[Editorial] VZW's CEO Claims Heavy Internet Users Should Pay More Than Everyone Else

[dgstorm]

For most of us, the roles(s) we play in life color our perspective of the world. Because of this, it's sometimes challenging to see things from "other people's shoes." This begs the question though... is it harder for a billionaire CEO of a billion+ dollar corporation to understand the perspective of the average working-class American consumer, or is it harder for them to understand his point of view?

Regardless of the philosophical debate that question might spark, we have a prime example of this to share with you today. Verizon CEO Lowell McAdam recently made some potentially inflammatory statements. He makes the bold claim that users who use the internet more should be required to pay more. He actually makes some decent arguments regarding this point of view; however, he also tries to tie his perspective directly to net neutrality. It's a strange "leap of logic" to mash these two diametrically opposed concepts together. For reference, here's a quote with some of his statements,

The Comcast and Netflix deal shows "the commercial markets can come to agreement on these to make sure the investments keep flowing," McAdam said.

McAdam addressed the U.S. Federal Communications Commission's proposed net neutrality rules during a conference call about the company's acquisition of Vodafone's 45 percent stake in Verizon Wireless. The FCC's move this month to resurrect net neutrality rules should provide "clarity" for the broadband industry, said McAdam, whose company successfully challenged an old version of the regulations in court.

McAdam dismissed concerns that his company would selectively block or slow some Web content. "We make our money by carrying traffic," he said. "That's how we make dollars. So to view that we're going to be advantaging one over the other really is a lot of histrionics, I think, at this point."

But McAdam suggested that broadband power users should pay extra. "It's only natural that the heavy users help contribute to the investment to keep the Web healthy," he said. "That is the most important concept of net neutrality."

The FCC needs to look at the broad Internet industry, not just broadband providers, when it considers new net neutrality rules, McAdam said. Companies like Netflix, Apple, Microsoft and Google have a role, and "any rules will have to include all of these players," he said.

McAdam called for the FCC to create "light touch" rules on net neutrality. The FCC needs to consider growing uses of broadband in medicine and other fields, he said. "Everything from health care to telematics to the energy grid need to be balanced with someone who's trying to watch last year's episode of [TV show] NCIS," he said. ~ NetworkWorld.com

I am not sure how he is bridging the idea of net neutrality with the idea that charging heavy users more will "keep the Web healthy." Regardless, the overall issue is a complicated one, but sometimes asking a different question can offer additional perspective. Here's an example,

Should our state and/or local government charge heavy drivers more for using the roads more? The internet and the U.S. roadway/highway system are very similar in that they are designed to get important "traffic" from one place to another quickly. There are definitely folks out there who use the roads far more or far less than others. Should we charge the truck drivers and heavy commuters a premium price to use the roadways?

Obviously this isn't a direct comparison since it's actually tax dollars contributed by all of us which help build and repair the roads. In fact, some folks do pay more for the roads (even if they don't use them more). For the most part roads are built using property taxes. If someone owns more expensive property than the next person, they technically paid more for the roads, yet everyone gets to use the roads as freely and openly as they want.

Of course, we don't pay for internet use with our tax dollars. It isn't a "public" service per se. Yet, perhaps it should still be regulated as if it were... After-all, having our internet stay as "free and open" as possible will continue to improve competition and innovation. If different levels of customers had to pay more for different levels of internet usage, then the incentive would be to use it less, not more. That doesn't seem like a concept which will "keep the Web healthy."

Perhaps in this instance, the divide is too great between Mr. McAdams corporate-focused perspective and the perspective of our national interests as a whole. What do you think?

 

[johnomaz]

It sounds like hes trying to sell it like this. Netflix (my example, but many others are out there) is being used by lets say 80% of Verizon users. Thats a lot of data going through Verizon's towers and what not. In order to keep Netflix streaming at an acceptable speed for everyone, Verizon must expand its infrastructure with upgrades and bandwidth (and many other things I'm sure). That all costs money. They feel they shouldn't have to pay for those upgrades themselves because users are watching so much Netflix. They want to pass the bill on to the people who are not only viewing Netflix but also Netflix because it is after all Netflix's data being sent over their network.

I have to say I do understand this to a certain degree. If Verizon had to dump a billion dollars into more towers, more spectrum for better bandwidth and everything else that comes with it like labor as well as more employees because the same number of Verizon subscribers are now consuming 10 times more bandwidth from Netflix, YouTube, Hulu, etc... then I do find it hard for them to spend that money just so Verizon subscribers can continue to consume more and more data.

