Why are we paying for internet access again?

Imagine paying a hefty cover charge just to get into a shopping mall.

Imagine paying a hefty cover charge just to get into a shopping mall. Hey, that's the internet!

Several years ago, I remember having a conversation with someone very smart who worked at an internet service provider. He told me that his company was walking a very fine line in terms of how the internet is paid for and monetized. The companies that provide access to it were in a state of perpetual balance with the individuals and companies that provide services over it. If the internet wasn't full of so much awesome stuff, there might not be a point to paying for it, this person said. The internet has since become thoroughly commercialized, so I can't help but wonder whether that balance is now completely out of whack. With virtually nothing online coming for free anymore, exactly why are we paying to access it? Just for kicks, I thought about how I personally use the internet and broke it down into four categories: ongoing pay services, pay-per-use services, seemingly free services and actually free services.

Ongoing pay services: These are the things that demand payment on a regular monthly or annual basis, including Netflix, Skype, Xbox Live, hosting and domain registration for websites, and so on. Services such as Hulu Plus, Spotify, Marvel Unlimited and the like also qualify. I don’t currently pay for any news services, but at the rate at which organizations are adopting paywalls, it’s probably just a matter of time.

Pay-per use services: This is for individual, one-off purchases, like iTunes music or apps, or books and the like from Amazon.

Seemingly free services: This covers everything Google, Facebook, Twitter and just about every other supposedly free internet service, from maps to email to search to videos to social networking, where the fee isn’t necessarily monetary, but rather informational. As is evident from the ongoing NSA-PRISM scandal, the cost of such services – should a user’s data fall into the wrong hands – can potentially be much higher than any dollar value. Such services will inevitably lead to or spur alternative subscription and one-off options, whether it’s the sort of virtual private network encryption I wrote about recently or perhaps even micro-transactions – imagine a Google-like service that doesn’t gather your information, but rather charges you per search. Either way, we’re going to pay for all this stuff one way or another.

Actually free services: I’m a little hard pressed to think of internet features that still fall into this category, other than Wikipedia, personal blogs and piracy, which is ultimately going to be countered either by copyright cops on the down side or superior, paid legal services on the upside. Even the vast majority of websites, while useful, are effectively advertisements for whoever they belong to (yes, even this one, in a sense). So is there anything else left that’s truly free?

Adding all this together, it’s clear that simply using all the cool things on the internet now amounts to a major expenditure for the average person. So again, the question: why do we pay to access it?

The internet has often been compared to electricity, as far as utilities go. While there are some similarities, they are also ultimately very different. While we do pay to access the electricity grid and for metered usage of it, just like the internet, we don’t pay yet again for individual uses of it. We don’t, for example, pay another fee for using electricity with a shaver or to power light bulbs. We do pay to buy those individual items, but we also do that for the devices that connect us to the internet. The internet is thus different from electricity because there is an extra layer of payment involved in order for it to be useful.

Using the internet today is more akin to paying a hefty cover charge just to get into a shopping mall. Put another way, that $50-plus monthly internet bill is effectively a big system access fee. Here in Canada, we certainly raged against that.

Sure, the internet’s network needs to be maintained and upgraded and that requires money, but so do malls, yet we don’t pay directly to use them. Perhaps it’s time to rethink the whole economics of the internet. That’s not meant as any sort of anti-telecom-company idea, but rather a genuine suggestion.

To continue with the mall analogy, it’s the stores located there that pay to maintain and upgrade their common infrastructure through rents to the property owners. Those costs are then passed on to consumers in the form of higher prices in the stores.

Could that work with the internet, and should it? In a way, it already does. Service providers, from Google to Skype to Netflix, pay ISPs for their access and bandwidth usage just like consumers do. In a sense, the current scheme means ISPs are double dipping: they’re getting user fees from both service providers and service users.

Perhaps, in an age where everything useful about the internet costs us in one form or another, the responsibility of maintenance and upkeep should be passed on solely to those providing services on it. That might result in them charging higher prices, but so what? They’d have to compete with each other – as well physical world services – which could keep prices low.

It also might be preferable to have the likes of Google and Apple fighting ISPs to keep access costs down and improvements up. That would save the public, government and regulators a whole lot of effort.

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9 Comments on Why are we paying for internet access again?

  1. Jean-François Mezei // July 5, 2013 at 12:15 am // Reply

    From a network neutrality point of view, it is the consumer that must continue to pay to access the internet and not content providers.

