Yesterday I had an interesting discussion with PRTM analyst Dan Hays about the overwhelmingly negative reaction of the wireless industry to the FCC’s net neutrality proposal.
I asked him if he thought the FCC’s net neutrality rules would ruin operators’ ability to manage their networks, as has been widely feared by the wireless industry.
His answer: “I don’t think so. I think the industry has the tools to solve the problems at hand.”
As Hays sees it, the issue is that operators don’t want to use one of the key tools that can be used to solve that problem without resorting to traffic discrimination: usage-based pricing. “We’re in a paradigm of all-you-can-eat pricing and changing that will be painful,” he says. “This proposed rulemaking is going to drive wireless service providers in the direction of differentiated pricing.”
It’s a theory worth considering. In a world where Internet providers are required to treat all Internet traffic equally, they will have to manage network congestion differently – perhaps by limiting speeds and enforcing data caps.
So far, the industry has been decidedly hesitant to move away from all-you-can-eat pricing for fear of consumer backlash, even though such pricing plans are unfair for the majority of consumers. (I’m sure you’ll remember a statistic AT&T provided last December that revealed that just 3 percent of AT&T’s smartphone users were consuming 40 percent of the network’s capacity. *cough* iPhone *cough*)
As a result, usage-based pricing hasn’t found much momentum in the U.S. market, if any at all. Sure, there have been some tentative steps in the direction of usage-based pricing, such as AT&T’s tiered prepaid pricing model for the iPad 3G, but that’s just baby steps compared to what could be necessary under net neutrality regulation.
I’m inclined to agree with Hays that the FCC’s recent decision will result in an inevitable push toward usage-based pricing, though I’m not sure you can then draw a link from that to an operator’s stance on net neutrality. After all, operators are more than a little bit touchy when it comes to issues affecting network management.
Right now, most subscribers are blind to the amount of data they use per month. Educating subscribers about that use through widgets, applications and notices on their billing statements could go a long way toward easing what could be an inevitable move to usage-based pricing.
I don’t think usage-based pricing is the end of the world, and I don’t think it will necessarily result in consumer backlash. It will involve a lot of education and cautious steps.
You’d never know it from the comments coming from the two biggest carriers, both of which have implied that net neutrality legislation will lead to an economic collapse, but the sky isn’t falling. The wireless industry is thriving, and will continue to thrive, despite net neutrality regulations. FCC Chairman Julius Genachowski is receptive to the needs of the wireless industry. Not only is he moving to free up 500 MHz of spectrum for the industry but indicated in his net neutrality proposal that he recognized the unique needs of spectrum-based broadband service.
I don’t expect operators to be complacent about the implications of net neutrality on network management. They’ll fight to protect their networks from nasty, bandwidth-hogging applications that could crash the system. However, I hope they can be open-minded enough to see that the proposed regulations could provide a path toward usage-based pricing, which could be both a useful network management tool and more fair way to bill consumers.