Tuesday, February 28, 2012

Paying Access Fees on Congestable Networks

When road networks congest it's pretty obvious that the problem is too many vehicles are trying to use constrained capacity at the same time. One solution to this congestion is to charge the drivers a toll, thus nudging some drivers to switch the time or mode of their travel and limiting the demand for road space.

In the United States our internet access is through congestable networks, and we are now reaching the limits of free-flowing data in many areas, especially on mobile networks. (Other countries feature data plans where you pay more based on usage. Such plans are deeply unpopular in the US, just like congestion pricing!) AT&T has a novel solution to congestion on their mobile data networks, and that is to sell the data usage from apps and services to the companies who develop the apps and services. Here is a bit about how this works from Gizmodo:
Comparing it to the data equivalent of a toll-free 1-800 number, AT&T's network and technology head John Donovan, said that AT&T is working on creating a service that would let developers foot the bill for data usage in its apps. Like if all the data you used in an app would be free to the user and not count against data usage limits.
 Gizmodo is largely in favor of this arrangement as it will keep costs down for consumers. For a more nefarious take on this arrangement, here is conclusion from a piece from Digitopoly:

Add this up and it is worrisome for smaller developers. And it is precisely the sort of development that Net Neutrality advocates were worried about. To be sure, given sufficient competition between mobile carriers, this is all shifting around the deck chairs. But if competition isn’t strong enough, the money will stay with the power.
And if that doesn’t worry you, think about what this means for Netflix. On one level, it sounds like opportunity — they could pay for user’s data and open up the mobile viewing space. But on another level, so then can AT&T, Verizon and others who also have Cable TV operations and their own content. It costs them nothing to offer a data 1-800 service to themselves while at the same time being able to charge rivals for it. And then think about what happens if we don’t stop at mobile and move on to broadband.
There is a lot to unpack here, but Digitopoly's complaint raises lots of the concerns lobbed at congestion pricing, namely equity, fairness, competition, privatization and privacy. Overall, this seems like a second best solution. It would be better to keep the costs of production low and have consumers pay their full marginal costs of usage, whether road or data. And we should price mobile data and then move on to pricing broadbrand!
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