    This is what made the internet the success it is and this billing paradigm must be preserved to allow new ideas and new services to emerge to compete and displace big established ones.

    If you allow the big gys like Google, Apple and the like to start to pay for your access to the internet, you will never see a competitor emerge.

    Without network neutrality, facebook would have never displaced Myspace for instance. Mobile network already cross the line by giving teenagers/students “unlimited” access to a limited set of web sites such as facebook but do not give access to a new service that aims to compete against facebook.

    The large internet service providers would very much like the paradigm to shift so that both the consumer and the content provider pay. Why ? because the large ISPs get to increase their revenues.

    Electric utilities know that they have a finite market and growth only associated with a growing population. But telcos and cablecos are still in a pre-utility mentality where they see growth opportunities by jacking up prices, introducing new fees etc etc.

    • I’m not sure that user access fees are contributing to preserving net neutrality. Service providers such as Google and Facebook pay for their own access and levels of usage, which rises commensurately according to the volume of their usage. If anyone wants to start a competitor, their costs to do so inevitably start out low and rise as they increase in popularity. I don’t think that paradigm would be jeopardized or changed by removing user fees.

  2. Marc Venot // July 5, 2013 at 12:27 am // Reply

    That means that the money will not go toward the local providers but to the capitalists, usually outside the country. It needs first to be discussed in international conferences otherwise most countries will start build great walls like China.

  3. The wealth creation potential of the Internet is immense, and still largely untapped. For now, the commercial Internet principally serves to create wealth for those who control infrastructure.

    The real potential is to enable innovation, development and provision of service by *anyone* with an idea for a product or service that has value to economy and society, and access to infrastructure should be the least of their concerns. Access should be at least as effortless as accessing highways, streets and sidewalks to provide or access goods and services in the material economy.

    Much of the world is already moving toward this paradigm, which requires infrastructure and service enterprises to be structurally separated (owned and operated completely at arm’s length from each other). Only then can infrastructure be designed and managed for the purpose of enabling real abundance rather than profiting from artificial scarcity.

    Along with publicly and privately owned shopping malls, our open access roads, street and sidewalks enable all people to access all vendors of goods and services. This is essential to driving competition and innovation in services, and to overall efficiency and effectiveness of the economy. It would be massively counterproductive to the economic and social development of any nation or community if its infrastructure were designed and managed to provide access only to services belonging to the nation or community itself (see North Korea). It would be just as foolish for a nation or community to allow a single private vendor of goods and services to control its infrastructure, which would guarantee economic monopoly, scarcity and stagnation (see company towns).

    Who should pay for infrastructure?

    Realizing the wealth creation potential of the Internet means driving profits out of infrastructure development and into development of goods and services. Communities and senior governments have no choice but to take greater responsibility for infrastructure development, and this is now happening around the world (not so much here in Canada).

    The Govenrment of Australia is building a structurally separated open-access optical fibre network that will reach 94% of Australian homes and businesses by 2017. Small out-of-the-way communities that comprise the remaining 6% of homes and businesses will be served with terrestrial and satellite wireless solutions. Many of these communities are now rallying the leadership and capital needed to build their own fibre access networks and connect them to the nearest optical railhead, so they can have the same economic and community development opportunities as the 94%. Australia’s National Broadband Network (NBN) project is the cornerstone of its National Digital Strategy, overseen by the Minister for Broadband, Communication and the Digital Economy.

    The Goverment of Estonia has mandated universal 100 Mbps fibre connectivity by 2020, and already provides free mobility access throughout the country. The Government’s objective is to make it effortless for Estonia’s well-educated and worldy-wise workforce to create wealth in the global Digital Economy, which they have recognized as a massive and easliy accessible frontier for economic growth.

    For lack of any meaningful digital strategy, which necessarily involves greater government intervention including driving structural separation between digital infrastructure and services, Canada is becoming a backwater in the global digital economy. This threatens the entire Canadian economy, because other nations can better leverage digital technologies to drive economic innovation and productivity in all economic sectors.

    To quote Thomas Friedman in The World is Flat,

    “The ideal country in a flat world is the one with no natural resources, because countries with no natural resources tend to dig inside themselves. They try to tap the energy, entrepreneurship, creativity, and intelligence of their own people-men and women-rather than drill an oil well.”

    http://www.theglobeandmail.com/incoming/article4892368.ece/BINARY/w620/largewebsatedcar02co1.jpg

    • I definitely agree that this particular piece of infrastructure should be shared and that’s probably the smart way to go. Even our wireless providers are seeing the logic of that. My musings are a total alternative that will likely never come to pass.