However, over the past couple of years Verizon has been strangling their users over and over. There are no more unlimited data plans. It looks that even grandfathered unlimited plans will be ending possibly in June of this year even if you don't renew a contract. If it isn't June of this year, you know it will be soon anyways. No contract means the terms can change if Verizon deems it so. Also, there is nothing stopping Verizon from slowing internet to companies that aren't necessarily high bandwidth users. That is the part that scares me. If Verizon decides to go like Apple and remove access to all porn from their network, they can slow it down so much its useless. That may be a bad example but would be within their ability to do so.

TL;DR Verizon doesn't want to foot the bill to keep their network speeds at acceptable LTE speeds so they want to charge certain companies like Netflix to not slow down their speeds and possibly the subscribers too that use a lot of data.

 

[Narsil]

Dear VZW CEO, you should go home now.

 

[jspradling7]

Hypothetical problem...

I am a very small cell provider. In fact I have one tower only. I have sold phone and internet service to 100 subscribers and all is well. The subscribers surf, email, make calls, and my tower can handle the load. I have 100 happy customers and a new car for me. : )

Now, along comes a video provider offering my subscribers cheap streaming media and 10 of the 100 start using it... alot. So much so that now my tower can't handle all the traffic at max speed anymore. I now have 100 unhappy customers because service has slowed for the light users and heavy users alike.

Do I

A: Put up a new tower at my expense, and potentially have to add more? This affects my wallet.
B: Put up a new tower and raise my rates for all customers, again with the potential to have to do it again? This hurts 100% of my customers.
C: Put up a new tower and raise my rates bigtime on heavy user customers, again with the potential to have to do it again? This affects 10% of my users.
D: Charge the streaming provider a fee for using my tower or threaten to throttle his access. This would only hurt 10% of my users.
E: Some combination of the above that allows me to maintain high speed service for all without cutting my profits.

 

[Dusty]

What do you do when the service you cripple for the (now unhappy) 10% becomes more popular? The remaining 90% will slowly become more unhappy with your service as they too discover this "video provider" and try to use it, only to find you crippled it. Then you'll end up with the reputation as a crappy provider and not only will they leave they'll warn others not to join.

The expectation of a company that calls itself a "provider" is to keep up with technology and future demands. What you talk about is the problem we have now... They want to charge more for the same thing we've been getting. The minute the customer asks for more THEY are labeled as the problem and are threatened with massive pay hikes out of step with the requested improvement. If you have this tower and you simply sat back, counted your money and never once considered future demands on your system, well... maybe that 10% SHOULD leave you.

Besides that... Who ISN'T a heavy internet user now?

I'm not saying they shouldn't raise prices, they should. But to trot out heavy users as the BoogeyMan™ and blame them as an excuse as to not improve their system AND to jack up prices to 11... that's just ########.


Sorry for the multiple edits... my brain works in waves.

 

[gadgetrants]

Sorry there isn't a QUADRUPLE-LIKE button ^^^ that's an exceptionally good hypothetical scenario.

I have to confess that I am not convinced by "hand-waving" arguments from either side -- and on our side we get a lot of "the internet should be FREE AND OPEN, DAMMIT" arguments. There needs to be more nuance and balance in the conversation, including the fact that the internet is a resource and that it is "consumed." It might turn out that metaphors like trucks on roads (by the way, we weigh large vehicles and "tax" them in various ways, e.g., registration and commercial vehicle fees) leads us to a similar set of policies, or instead, that the internet is a different beast and deserves its own unique policies, but either way both providers and consumers have a say in the outcome.

-Matt

 

[mikabl]

Not sure, but I thought the fuel tax was used for roads? Maybe just to maintain them after the build?

 

[cereal killer]

It's the price of doing business Lowell, but go ahead and pass your expense of improving your network onto the consumer. When Google Fiber becomes available in a lot more regions, you'll have an even bigger problem on your hands. I say go for it! Think short term and suffer in the long term. Have a good day....

 

[Amagine]

Having worked in the broadband/internet industry for a number of years, I understand companies' issues with keeping up bandwidth consumption at a minimum cost to capital and profits. However, there are several BIG points the industry fails to mention every time they snark at net neutrality rules or fair bandwidth pricing.
These companies rely on billions of dollars in grants from the FCC every year for broadband expansion initiatives. Especially in rural areas and long haul routes. These grants make this infrastructure much more like roads than say real estate. I don't advocate public assumption of the network like many countries in the world do, only if these companies want to continue to get public money the rules must be made tighter. Both for the public benefit and the companies' long term strategy projections. If all have a set of rules to play by, it's easier on all involved. From CEOs down to engineers like me.
Secondly companies like Google and Netflix do pay and they pay ridiculous amounts to these broadband carriers. Data from Netflix doesn't just happen on to Verizon's network. Data companies like them buy dedicated circuits, likely several 10 to 100 Gbps systems to connect to the internet backbone. Their carriers likely have to connect to Verizon SOMEWHERE, thus, that carrier if not the netflix/Google themselves already pay on the front end for pushing out the data. Verizon sounds like they want to be an auctioneer and get a commission both from the front end of the deal and the back end, only with the source company paying twice.
Personally I believe consumer data packages should be treated like dedicated circuits. You have 10-30 mbps available all the time. Why? Because technically it's easier to calculate the bandwidth you need to support the customers you have or will have.
However, the real world doesn't work that bandwidth is parceled off in time divided slots. Due to the fact that not everyone is going to be using 10 mb per second, every second of the day.
The field is leveling, slowly but it is. Verizon knows this. Sprint knows this. ATT knows this. We saw the first salvos this winter. Verizon is trying with everything that it has to keep the business model it is used to, together. They will likely monetize a few more features and scoff at a few more rules along the way, but I do see a day where carriers will be leveraging their network more extensively and the device may not matter.

