Posts Tagged ‘Internet Prices’

Is the Pay-Per Internet Fair or a Menace?

Central to debates over bandwidth caps and usage charges in Canada are very real questions of fairness.

The claim that people should pay for the Internet according to how much they use it has a powerful, yet superficial appeal to it. After all, we pay for almost all other goods, why not for the Internet? And why should ‘excessive users’ be subsidized by average or low-end users? Upgrades to networks are expensive, the big telecom and cables companies invest billions per year, and someone has to pay for all this.  It should be those who use the network most.

This is the common sense bedrock of claims made by both the CRTC as well as big telecoms and cable providers like Bell and Shaw (listen here at around the 1hr,45min – 2hr mark). They are also commonplace in everyday discussions about the Internet as well.

However, the problem, as Albert Einstein once said, is that these are the kinds of questions that need to be addressed on a different level than which they are asked. Even just taking these questions as posed, with their market-based criteria set as the barometer of what a rational response should look like, there are many problems with such reasoning.

First, there is no indication that the unlimited Internet model is compromising the dominant cable and telecom companies’ ability to invest in network upgrades. Indeed, in the last fifteen years, Internet Access has added a brand new line of industry worth $6.5 billion to their bottom-line.  That is a lot of money by any count.  It is roughly equal to the size of the cable and satellite tv distribution sector, which took around half-a-century to reach this size. Despite this very substantial new source of revenue, there is no evidence to suggest that there has been an increase in network investment to match.

Telecoms companies have always been confronted with the question of whether or not to charge high prices for access to limited facilities, or to increase the use of much higher capacity networks through cheaper costs. They still are. The “cheaper rates/bigger network” view leads to increases in people’s access to communication facilities and contributes to society and economy-wide benefits. The high price/limited facilities view, in contrast, prioritizes elite users and leads to the under-development of networks, either in terms of ‘cutting edge’ technology, extension to under-served areas and groups, or both.

Each time that that the major players have been faced with this choice, they have initially clung to the high price/limited facilities view, as the experience of the USCanadaBritain, and indeed worldwide shows.  However, most key general purpose network technologies since the mid-19th century — the telegraph, telephone, Internet — have been forced over time by political pressures, new rivals, and public discontent to adopt the cheaper rates/bigger network approach.  The result in each case has been the transformation of each new generation of network technology from luxury into necessity, but not without a fight.

They pay-per model of the Internet in Canada aims to reverse this trend, but as is all-too-plain to see, this will not happen without a fight.  Like their predecessors, the big players will kick and scream in opposition to the drift of events.  Hopefully, like their distant cousins, they too will lose the fight

To be sure, Canadians are heavy Internet users by global standards, although we must never lose sight of the fact that over one-fifth of the population still do not have Internet access (also see here). The rest, however, tend to be avid users. Indeed, Canadians have always been ‘early adopters’ and intense users of new communication and media technologies. This is still the case.

The average Internet user in Canada spends 46 hours per month online. This is twice as high as Australians, and much more than the 30 to 34 hours the average user spends on the Internet in the UK, US and South Korea. They also view the most video online. In January 2009, 21 million unique Canadian viewers, or 88% of those who use the Internet, watched an average of 147 online videos each, compared to 135 in the UK, 108 in Germany, 90 in the France, and 88 in the US. They are some of the most generous contributors to Wikipedia, the co-operatively produced ‘go to’ online encyclopedia and eighth most visited website in the world. In other words, Canadians are both enthusiastic consumers and contributors to digital information universe.

The “market” should adapt to these realities rather than trying to dampen them. Government policy should do the same,  rather than using price and other economic measures to, as the CRTC has stated, “discipline” excessive users.  Instead, however, at least for the time being, both groups are clinging to the old ‘high prices/limited facilities’ strategy.  This is not good for Canadians or for Canada.

The Government has indicated a willingness to revisit the controversial UBB decision of January 25th, but Industry Minister Tony Clement appears unwilling to do more than that. This, however, is far from adequate, as I have noted in an earlier post. It will leave the basic provider controlled, pay-per model in place for the overwhelming majority of Canadians. It is the ‘locking in’ of a new model of the Internet that needs to be opposed, not just the very last step in the big player’s decade long run at squashing competition and killing the open Internet as we know it.

Claims that the pay-per Internet reflect market demand have been made before, notably in the US where Comcast and Time Warner have both pushed similar initiatives. However, both were forced to back off in the face of a consumer backlash. They have also had to hold back when other significant competitors are in the market. As a Pew Internet and American Life study in 2009 showed, not surprisingly, the greater the number of ISPs, the lower the price — to which we can add, the more the providers there are, the greater the chance that bandwidth caps will not exist or be vastly higher than in the Canadian context.

We should also recognize that today’s villified ‘bandwidth hog’ will become tomorrow’s mainstream user in relatively quick order. Canadians working from home regularly use 500 MB to 2 GB per day uploading graphic design work, software code, catalogues, brochures, free lance journalistic pieces, video and a whole lot more. Decentralized creativity spread out to the ends of the Internet into people’s hands also fosters even more creativity and innovation. A kind of thinly-veiled high-brow elitism also characterizes much of the discussion of so-called bandwidth hogs, with downloading tv and films from Netflix, or watching Youtube videos set up as frivolous activities undeserving of lots of bandwidth and affordable costs. But why not?  It’s also true that about 13 percent of online traffic is of, let us say, an ‘adult content’ kind. Who will champion this juicy tidbit as another reason for cheap bandwidth?  Obviously, however, open channels of communication allows us to do a lot in the privacy of our own home that we might not otherwise drag into the public arena.

