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Friday, February 11, 2011

Bill St Arnaud precises Andrew Odlyzko on Usage-based billing

UBB is currently a huge hot potato in the Canadian net neutrality debate (Michael Geist sums it up wonderfully here) - rationing appeals to Bell but not its wholesale customers. Bill St Arnaud quotes from Andrew's work, as I did in Net Neutrality - the Book: “While the simple utility maximization argument might favor per-user pricing in a substantial fraction of cases, what we observe in the market are repeated failures of à la carte pricing….The flat-rate Internet access plan may not be viable, since there are substantial marginal costs in providing such services, but the strong consumer preference that has forced even America Online to switch to fixed-fee pricing has to be taken into account. [… This preference.. appears to be a major factor that will favor fixed-fee schemes, at least for individual consumers. "
St Arnaud states that UBB "puts the consumer at a serious disadvantage with respect to the incumbent operators for two primary reasons:
(a)  With universal UBB it is almost impossible for consumers to do comparative shopping for the best Internet service plan. [Consider mobile billing plans] Consumers don’t have the information resources or skills to decipher which plan makes the most sense. It is unfortunate, due to regulatory capture that telecom/broadcast regulators do little to protect the consumer in terms of promoting competition or mandating simple and understandable pricing plans. What we see happen in the cell phone industry will most likely happen in the Internet if regulators allow universal UBB.
(b) Fixed price plans are like insurance. Even though consumers know they may never use their maximum bandwidth, it provides them with the peace of mind that... there will be no surprises or surcharges."
More Odlyzko academic papers: Fixed fee versus unit pricing for information goods: competition, equilibria, and price wars First Monday1997,  Internet pricing and the history of communications Computer Networks 36 (2001), pp. 493-517,  Too expensive to meter: The influence of transaction costs in transportation and communication, with David Levinson, in Phil. Trans. Royal Soc. A, vol. 366, no.872, 2008, pp. 2033-2046.
See also St Arnaud himself, 2008  Internet Evolution, Threats to the Internet: Too much or too little growth?

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