Consumers Could See New Web Rates: Use More, Pay More
By Dionne Searcey
The Wall Street Journal
Thursday, March 2, 2006
Large phone companies and telecom-equipment makers are
developing plans that would blow up the flat-fee structure
for high-speed Internet access and instead charge customers
different rates based on how much bandwidth, or Internet
capacity, they use.
Some phone companies, including
BellSouth Corp., are considering "pay-as-you-go
broadband" plans in which a consumer would pay more for
streaming video, for example, than for mere Web surfing.
Most current plans charge subscribers a monthly flat fee
depending on the speed of their Web connection.
The plans, even though they are still in their nascent
stages, are already drawing criticism from Internet content
companies and consumer groups, which argue the new business
models could create a tiered system and impede full access
to all aspects of the Internet.
Part of the opposition stems from the fact that the
Internet, once accessed, traditionally has been free of
barriers such as special charges or fees. But that's
starting to change. Besides eliminating flat-fee pricing
for consumers, phone companies are also discussing ways to
bill Internet content providers for premium delivery of
their services, a move that has met with criticism from
Google Inc. in recent weeks. Another idea floated by
Yahoo Inc. and
Time Warner Inc.'s AOL to place a small fee on email to
guarantee its delivery is opposed by bulk emailers such as
the liberal advocacy group Moveon.org.
Major cable companies, for the time being, say they aren't
considering new business models for Internet access. But
cable companies, too, are introducing new pricing
structures, such as video on demand that makes some programs
available free, but charges users a fee for recently
released movies and other premium content.
The new ideas such as pay-as-you-go are being fueled by
operators looking to make up revenue after spending billions
of dollars to upgrade their networks to boost capacity and
by equipment makers that create the gear needed to
technically implement the changes.
Managing networks to create new tiers of service is becoming
a hot topic within the telecommunications sector caught up
in a debate over "network neutrality," or the idea that
owners of phone and cable networks can't dictate how a
consumer uses the Internet or discriminate against any
Internet content. Internet companies are pushing Congress
to adopt network-neutrality rules that would keep intact the
open nature of the Internet, but phone companies and
equipment makers are opposed because they see the chance for
more revenue. They also say they don't intend to block
access or discriminate with their new plans.
On Tuesday, a meeting of five congressmen leading efforts to
rewrite the nation's telecom laws ended with no decision
about whether to tackle the network-neutrality issue.
Equipment makers such as Ellacoya Networks Inc.,
Cisco Systems Inc. and
Lucent Technologies Inc. have been pitching ideas to
phone and cable companies for a number of new types of
business models that their gear can make possible.
"The stars, the moon and the sun have really aligned for us
that we can play a significant role [in providing services
related to] network neutrality," says Gerald Wesel, the
chief executive of New Hampshire-based Ellacoya.
But Internet companies such as Vonage Holdings Corp., which
sells Internet phone service, strongly oppose the idea of
charging Internet users on a per-application basis rather
than the typical monthly flat fee that most operators charge
for unlimited access. "It's such a significant departure
from the way the Internet works," says Vonage spokesman
Chris Murray. "It's exactly the opposite of the Internet
model" in which customers buy access and can then do
anything they want.
Consumer groups are also opposed. "The minute you let the
phone companies decide which services are available, you've
killed the Internet," says Mark Cooper, director of research
at Consumer Federation of America.
Among the models under consideration is one raised in a
December paper by Cisco that would charge consumers a
nominal fee for instant messaging and steeper fees for
Internet phone calls and gaming.
"Everybody is trying to experiment with what's the right
service model and what's the right pricing model that gives
consumers the right choices," says Robert Pepper, Cisco's
senior managing director for global advanced technology
policy. Cisco has discussed new business models with phone
and cable companies.
Others include plans similar to those of wireless companies
where customers would pay for a certain amount of monthly
capacity and then face hefty charges if they exceed it.
"Any model that allows the consumer to have more control and
more choice makes sense to us," says BellSouth Chief
Technology Officer William Smith, who is contemplating the
new models but has no immediate plans to implement them.
Mr. Smith often laments the fact that his parents, who use
the Internet for only low-capacity activities such as Web
surfing and email, pay fees similar to those of heavy users
who suck up capacity by downloading music or using
BitTorrent, which is used by millions to download movies and
other material off the Internet. Overall at BellSouth, 1%
of broadband customers drive 40% of Internet traffic, he
says. "People who drive cost in the network create
additional charges in the network," Mr. Smith says. "If my
elderly parents don't use a lot of traffic we ought to be
able to create a service plan that meets their needs."
British Internet service provider
PlusNet PLC worked with Ellacoya to put into place
better network management tools, and the company also used a
pay-as-you-go plan that charged subscribers the equivalent
of $27 a month for a gigabyte of data transfer, then $1.80
for each additional gigabyte. Under the plan, Internet
phone-call capabilities were free. The company says its new
system boosted customers as well as revenue.
AT&T Inc. officials say they have been approached by
equipment makers that have ideas for new broadband business
models but are not considering any at this time.
Verizon Communications Inc. says it offers a low-priced,
low-speed monthly broadband plan for customers who don't
need much capacity.
"I do think there are people who are saying just give me
what I need, I don't need all this fancy stuff and it'll be
fine," says Verizon spokesman Eric Rabe. "That's why we're
selling this service."
--Amy Schatz and Shawn
Young contributed to this article.
Dionne Searcey at