ISPs Should Decide If They Provide a Utility or a Service

iStock_000000550399XSmallWireless carriers have had a busy two days in Congress, today getting grilled over exclusivity agreements and yesterday over the high cost of texting. In reading Ars Technica’s coverage of the texting hearings, I was struck by the attention paid to the cost of sending a text on a per-megabyte basis. We’ve looked at per-byte costs when writing about tiered broadband, and when looking at the value of different wireless plans. From the Ars story:

The whole kerfuffle started last fall, when the head of the antitrust subcommitee, Senator Herb Kohl (D-WI), sent a letter to the CEOs of Verizon, AT&T, Sprint, and T-Mobile asking why text prices for all four companies had doubled from 10¢ to 20¢ shortly after mergers reduced the number of major mobile carriers from six to four. At that price, SMS messages effectively cost over $1,300 per megabyte to send—far more expensive than charges for mobile data.

This represents a shift in thinking that will dog all broadband providers — both wired and wireless — especially as they try to find ways to boosting their revenue by providing more services over their broadband pipes. This shift came about as ISPs implemented (or tried to implement) usage-based plans for wireless and wired broadband access. As they’ve rolled out those plans, media and analysts have done the math to figure out exactly how much different services cost consumers on a per-byte basis. And once you train someone that downloading a 2 GB video costs $2 in overage fees, then they rightly wonder why sending a text message that consumes a mere 160 bytes (you can cram 13 million text messages into 2 GB) costs 20 cents.

Right now carriers are trying to have it both ways, which isn’t going to work. Take monthly broadband access: Unlimited broadband for a set dollar amount per month is a service, but once carriers started seeing usage go up, some of them moved to implement usage-based pricing plans that changed broadband into a metered utility. But consumers, who were being charged per gigabyte, wanted to understand the costs associated with providing that broadband on the same per-gigabyte basis. So far, carriers have been reluctant to disclose that information, and are thus facing both consumer ire and potential regulatory scrutiny.

Savvy carriers should leave monthly broadband access alone (maybe it will be a loss leader) and concentrate on creating services like texting, or providing wireless access to send photos from cameras for a set fee. If carriers can find ways to sell services over their pipes, they may not find themselves in Congressional crosshairs, being forced to defend the profit margins for transmitting a miniscule amount of data. But if they want to make consumers pay per byte, then they’d better have an answer for folks who want to know why delivering the bytes that make up a text message are so much more expensive than the bytes that make up a video.


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