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Saturday, June 5, 2010

AT&T's New Wireless Pricing Plan - Does It Help in the Net Neutrality Debate?
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The Deal's Chris Nolter believes AT&T's new wireless data-plan pricing - i.e., billing for tiers of data consumed instead of an all-you-can-eat approach - will affect not just the wireless world, but may also affect Net Neutrality regulations in the wireline space, too.

I'm not so sure.

Though tiered pricing for wired broadband has met with little success, Nolter suggests that if it can be done successfully in the capacity-stressed wireless context, then a positive precedent can be set for similar pricing for wireline broadband providers.

According to Nolter, "AT&T's wireless billing plan may help draw out the FCC on its thinking, and guide the arguments of the broadband providers in the net neutrality negotiations." He blithely adds, "If wired broadband providers can make the case that wireless tiered pricing works, they will have evidence to sway the FCC -- or ammunition to blast the agency's rulings in court."

Right now, wireline broadband providers can charge anything they want for service. It's essentially unregulated, checked by the vibrant marketplace. The FCC's "Third Way" - or, proposed proxy for Net Neutrality - will most certainly affect how ISPs charge for service. But, it would likely not ban "discriminatory" pricing.

We have always seen discriminatory pricing in telephone networks: business v. home plans, T-1 v. dial-up services, private line v. PSTN services, etc. What Sections 201 and 202 of the Communications Act - i.e., the guts of the Third Way - do not allow is unreasonable discrimination in charges, practices and classifications. So, if the Third Way were to go forward, wireline broadband providers could probably price in tiers, similar to the AT&T pricing plan. It just has to be "reasonable."

That said, tiered pricing for end-users, while nice, kind of misses the point. Network providers want the market-based flexibility that they have now - true pricing flexibility. They want to be able to "discriminate" in the manner their business judgment sees fit, guided by marketplace dynamics, not "as allowed" by FCC rule. The Third Way would likely deprive them of that needed flexibility. Once in the "common carrier" box, those services have a high likelihood of seeing confiscatory price controls instead. Perhaps not immediately, but when the "public interest" demands.

Why is this bad for the network and, ultimately, consumers? Pricing flexibility creates the right economic signals to incentivize facilities-based competition (i.e., real competition). Price controls just fake it through a politically corruptible, economically unsustainable "model" of competition (i.e., bubble competition).

To the extent that AT&T's tiered pricing reminds the Commission of the benefits of pricing flexibility, Nolter may have a point. But, I don't see that easily translating to fewer, or nicer, Net Neutrality-proxy regulations. The Commission's Third Way approach to wireline broadband feels different. All the court wrangling, Agency machinations and congressional shenanigans leading up to it say as much - hey, if it were just wireless regulation placed on the wireline broadband world, no would one would care (except the lawyers, of course).

It isn't. It's more, way more. FCC Commissioner Mignon Clyburn attempts to calm everyone's nerves by beneficently calling the FCC's new, 75-year-old regulatory approach some much needed "regulatory predictability." But broadband providers have legitimate concerns about the stultifying regulations that will inevitably ensue.

Markets prefer the "predictability" of markets. Elastic government rules - unless they foreclose or protect one from competition, abate costs, or enhance business line inputs / outputs - are basically deadweight losses. Tiered pricing / reasonable network management (which broadband providers must figure they'll be able to do anyway) represents no more than a consolation prize when viewed with the larger lens of the Third Way. If those rules lead to price controls and thus foreclose market-guided discrimination, the only regulatory predictability one will see is 1934-style innovation and competition.

Was there an iPhone then?

posted by Mike Wendy @ 12:57 AM | Broadband , Capitalism , Capitol Hill , Communications , Innovation , Internet , Net Neutrality , Regulation , The FCC , Wireline

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It's hard to tell whom this pricing scheme might "help" in any debate. The proponents of "network neutrality" regulations first came out in favor of metering, then later opposed it after some ISPs agreed that it might be a useful model. See http://www.digitalsociety.org/2010/06/tiered-pricing-the-free-press/ and http://techliberation.com/2009/06/18/free-press-hypocrisy-over-metering-internet-price-controls/.

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