Carriers Eye Pay-As-You-Go Internet

Amid Government Push to Open Networks, Some See Cover for Pricing Based on Usage

By CHRISTOPHER RHOADS And NIRAJ SHETH

In the early years of the Internet, the more time people spent online, the more they paid a provider like AOL for their connection. But as customers have shifted to always-on broadband services, many Web surfers have enjoyed all-you-can-eat Internet for a flat rate.

Some cable and telecommunications providers are trying to turn back the clock and return to usage-based pricing for Internet connections. Carriers including AT&T Inc. and Time Warner Cable Inc. say they may have to switch amid a surge in Internet traffic as more people go online to watch videos and download movies.

Recent efforts to introduce usage-based, or metered, broadband services have met stiff resistance from consumers. But a new push by the federal government to adopt rules that would force Internet providers to treat all Web traffic equally, no matter how much bandwidth they take up, could give ammunition to the broadband providers that want to change how they charge for Web access, Internet experts and consumer advocates say.

"This could come down to carriers saying, 'If you don't allow us to manage our networks the way we see fit, then we will just have to cap everything,' " says Phillip Dampier, a consumer advocate focusing on technology issues in Rochester, N.Y. "They'll make it an either/or thing: give them more control over their network or expect metered broadband."

Mr. Dampier was among those who forced Time Warner Cable to shelve a metered Internet pilot program in several cities last year. The company, which had argued the plan would be a fairer way to charge for access, acknowledged it was a "debacle." It won't say if it plans to revive the trials.

Some broadband providers argue that a pay-as-you-go Internet is unavoidable. "A flat-rate, infinitely expandable service is unachievable,"Dick Lynch, chief technology officer of Verizon Communications Inc., said at a recent industry conference, referring to the industry in general. "We're going to have to consider pricing structures that allow us to sell packages of bytes."

Advocates say unlimited monthly Internet service has been critical to the Internet's growth and the formation of online start-ups. Paying by the amount of Internet traffic used could damp usage and the sort of tinkering that can lead to breakthroughs, they warn.

Carriers believe it is only fair that heavy users pay more, especially since online file-sharing software, such as BitTorrent, takes up so much bandwidth.

Last year, the Federal Communications Commission sanctioned Comcast Corp. for violating so-called network neutrality principles. Comcast, which is appealing the decision, had hindered the use of file-sharing software without informing customers. It argued it needed to control such usage to keep traffic flowing properly.

In Beaumont, Texas, and Reno, Nev., AT&T has been pricing Internet access based on usage. Since last year, it has let new customers choose from one of six tiers, depending on the desired speed and how much data they think they will download in a month. Existing customers can keep their old flat-rate plan, which is capped at 150 gigabytes a month

The most basic plan, which costs $19.95, offers 20 gigabytes of downloads; the most expensive, for $65, allows 150 gigabytes a month. For every gigabyte over the limit, there is a $1 fee.

"Some type of usage-based model, for those customers who have abnormally high usage patterns, seems inevitable," an AT&T spokesman says. AT&T declined to provide more details on its trials.

Some cable companies have instituted monthly usage limits, though they are usually so high they affect only the heaviest users. A plan with 150 gigabytes, for example, would enable sending and receiving 75 million emails, or downloading more than 30,000 songs. The average Internet user consumes around 15 gigabytes a month, according to University of Minnesota professor Andrew Odlyzko.

Comcast earlier this year instituted a cap of 250 gigabytes a month. The company says the rule affects a very small minority of its high-usage customers. Some smaller and regional Internet service providers also charge on a metered basis, including Sunflower Broadband in Kansas. Frontier Communications Corp. last year briefly used metered pricing in Rochester before scrapping the policy in the face of protest.

"Unquestionably, the carriers erred in their initial selling of broadband with a flat rate," says Elroy Jopling, research director of Gartner Inc. "They assumed no one would use it as much as they do now, but then along came high-definition movies. They're now trying to get around that mistake."

Network neutrality deals primarily with ensuring that Internet providers don't favor any online traffic over any other. Still, Mr. Jopling and other analysts argue, the net neutrality debate might provide the carriers with an opening to argue for changing that pricing.

The FCC last month proposed strengthening the existing principles on network neutrality—turning them into more strictly enforceable rules—to ensure that carriers treat all Internet traffic equally.The idea is that as Internet providers themselves get more into the content business—as foreshadowed most recently by Comcast's overtures to acquire a majority stake in NBC Universal—they shouldn't be able to make it easier for users to access their own content than other companies' content

The agency also said it wants more transparency in how carriers manage their networks.

In announcing the proposals, FCC Chairman Julius Genachowski cited Comcast's approach to BitTorrent, as well as phone companies' blocking the use of online phone services on their networks.

"With network neutrality enforced, the only other option for carrriers is to charge by the byte or to raise the flat-rate pricing," says Johna Till Johnson, president of Nemertes Research. "Right now they're just deciding which one to do. Just be prepared to pay more."

When Time Warner announced last March it would expand its metered-pricing approach to other cities, including Austin and Rochester, protests erupted. Rep. Joe Messa of Rochester introduced a bill in Congress banning tiered Internet pricing plans, arguing the plan would put his city at a disadvantage for corporate investment.

Time Warner Chief Executive Glenn Britt told a conference the following month that the company erred in communicating the rollout, not in the plan itself.

"We did not handle the public relations very well and had a bit of a debacle, to he honest," Mr. Britt said at the conference. "I still think some notion of you use less and pay less, use more and pay more, will ultimately be what happens."