September 1, 2023
In a typical free-market economy, consumers accept without a second thought that different items carry different prices. It would be strange indeed (and possibly cause a stampede) if a 65-inch TV cost the same as a 32-inch model with all the same features. And diners might think twice about ordering the lobster dinner if priced the same as the corn dog platter.
Consumer prices of course reflect numerous business realities that include everything from market competition, supply and demand, and costs related to development, production, and distribution. Pricing is arguably among the most critical decisions a business can make, as prices that are arbitrarily above or below market rates, even to a modest degree, most often spell doom for a company’s survival.
This is why letting the market, as opposed to government, set prices is an enormous advantage to consumers, as prices for goods and services necessarily reflect the actual costs incurred and most often land at a point of equilibrium reflecting actual market value at the time and place delivered. This allows businesses to efficiently and economically produce goods and services, as well as improve those goods and services, in order to make a profit while preventing consumers from overpaying their hard-earned money.
When government steps in to dictate prices, it is almost always set a price lower than the market value, forcing businesses to adjust by cutting production or quality or otherwise scaling back from lost revenue. What government considers “good intentions” hurts both businesses and consumers, leaving everyone worse off.
Unfortunately, the temptation to dictate prices is growing once again at the Federal Communications Commission (FCC). The FCC is considering targeting internet service providers’ (ISPs) practice of billing users based on the amount of data they consume, known as usage-based billing (UBB). This would be an enormous mistake.
The ”good intentions” of a uniform, one-size-fits-all pricing model would not only hurt both ISPs and consumers, but it directly contradicts every financial principle that led to the creation of the amazing and revolutionary digital economy and lifestyle we now enjoy. While investing tens of billions of dollars in broadband infrastructure to make the internet an integral part of our lives, ISPs have used UBB to help finance cutting-edge innovations now widely available to the vast majority of users.
This model proved itself spectacularly when COVID led to a spike in internet usage. Overall, ISP performance in speed and network resilience delivered, keeping Americans connected, active, and engaged where public activity was prohibited.
UBB is essential in preventing moderate users from subsidizing the costs networks must bear for especially heavy users and follows a simple and fair principle that if you use more data then you pay more. That was the primary pricing model for communications for over a century and continues to be widely used. And for those heavy users that want to use a lot more or not have to worry about paying based on their usage, most ISPs offer service plans that include unlimited data.
If the government dictated the price of a fill-up (regardless of tank size), then gas stations would set the price high enough to ensure they did not lose money on larger vehicles, meaning the driver of a Geo Metro would pay the same at the pump as the owner of a Chevy Suburban, an absolutely outlandish notion.
One-size-fits-all pricing doesn’t apply to any other area of our free economy, so why should bureaucrats be allowed to inflict this upon the internet? The simple answer is they shouldn’t.
It is a small minority of heavy users and industries that pay more for higher usage. Far from being a tool to soak consumers, UBB in fact does the opposite. From the very beginning internet users have craved more data and faster speeds, and ISPs have kept pace and then some. Taking away a flexible pricing plan that limits higher fees for heavier users would rob providers of the ability to continuously upgrade and expand their networks, and would further prohibit broadband providers from offering customers lower prices for using less data.
Given their history of performance and consumers’ high satisfaction with the internet services they now receive it is clear the industry knows how to give customers what they want, with increased performance and lower costs per unit of data delivered.
Bureaucrats in Washington pushing an ideological agenda are perfectly situated to ruin a good thing by interfering with market prices of broadband. Banning UBB will surely lead to higher prices for a majority of ISP users, less innovation in digital technology, a slower pace of bridging the digital divide for Americans yet to gain access to today’s blazing internet speeds, and less overall competition within the broadband industry to deliver better service at lower cost to consumers. To ensure innovation, speed, and access continue at a rapid pace, it’s only fair that the person who ordered the lobster should pay for the lobster.