We also need to look at this from the angle of creativity.  A good example is, even if you don’t particularly like the show, the TV program Sanctuary that now airs on cable and satellite channels all over North America.  It got its start as an Internet-based television series produced in Vancouver and went big in 2009.  It was the first ‘made-for-Internet TV’ series that crossed-over into commercial broadcast television rather than the other way around. The thing is, you don’t want to hobble creativity at the outset by imposing punitive charges.

Imposing bandwidth caps and the pay-per model also causes the budding publisher of an environmentalist newsletter, a feminist magazine, a hunting enthusiasts’ website with lots of pics and stories to be told to second guess what they’re doing if the goal is to just give things a shot and see how it all works out.  Much of this kind of activity is done for reasons other than a buck to begin. Of course, over time, some of these people may well decide to make a living out of their interests and hobbies. Than then can migrate over to a commercial service, and there is nothing that stops the big providers from doing just that.

But it’s not just P2P, Porn, Youtube and the bolt of success out of nowhere that are at stake, there’s some pretty decent high brow stuff out there as well, such as the websites “” and “TopDocumentaries”, both of which are diverse, good quality and educational.  My wife watches them all the time, and I occasionally sneak a peak. While we may not all benefit from what some of our neighbours are doing behind closed doors, a good open channel where affordable access to information and educational stuff is always a good thing.

Furthermore, education, information and bandwidth are all ‘public goods’, things that are socially desirable, hard to price, and really stupid and expensive to exclude people from. You see, there are a million and one different things that people can do online, and while someone else’s thing might not be yours, in the round you’ve got a special interest, too, that puts all of us in this together . . . the amorphous public. There’s no need to make sure the person beside you ain’t getting something you’re not.

Public goods are hard to price and this is patently obvious with respect to bandwidth.  It is also patently obvious in the way that the big carriers are trying to price their service. If we follow their prices, a ‘regular priced bit’ of bandwidth costs anywhere from $2/GB (Telus) to $16/GB (Bell) for ‘lite’ services, and between 20 cents/GB (Telus) to $1.17/GB . Surcharges for so-called “overage” cost anywhere from .50 to $5/GB, depending on your plan and your provider. Almost everywhere else in the world, there is no such ‘excess usage’ charge at all.

The basic point is that there is no relationship between the cost of supply and the price charged. Estimates regarding the ‘cost of production per bit’ range from 1 cent/GB to 10 cents/GB, which means that so-called excess usage chargesare 50 to 500 times greater than their costs of production.  That is a sure sign that prices are arbitrary and a reflection of market power rather than underlying economic considerations. They are also a sign that the dominant players are trying to colonize the public good qualities of information, or the Internet, for themselves. In any case, none of this is ‘normal economics’.

More than this, though, we must leave the plane of economic analysis and enter another bigger one more appropriate to really getting at the issues now in front of us. Communication is about more than markets and commodities.

Unlike a can of soup, bandwidth is not used up but rather allocated amongst users temporarily before being put right back in the big pool of bandwidth on tap.  Communication and media goods are also not commodities in general, because in open and democratic societies we swaddle them with the values of freedom of expression, citizen’s rights, good government, and fostering the kind of culture that we want to live it. These are indivisible things, and even if I don’t exercise my right to free speech, tell a story, read the newspaper, etc. I sure am happy that you exercise your rights and hope to hell that the press is on the ball.  We’re in big trouble if these conditions don’t hold, because they are the lifeblood of democracy.

In a real democracy, the more participation the merrier, but democracy does not rise or fall on each and everyone of us being homo politicus maximus — it is sufficient that there are enough among us who take an active role to keep the culture of democracy alive and its political machinery in check.  This is why communication, speech and association are cornerstones of democracy and enshrined in Constitutions, including ours in Canada (also see Article XIX of the 1948 Universal Declaration of Human Rights for an even more expansive view of communication and speech rights). When bandwidth providers’, that is the big cable and telecom players, interests collide with the people’s interests in this regard, it is the former that must yield, not us.

Finally, in all of this, the market-based fixation of making each user pay according to what they use ignores the fact that communication goods are shared goods. That is, their value increases the more that we share them with one another. Try telling a joke to someone who doesn’t understand your language, or hanging about the water-cooler to talk about the Super Bowl or last night’s Grammy Awards, or for that matter, riffing on how about how awesome Arcade Fire is, if nobody else has watched or heard any of these things. It’s like the sound of one hand clapping.  That, in other words, is what the pay-per model and the fixation on ‘relying on market forces to the maximum extent possible’ imposes on Internet-based communication.

That maybe the Government, CRTC and ‘Big Players’ model of an open Internet fit for an open society, but it ain’t mine. If its your’s, please give it a rethink in light of some of the points raised above.

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