 

[kodiak799]

"Free & open" is not the same as paying for your use. Many utilities are, in fact, metered. The people who are crying the loudest are - shock - the ones trying to get subsidized by other users so they can cut the chord and torrent free movies & tv shows.

Although I agree with many of the comments (and so refreshing to see people that get it). I just don't get the arguments that someone watching 200gigs of Netflix a month should somehow have priority over my speeds for 2gigs of data.

 

[jspradling7]

The funny part is, this is all just over who gets stuck with having to raise our rates. : ) No matter what changes, the cost will find its way to the end user. Our taxes, Verizon, Netflix, whoever. Makes ya kind of feel all warm fuzzy and needed huh?

 

[akhenax]

Meter the Internet (like Gas, or Water). Price it as such where it is competitive, allows you to make a profit, and gives you enough capital to always continue improving it's infrastructure.

If I am consuming 100 Gigs of data per month, and Sammy across the street is consuming 30 Gigs, then maybe I should be paying more than Sammy. Just saying.

 

[Narsil]

You'll notice Verizon never says something along the lines of, "We have calculated that the average user utilizes 1.5GB of data per month and that's how we base our monthly data fees. Therefore we'd like to reward those who only use 1GB of data per month with a 15% rebate on their monthly data fee for every month they use less than 1GB, but we are going to have to add a prorated surcharge if you go over 2GB per month, but only on the months you use more than that."

Being a business motivated solely by profit but no concern for individual customers, they have no problem whatsoever charging the majority of their customers for data they are not using, but want to penalize those few who use more than VZW thinks they should.

Were they to say that, I might could buy their reasoning. Until they offer something like that, my response will remain:

For the record, ever since I lost my unlimited data plan (thanks to my wife saving us money) I no longer use Slacker or Youtube or pretty much anything that streams large amounts of data unless I am at home ON MY FREAKING UNLIMITED VERIZON FIOS and wifi. Somehow they don't care how much data I stream per month on my FiOs...

 

[dgstorm]

You'll notice Verizon never says something along the lines of, "We have calculated that the average user utilizes 1.5GB of data per month and that's how we base our monthly data fees. Therefore we'd like to reward those who only use 1GB of data per month with a 15% rebate on their monthly data fee for every month they use less than 1GB, but we are going to have to add a prorated surcharge if you go over 2GB per month, but only on the months you use more than that."

Being a business motivated solely by profit but no concern for individual customers, they have no problem whatsoever charging the majority of their customers for data they are not using, but want to penalize those few who use more than VZW thinks they should.

Were they to say that, I might could buy their reasoning. Until they offer something like that, my response will remain:

For the record, ever since I lost my unlimited data plan (thanks to my wife saving us money) I no longer use Slacker or Youtube or pretty much anything that streams large amounts of data unless I am at home ON MY FREAKING UNLIMITED VERIZON FIOS and wifi. Somehow they don't care how much data I stream per month on my FiOs...

That's the best argument I've heard yet Narsil. The ISPs want it both ways... they want to maximize their profits from users who don't use much, yet at the same time penalize users who use more, and use the building out of infrastructure as an excuse. Evolving the technology and their network is required if they want to stay competitive.

Cereal Killer made a great point too! If you are getting into the ISP business you should know ahead of time, that in order to grow your business you will have to continuously expand your network. It's just the "cost" of doing business.

Many ISPs already change their pricing structure over the years to make up these deficits. There is an ebb and flow to things. Sometimes they raise rates to build out infrastructure, and sometimes they offer competitive bundles to draw in more customers.

Ironically, in the long run, (although this makes for an interesting discussion), technology will render this completely moot. As massive bandwidth technology (like Google Fiber) continues to evolve and become affordable, the ISPs will eventually no longer be able to use "data usage volume" as an excuse. There will come a point when the bandwidth we consume won't even put a dent in the bandwidth which is available.

 

[jspradling7]

Somehow they don't care how much data I stream per month on my FiOs...

Oh... they'll get around to that.