The Metered Internet: Another Artificial Scarcity Bad Idea
Posted by Bob Warfield on January 20, 2008
Time Warner is toying with the idea of limiting your Internet access in terms of how much bandwidth you can access in a month. This bad idea has got the web atwitter with various comments and has been buzzing around Techmeme for a few days. Apparently the move is prompted by the realization that half the network bandwidth usage is due to just 5% of customers who are taking what the ISP views as an unfair share. They’ve been trying for years to penalize the other end of the transaction, not the customer downloading, but the businesses serving up the downloads (a concept called network neutrality). The latter is much like the Post Office wanting to hit up Neflix for running up an inordinate share of mailing costs. Unfortunately, while this is all predicated on that 5% of unreasonable customers, the fear is that rising use of online video will cause many more customers to be impacted and could stifle growth in these new areas.
Some other countries have had caps like this and worse for some time. I just can’t get warm to the idea though. Bandwidth is a commodity that gets cheaper to deliver by the day. There is a ton of dark fiber out there: fiber optic that is in the ground but isn’t even being used. We can send more data over a fiber than ever before. Perhaps the only problem in sight is that a new generation of routers may be needed to take us to the next level. I agree with Stacey Higginbothom who says this is really a symptom of the duopoly or poor number of choices among broadband providers that most communities have. As usual, these companies cry out that they must be granted monopolies to build the infrastructure, and then they deliver mediocre service. What is irksome is that the monopolists get to change the deal after the fact without recourse. Services like this should get better over time, not worse.
The reality is that this is just another example of a company creating Artificial Scarcity. The strategy doesn’t work in the Digital Age, at least not for long. What it does is to provide the fuel for someone else to come along and disrupt the heck out fo the monopolist that put it in place. The RIAA are the best known example of a bunch that lost out after creating Artificial Scarcity. Time Warner will find that if their changes are onerous enough, people will look for alternatives, and it will be profitable for others to produce the alternatives. The irony is that big companies have watched this strategy tried and failed many times and yet they still keep bringing it up. Not enough B-school cases on it I guess.