Usage-Based Pricing Plans Are Essential to Bridging the Digital Divide

by Dorrissa Griffin on December 30, 2012

Paying for InternetCan usage-based Internet pricing create a win-win for low income and minority consumers? Since cost is a predominant factor in encouraging broadband adoption, it can.  Internet service providers are turning to usage-based Internet pricing structures to meet the demands of today’s data thirsty consumers.  Usage-based pricing places the burden on the heaviest users to pay the higher prices instead of everyone paying the same flat rate.

This pricing structure may help to preserve what has been called the “minority wireless miracle,” a phenomenon that describes a relatively higher smartphone adoption rate by minorities, who use smartphones to access the Internet in higher proportions than other populations.  Experts such as professors Daniel M. Lyons of Boston College and Steven Wildman of Michigan State suggest that usage-based pricing provides more affordable plans for light users or new users and may encourage Internet exploration for anyone in search of content relevant to their lives.

According to Professor Lyons, who recently authored “The Impact of Data Caps and Other Forms of Usage-Based Pricing for Broadband Access,” only 65 percent of Americans have broadband access, and “those without access are generally older, poorer, less educated, more likely to be a racial or ethnic minority, and more likely to have a disability.”  This demographic paints a detailed picture of the digital divide that President Obama and the FCC have made a goal of diminishing.

Professor Lyons advocates for reduction of the digital divide by eliminating cost as an obstacle to broadband adoption.  He argues that offering consumers more options for usage and price promotes competition among Internet providers and  may help alleviate network congestion.  He also states that it prevents lighter users from subsidizing heavier users, as is the case with the flat rate pricing structure.  In fact, usage based pricing does just the opposite – it is a progressive cost allocation because in practice, wealthier users subsidize service to lower income users – much as our tax rate structure has high income taxpayers paying higher rates than low income taxpayers.

Some economists term the usage-based pricing structure as “second degree price discrimination,” which can be useful in efforts to increase broadband adoption.  Steven Wildman, an economics professor of the Michigan State University’s Quello Center for Telecommunications Management and Law, who was named Chief Economist of the FCC last Thursday, notes that consumers are already accustomed to price discrimination to increase affordability and accessibility.  He points out common examples of price discrimination such as the cost for computers or cars that offer different models and options.

When it comes to sporting events, for example, the goal is to fill the stadium with patrons.  If all tickets were $200 each for any seat, this price would reduce the amount of people able and willing to go.  Charging more for seats closer to the action and less for seats further away increases the likelihood a large number of people with attend the event because spectators can purchase what is more comfortable and affordable.  The same thought process applies to usage-based Internet pricing to encourage more Americans to adopt broadband.

Professor Wildman asserts that usage-based pricing decreases the risk to consumers of trying broadband for new uses they may not have realized were available to them.  Further, he believes it gives people an incentive to take the opportunity and keep access to the Internet as a general purpose technology, potentially taking on higher quality as they go along once they’ve adopted.

For consumers in rural or less dense areas, usage-based pricing facilitates shared infrastructure costs and increases private investments and competition because companies can collect more money from more people, including those the company might not have collected from otherwise, according to Wildman.

Based on the data, it seems clear that usage-based Internet pricing is a win-win for everyone, from minorities and low-income individuals to the companies themselves.  While the heaviest bandwidth users will be footing more of the collective bill – proportional to the amount of broadband they’re using – this also means that other users will no longer be subsidizing their usage.

A more in-depth overview of usage-based Internet pricing can be found in the National Cable & Telecommunication Association’s presentation, “The Evolving Internet: Patterns in Usage and Pricing.”

  • Dorrissa Griffin

    Dorrissa D. Griffin, Esq., is a Staff Attorney for the Minority Media & Telecommunications Council, where she works on matters that focus on the advancement of civil rights for minorities and women in the nation’s media and telecommunications industries. She graduated this year from the Florida A&M University College of Law.

  • Follow Us on Facebook
  • Follow Us on Twitter
  • Subscribe to Newsletter

Previous post:

Next post: