[IP] this is getting more and more interesting

[David Farber <dave@farber.net>]

________________________________________
From: Brett Glass [brett@lariat.net]
Sent: Sunday, June 15, 2008 5:45 PM
To: Gerry Faulhaber; David Farber
Subject: Re: [IP] ALSO MUST READ  NYTimes.com: Charging by the Byte to Curb Internet Traffic "People seem to be missing the point."

At 02:03 PM 6/15/2008, Gerry Faulhaber wrote:

>[for IP, if you wish]
>
>Whew!  Somebody finally got it right!  When all the costs are capacity costs (as in the Internet), then the economically most efficient pricing (in theory) is what Bohn calls "spot" pricing, or what economists call "Vickrey" pricing (after Nobel laureate Willliam Vickrey, Columbia Univ.), sometimes called "congestion" pricing (see Wikipedia)

Nice in theory. But as I mentioned in my remarks to the FCC (posted to Dave's list in an earlier message), users do not want that sort of pricing. It'd be a hassle to look at your screen just when you wanted to do something and see a display saying that the Internet was congested and you'd pay double for doing it. You might take it out on your ISP ("Buy more capacity so it's never that congested!"), or on your neighbors. (Could Pac Bell's "Laurel Lane" commercials become a reality?)

>If I were a broadband ISP (Brett Glass, you can chime in here), this is what I would do.  I would transition by giving customers who use less than (say) 4 Gb a month a price reduction (for the lowest bucket), which could well cover 80% of customers, and the rest would get a healthy price increase. Theoretically perfect?  Far from it.  But a reasonable first move away from the unsustainable All You Can Eat pricing we have now.

Gerry, I could not even CONSIDER doing that until the cable company and telephone company in my area did it. Otherwise, all my customers would switch and I'll be out of business. What's more, once they do it, the one with the biggest buckets and the lowest overage charges will win. And how do I compete with them when they are cross-subsidizing from their other services and I can't, and when one of them (the telco) controls my wholesale prices? I suspect that if they start to meter, my best strategy would still be to keep doing what I'm doing: flat rate pricing subject to restrictions on duty cycle and on operation of servers. I'd win on consumer friendliness alone.

--Brett




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