Why Paying for Web Usage Might Make Sense

Time Warner (TWX) is dipping its toe, ever so gingerly, into charging for data downloaded rather than bandwidth. Kevin Maney explains why this makes sense for them: they're competing, on the video-content front, with online providers. But that doesn't necessarily mean that it's a consumer-unfriendly move.

It's worth remembering that companies in the telecoms and media space have historically made their enormous profits largely by getting their customers to pay a lot of money for stuff that they don't want and won't use. Cellphone companies sell you minutes that you don't use, cable companies sell you channels that you don't watch, and ISPs sell you unlimited bandwidth and downloads, even if all you're doing is checking your email once in a while.

This has been wonderful for the web, where many sites are much richer now than they were when they had to worry about users on dialup connections. It has also helped to create whole new business models, like Vonage or the iTunes music store, which rely on the fact that the marginal cost of downloaded data is zero. And Apple's new Apple TV product has cheap movie rentals which start playing in just 30 seconds - if your connection is fast enough, of course, and if you don't have to pay for the download.

But if my personal experience with Time Warner Cable (TWC) is any indication, download speeds have been falling quite dramatically of late: when I view video content online, I now normally check the "medium" or "low" bandwidth option whereas in the past the "high" bandwidth option would play seamlessly. And the effect on my Vonage service has been quite nasty. It seems that the bandwidth glut bequeathed to us by the dot-com bust is finally running out.

So given that the bandwidth pipes are going to need upgrading, the next question is who should pay for that. Should all internet users pay equally, regardless of their usage, or should the people driving demand for bandwidth - the people downloading a large amount of video content are the ones cited by Time Warner, although I have no idea whether that's true - pay more?

I'm not too worried about the long-term future of business models which are contingent on zero-marginal-cost bandwidth. Technologies like FiOS will help total bandwidth to keep up with demand, and ISPs generally like the unlimited-downloads model for a good reason: it's very profitable for them. But paying for data downloaded is a bit like a-la-carte television: there's no reason why it shouldn't at least be an option.

Comments

[Tom B]

It's a band aid. If Internet use is increasing, they should build out more fiber instead of targeting subsets of customers. Many countries in Europe already offer much faster internet speeds. US companies can't seem to do anything that requires any initiative or ability to look past the next quarterly report.

[MrStockman]

I'm all for "the first 2 hours per day of download are free, then you pay by the minute after that." Nobody should be watching Youtube 24/7, but some people do. That's what's clogging the lines.

[User 143473]

I'm still skeptical about this. I suspect the "average" Internet consumer's definition of heavy vs. low user and the providers' definition will vary to the benefit of the provider rather than the consumer.

Given the growing number of sites with multimedia content, even if you're not downloading multiple full length movies every day, your total downloaded bytes will add up rather quickly.