Future Internet Pricing (US)

[Linda Rouse]

Link subscribers,

Many of you may have read this on PACS-L - if so, forgive the replication.

>Date:         Mon, 13 Mar 1995 17:30:00 CST
>Reply-To: Public-Access Computer Systems Forum <PACS-L@UHUPVM1.UH.EDU>
>Sender: Public-Access Computer Systems Forum <PACS-L@UHUPVM1.UH.EDU>
>From: James Love <love@Essential.ORG>
>Subject:      Future Internet Pricing
>To: Multiple recipients of list PACS-L <PACS-L@UHUPVM1.UH.EDU>
>
>Distributed to TAP-INFO, a free Internet Distribution List
>(subscription requests to listproc@tap.org)
>
>TAXPAYER ASSETS PROJECT - INFORMATION POLICY NOTE
>March 10, 1995
>
>-    MIT holds workshop on new internet pricing models.
>     Workshop is attempt to develop consensus on protocol
>     support for new levels of service.
>
>-    TAP request to participate is denied
>
>     by James Love, TAP (202/387-8030; love@tap.org)
>
>On March 9 and 10, 1995, MIT is hosting a workshop to examine
>new pricing models for the Internet.  Attendance in the workshop
>is limited, and TAP was not allowed to attend.  The focus of the
>workshop is the new Internet Protocol 6.  The program is under
>the auspices of the Research Program on Communications Policy,
>Center for Technology, Policy, and Industrial Development,
>Massachusetts Institute of Technology.  Among the organizers are
>Lee McKnight and Joe Bailey (617/253-4138, iecon@far.mit.edu).
>
>According to conference organizers, the goals of the workshop
>are as follows:
>
>1)   develop a framework for understanding the Internet as a
>     self-sustaining economic system through panels and
>     facilitated discussion,
>2)   reach consensus on recommendations for industry and
>     government action, and
>3)   identify critical issues for future research on Internet
>     economics.
>
>More specifically, the workshop is looking at Internet pricing
>models, and in particular, at proposals for protocol support for
>new "levels" of service, which would be priced based upon usage.
>Although some conference organizers say this will be targeted at
>video usage, it is quite unclear what might be involved.
>
>I asked Joe Bailey, one of the workshop organizers, if TAP could
>participate in the workshop.  I emphasized the fact that TAP had
>been the most active consumer group to focus on Internet pricing
>issues, having helped to organize two workshops on Internet
>pricing in the Spring of 1994, and having presented the National
>Science Foundation a petition with about 6,000 signatures asking
>for a number of changes in the recently negotiated NSF contracts
>for the new Internet Network Access Points (NAPs).  TAP also
>supported an amendment to a telecommunications bill (HR 3626,
>103rd Congress) which passed the House of Representatives which
>would have required the FCC and NTIA to create a public online
>forum to discuss Internet pricing issues.
>
>I prepared a summary of a paper for presentation at the
>workshop, but was turned down.  When asked which other consumer
>interests would be present, Mr. Bailey said that Coralie
>Whitcomb, a member of Computer Professionals for Social
>Responsibility (CPSR), would be present, as an observer.  Most
>of the participants, Mr. Bailey said, were either academics,
>many from MIT, or from the Internet Engineering Task Force
>(IETF), which is made up mostly of engineers from the nation's
>largest telecommunications and computer firms.  While the IETF
>is a relatively open organization, few persons without a
>corporate sponsor can afford to travel around the county and the
>world to attend key meetings.
>
>I told Mr. Bailey that we were quite surprised and put off by
>the decision to exclude TAP from the gathering, given the fact
>that the announcement for the conference spoke of a need to
>develop a consensus on Internet pricing issues, and I believed
>that TAP represented an important point of view that should be
>heard.  At one point the conference organizers said the list of
>attendees itself might be confidential, but after some pointed
>discussion TAP was promised a list by mail, which has yet to
>arrive.
>
>The workshop itself was largely funded by the taxpayers, through
>the National Science Foundation grant #NCR-9509244, and the
>Advanced Research Projects Agency grant #N00174-93-C-0036.  To
>find out how your tax dollars are being spent, send a note to
>the conference organizers at iecon@far.mit.edu, or call at
>617/253-4138.
>
>   jamie
>
>
>The proposed TAP paper, which was rejected, follows:
>
>
>
>to:  Joe Bailey, MIT
>These are the topics I would like to address at the MIT
>workshop.
>
>
>Internet Economics
>                    James Love, Taxpayer Assets Project
>                voice 202/387-8030; Internet: love@tap.org
>                             February 17, 1995
>
>------------------------------------------------------
>Today's Internet is based upon a particular economic model which
>does not require surveillance of usage or charges based upon
>usage.  The "no settlements" policy currently in effect by the
>CIX has offered a continuity from the regime that existed since
>the network's inception as a government funded research network,
>and it has facilitated a vast explosion of communications and
>non-commercial publishing.
>
>Recently, several persons have suggested that the Internet adopt
>a system of charges that would be based upon usage or
>congestion.  There are important differences between pricing
>schemes based upon usage and those based upon congestion, and
>any departure from the current "no settlements" policy may
>result in significant changes in the way the Internet is used.
>
>Contrary to frequent assertions by persons with little formal
>training in economics (and by some who should know better), a
>pricing model for the Internet based upon usage rather than
>capacity is by no means a more efficient means of financing the
>Internet, even using neoclassical models based upon willingness
>to pay, since the operation of the Internet requires high fixed
>costs and little if any variable costs (aside from congestion)
>for Internet traffic.
>
