Is Usage-Based Billing Inevitable?

So I was just sitting in the annual sales meeting when our CEO asked “How many of you think usage-based billing* (UBB) is inevitable? How many of you don’t?”

I was the lone hand in the “don’t” category…my CEO included. When pressed for an answer (in front of a few hundred new co-workers, mind you), I managed to muster the courage to answer, “UBB puts service providers at an adversarial relationship with the providers that actually drive acceptance of their product” or something of that nature.

Think about it though – if we’d had usage-based billing in 2001, there’d be no Youtube. No Netflix. No Hulu. Hell, we’d probably not even have an iTunes store. More importantly, would you pay for a 50mbps connection if you couldn’t use it for anything?

Let’s be honest with ourselves. Everyone talks about having everyone pay “their fair share”, how “heavy users” are just free-loading on the poor grandparents who only use the internet once a week to check email. They bring up examples of “I don’t get all the water I want for free. Or all the electricity” True. I don’t get to just go to a library and check out all the books I want. Or watch all the TV I want, or read all the articles in the newspaper I want.

Oh wait.

That’s not what UBB is about at all. It’s about stopping competitive services. It’s about slowing down innovation in the internet space (especially over-the-top video) and extending their outdated business model just a little bit further. It’s about protecting video revenue at the cost of consumer choice.

And c’mon, if you’re designing your network for the retirees who barely understand what a computer is? You’re doing it wrong. And you certainly shouldn’t be asking for legal protection to continue being that bad at your job.

My CEO (on another topic, actually) said it best: “Do you really think you’re going to win by standing still?” UBB is all about standing still. Services providers have seen their business model change, and most of them, rather than change along with it, are trying to find a way to return to the era of $100/mo services. All these companies have seen their core business declining – first with home phone lines, then just as they started making the shift to video, down goes video. Why do I need an $80/mo video package on top of my $40/mo internet, if I can spend $50/mo on their super-high-speed connection (introduced to compete with the Cable company) and get the rest from Netflix and Hulu?

Your local service provider is terrified of becoming just a dumb pipe to the internet. They’ll fight tooth-and-nail against any real competition, because then they have no edge, no way to lock you in. It makes sense from a business perspective, but it is profoundly anti-consumer.

But all this isn’t why I don’t think it’ll happen. To get back to my point – who’s really driving faster internet and broader fiber deployments in this country? You can bet it isn’t the tiny little rural phone companies. It’s Google, Microsoft, Apple, Netflix, Amazon – companies that have made their fortunes in software and computing, and know digital delivery of services is the next great frontier. These companies wield tremendous economic power, and know that their ability to innovate in the space will be significantly reduced. They can even make the argument (rightly so) that it will harm the competitiveness of American innovation, and start to leave us behind against countries like South Korea, Switzerland, and France – places where high speed internet is not only faster and cheaper, but more widely available. Who in their right mind would argue it is “necessary” to slow down innovation, because we’re going too fast and a few legacy companies can’t keep up? I mean, who besides the recording industry?

Sure, there will be some places where UBB might take hold. You can point to cellphones, Canada, etc. Each of these is a bad example. In the case of cellphones, voice and text messaging has become cheaper to the point where many carriers offer truly unlimited minutes and text messages (in some cases, for as little as $59/mo). Data caps? They’re lowest on the network that refused to update its infrastructure, and non-existent on Sprint’s 4G network. And Canada? Well, the government quickly realized it was extremely harmful to their national interest, because it was limiting Canadian’s access to the broader market. They are amid a plan to reverse the laws requiring UBB. What changed? Netflix came to town.

The only place UBB will actually work is where there’s no competition. Sure, you can act as an abusive monopoly, avoiding competition by stacking the laws in your favor. But you’re also inviting some local lawmaker who wants to stand out in an election to come down hard on you. First time someone shows up in town with unlimited internet? You shed customers, en masse. Heck, it’s not long before cellphones become a competitor for UBB-structured telcos. Only one bill, more convenient…sound like the shift away from landlines to anyone else?

In simplest terms though, Usage Based Billing is an admission that a provider can’t actually deliver the service they sold. It’s like selling me a package of 300 channels and then getting upset (and charging me more) if I watch more than 10 shows a week. And that’s just stupid.

*Usage-based billing (UBB) is a general term for the idea that home internet use should be billed (in whole or in part) based on the amount of data you consume, rather than the speed it is delivered. Options include per-gigabyte, per-month usage (like $1/gb), tiered access with overages (like your phone minutes used to be/still are), or a number of other possibilities.

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