      • The issues we most need to address are political, not technical. Once we have properly resolved the policy issues, we can resolve technical issues within the context of achieving policy objectives (see Australia).

        Canada’s problem is that it continues to allow technical issues to define policy issues, when it needs be the other way around. A key obstacle is technocrats who shape political discourse to serve their own narrow interests. They tend to use a lot of impenetrable technical jargon and obscure historical references, which serve only to confuse and aggravate non-technical people and distract them from simple questions like, “What do we need?”, “What will work best?”, and “How should it be paid for?”

        After Google had defined the operating objectives for the network they are now building in Kansas City, they posed a simple question that led them to their technical, financial and business solutions:

        “What is the best network we can build for the money?”

        Answer:

        A fibre access network that enables symmetric Gbps access to the Internet at USD $70 per month with no hookup fee, or free symmetric 5 Mbps access for a hookup fee of $300.

        This has provided a simple and sensible example for communities and governments everywhere to follow, which is what I imagine Google really wants to see. They have a lot of really smart people, and they are fundamentally a service company… not an infrastructure company. They know that structural separation is an inevitable and desirable outcome of the Digital Revolution, and I think they just want to make sure everyone understands what has become possible in the Digital Age. This can only help to elevate policy discourse above the self-important chattering of the technocratic class.

        Google is not the only actor working to advance policy discourse around Internet access. I strongly recommend the following read for anyone interested to bring 21st-century Internet access to their nation or community:

        http://www.amazon.com/dp/B00A4OAH5U

  4. Once again, you most others, are confusing apples and oranges (or layers and boundary points) because you have your history wrong.

    The internet was never free. Someone always paid for it. When you speak of access, you are talking about layer 1-2 access in the MAN (metro) to get you to the WAN (the set of internet routers, databases, content providers and content delivery networks). The latter are all layer 3 and up. Layers 1 and 2 in the WAN are very low cost transport networks that are the legacy of the competitive IXC market started in 1983 and that even though killed off in the early to mid 2000s remains relatively highly scaled due to all the data, wireless and enterprise traffic coursing over them.

    The notion of the “free internet” was born of the monopoly flat-rate pricing reaction of the Baby Bells to the competitive, intelligent, metered, IXC (ATT, MCI, Sprint) threat of the mid to late 1980s. If the LATAs had remained small and local access metered, then the Bells’ monopoly revenues from intraLATA and terminating/originating access would quickly have been disrupted. So, they petitioned the state PUCs to expand the moat around the class 5 castle in return for flat-rate pricing.

    This flat-rate dial-up was the commercial foundation upon which the internet scaled. The ISPs simply reserved DIDs and put in local channel banks and routers that could be accessed “freely” all day long. All the rest, the build up of the WWW/HTML/Mosaic layers, the tremendous scaling of the WAN (which made the bill and keep peering model of TCP/IP possible), the introduction of broadband and then wireless can all be understood from a layer/boundary pricing and control perspective.

    Learn about your layers and boundaries. Then address the issues and understand why we need open access in layer 1 applied universally to all service providers who are granted a public RoW or frequency, and balanced settlements in the middle layers to clear supply and demand from upper to lower layers and across network boundaries.

    • Yes, we’ve always paid for the Internet. But there was a time when much of what was on it didn’t require additional fees. I think you’re missing the point by continually looking at this from a technical “layer” point of view. The extra “layer” of user fees is what I’m questioning.

      • I am looking at it from a marginal cost perspective at every layer and boundary point. In this case, it’s not an extra layer, rather an extra boundary point. That’s why they call it two-sided.

        The only reason much of the “content” was free was that the marginal cost to host and disseminate it was “relatively” free or amortized by other sunk application costs (email, ftp, network connectivity, marketing, etc…). Advertising was considered to be a great way to get a return on that content as opposed to asking for a subscription, which in most cases, was and is, a non-starter.

        This is not about technology, but rather pricing that reflects either monopoly average cost or competitive marginal cost at every layer and boundary point. I’ve been studying almost all the business model issues for voice, data, video and wireless over the past 23 years. I sent you a framework overview to which you have yet to respond.

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