>Models based upon congestion pricing could potentially lead to
>more efficient Internet usage than models based upon usage only,
>but they are likely to require significant transaction costs and
>incur many difficulties in protecting users from excessive or
>unnecessary charges.
>
>The Internet has become a profoundly important element of our
>nation's telecommunications infrastructure, providing access to
>vast amounts of information and providing the mechanism for
>national dialogues on an enormous range of topics.  It is
>extremely important that proposals for changes in pricing
>Internet services explicitly consider the impact of those
>changes on the current systems of Internet communication and
>non-commercial publishing, including such issues as the impact
>of pricing systems on Internet newsgroups, electronic mail
>discussions lists, and free publishing of information via ftp,
>gopher, and World Wide Web (WWW) servers.
>
>The NSF's new Internet architecture encourages the use of
>several Network Access Points (NAPs).  Some observers have
>suggested that the NAPs would provide convenient "choke holds"
>that would be used implement new systems of metered usage of the
>Internet.  In some cases, NAP owners (Sprint, Ameritech, Pac-
>Bell and MSF) may have interests which would be threatened by
>the development of new Internet services, particularly
>multimedia services that will become more popular and feasible
>as users obtain faster connections to the Internet and ATM
>switching technologies are deployed.  Traditionally, long
>distance and local exchange carriers for telephony have
>preferred rate structures based upon metered usage, and those
>rate structures may be undermined by the "capacity" pricing
>systems now used by the Internet, particularly as the Internet
>begins to deliver services now offered principally over
>telephone networks.
>
>There is a second area of conflicts of interest that concerns
>content markets.  The current pricing structure of the Internet
>has facilitated an enormous amount of non-commercial publishing.
>Many of the "free" information resources available on the
>Internet today might not survive if network usage is metered
>(particularly if per packet charges are implemented).  In some
>cases providers might perceive the existence of the free
>services as an unwelcome competitor to their own fee based
>transactions.  For example, Ameritech's recent entry into the
>market as a commercial vendor of government information runs
>counter to the growing movement toward free Internet access to
>government databases.   Microsoft's purchase of a stake in UUNET
>and its partnership with TCI and other companies, and the
>explosion of commercial WWW sites is another indication that
>companies are increasingly interested in the potential of the
>Internet as a mechanisms to deliver new fee based information
>services.  For a variety of reasons, pricing models that work
>best for fee based services may be in conflict with those which
>are best for non-commercial uses.
>
>The unique characteristics of the Internet suggest that economic
>models should not be limited to traditional pricing models from
>telephony.  In our view, a simple charge by the packet models
>should be rejected as a system that would adversely impact usage
>levels (and potentially destroy many non-commercial information
>services), without any intelligent mechanism to address network
>congestion.  Research on Internet economics should consider a
>wide range of mechanisms to address network congestion,
>including solutions that make priority routing systems optional
>for both requesters and publishers of information.  We also need
>a better understanding of the market incentives facing service
>providers to provide adequate peak capacity for their users,
>including better empirical analysis of the sustainability of
>markets for services that provide both high and low levels of
>congestion.
>
>Research on Internet economics should be focused on both the
>pricing models and the incentives facing particular actors.  For
>example, should one expect the large local exchange and long
>distance telephone companies to favor a metered pricing model
>that only charges for congestion or one that is based upon
>packet charges?  Models for Internet pricing should also
>consider the experience in long distance telephony markets,
>which have been open to entry for a decade, and still largely
>rely upon per minute charges, rather than congestion only
>models.
>
>We also need to consider how current pricing models value the
>very popular non-commercial uses of the Internet, particularly
>in view of the fact that the current Internet model seems to be
>far more popular (in terms of numbers of users, growth rates and
>levels of enthusiasm among users) than the competing commercial
>models first developed by Prodigy, Compuserve and other
>commercial network providers.
>
>-------
>James Love works for Ralph Nader's Center for Study of
>Responsive Law, where he is Director of Economic Studies and
>Director of the Taxpayer Assets Project (TAP).  Mr. Love has
>been active in research and policy debates over a wide range of
>information policy issues, serves on the editorial board of the
>Journal of Government Information, is an active  member of the
>Telecommunications Policy Roundtable, and has testified before
>Congress on several occasions on topics ranging from cable
>television regulation and access to government information to
>the allocation of intellectual property rights from government
>funded research.  Mr. Love organized two seminars in the spring
>of 1994 on Internet Pricing (at the Carnegie Institute and the
>Brookings Institute, under the sponsorship of the
>Telecommunications Policy Roundtable), and TAP recently received
>a grant from the Rockefeller Family Fund to study Internet
>pricing.
>
>
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Linda Rouse                        Phone: + 61 2 370 6666
Special Projects Manager           Fax:   + 61 2 370 6677
UNILINC Limited                    Email: linda@unilinc.edu.au
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