been sending me “fan-mail” saying that telco aggregated connections can’t ever be blocking because the ISPs pay for a certain peak rate bandwidth and should be able to use this however they want. These folks are forgetting a number of aspects of internet traffic, perhaps having been sheltered from having to actually operate a real internet access network.

Gather round. This is what we call a teaching moment.

The most important lesson is basic network engineering economics: services are kept affordable by sharing the same network facilities among mutiple customers. The level of sharing is determined by making usage assumptions in order to avoid congestion. To the extent things change from these assumptions, new engineering and network reconfiguration needs to take place. [Note: when you are sold a circuit capable of a specified data transfer rate, there are assumptions that you will not use that circuit around the clock at that speed.]

The wholesale price for aggregate ISP customers connections is kept low by combining the access network with the traffic of other internet access customers. Since the ISPs aren’t specifying the peak traffic requirements of each customer or each switching centre, it is quite possible for one customer to use a disproportionate share of the capacity, again driving a need for re-engineering of the internal network.

This brings us to the current debate, which has nothing to do with retail usage based pricing.

When the price of the wholesale aggregated internet service was developed, there was some kind of assumption made about the average load being generated per end user. This was used in the production of the tariff for Gateway Access Service (GAS) in the order of $20 per month, which covers the carriage of the end user traffic to the network interconnection point of the choosing of the ISP.

The size of the pipe between the telco and ISP varies with the amount of traffic, but this can increase in two ways: by adding more customers, or by each customer using their service more. The phone company gets fully compensated if the increase comes from more customers who have a traffic profile that corresponds to the engineering assumptions; the problem arises when the average traffic has different characteristics from the engineering assumptions.

This is why the CRTC needs to revisit its Usage Based Billing decision and set a threshold based on the loads presumed in the engineering for GAS, with the tariff incorporating appropriate adjustments for aggregate traffic loads that exceed these assumptions. 

I note that some ISPs had requested an ability to gather their traffic on a more localized basis and I wonder whether this would have have pre-empted the current wholesale disputes.