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AOL parent revives usage-based billing

Time_warner_cable_logo_2The explosive growth of Internet use in the 1990s stemmed in part from the arrival of the World Wide Web, but also from the shift from pay-per-minute to all-you-can-eat pricing from Internet service providers. One of the leaders in that shift was America Online, which quickly became the dominant provider of dial-up Internet access. Now, AOL's parent, Time Warner, is flirting with a return to usage-based pricing as a way to reduce congestion on its cable-modem service. It could be a welcome development for consumers but not necessarily for content providers, particularly those offering video through the Web.

Ever since the first cable modems were rolled out in Fremont, Calif., customers have complained about clogged networks and slower-than-advertised connections. The consistent answer from service providers has been that a small percentage of users are bandwidth gluttons, downloading and uploading so much data that they cause problems in the parts of the network they share with other users. (Time Warner, for example, estimates that 5% of its users take up about half the capacity of its cable-modem services.)  Like the phone network, broadband services are designed with the expectation that most customers' connections will be idle at any given moment. Users who download movies or software around the clock  throw off the model, and a relatively small number of them can slow down everyone on that network.

That's why all Internet users have an interest in how the congestion problem gets solved. It's unrealistic to expect ISPs to invest in more bandwidth when most of their customers don't need it. They'll either find someone else to pay for the bandwidth or take steps to throttle the heaviest users. Both approaches raise warning flags, but the latter could be done in a way that's fair to consumers.

Here are a few trouble spots. Some broadband ISPs (most notably AT&T) want to reduce congestion through a two-tiered pricing model for websites, not users. Under that approach, sites willing to pay the ISP an extra fee would get special treatment for their data, routing their content around the congestion that slowed other sites' content. Others (most notably Comcast) have quietly tried to ease congestion by interfering with file-sharing, an application that hogs bandwidth. These tactics have led opponents, including such Web-based businesses as Amazon and Yahoo, to push for "Net neutrality" rules that would bar ISPs from discriminating against any legitimate site's traffic. The Republican majority on the FCC has resisted adopting Net neutrality regulations, but the commission recently launched investigations into Comcast's actions and Verizon Wireless' interference with some text-message campaigns.

Time Warner's experiment wouldn't give preference to any type of content or website, nor would it interfere with the applications chosen by users. So far, so good. The usage-based charges wouldn't kick in until a cap were reached (5Gb downloaded per month on the basic tier), which is high enough that customers who use the Net for little more than e-mail, shopping and information-gathering won't even notice the change. For a higher monthly fee, users could raise their caps to 10, 20 or 40GB. Depending on the price of those tiers, however, active consumers of video, images and music online may find themselves deciding to do less online. To the extent that deters online piracy, it would be a boon to the entertainment industry. But there's a flip side that's worth considering, too. By making Internet users too sensitive to the bandwidth they consume, it could also inhibit the development of new business models that capitalize on the burgeoning audience for entertainment online. The Internet has led people to consume more of what the entertainment industry creates, although not necessarily to pay for it. That increase in demand will prove to be a good thing for the industry, I think, so tempering it isn't in Hollywood's long-term interests. After all, it's easier to monetize demand than to create it in the first place.

-- Jon Healey

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Times editorial writer Jon Healey pens opinion pieces about a variety of business issues, and blogs about technologies that are changing the entertainment industry's business model.

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