Internet pricing focus of UGA study

Thursday, Jan. 9, 2014 10:05 AM
Last updated 7:34 PM
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ATHENS, Ga. -- A pair of University of Georgia economists will study how much residential consumers will pay for their Internet use.

But the question isn’t so simple as it might appear at first, according to John Turner and Jonathan Williams, faculty in the department of economics in UGA’s Terry College of Business.

With Aviv Nevo, a Northwestern University economist who is the chief economist at the federal Department of Justice, they plan to analyze data from more than a million Internet users to find out what consumers do when they face issues such as overage prices or the hassles of slow speed when there’s network congestion.

The researchers recently got word they will get $530,000 over three years from the National Science Foundation and CableLabs, a nonprofit research and development consortium funded by cable industry members, to study the question.

The answers they come up with could influence the way consumers pay for Internet use, could also influence government policy, and could even help determine how fast Internet companies add capacity to meet Americans’ growing consumption of Internet data.

Demand is growing fast, the researchers pointed out in a working paper posted to the Social Science Research Network. There are now 210 million broadband users in the United States, up from about 8 million in 2000, they said. And those users want more and more data.

In data from one Internet service provider, they found that average Internet use went up by 74 percent between May 2011 and May 2012.

Use by median users went up even more, by about 11 gigabits per month, the equivalent of streaming 11 standard-definition movies, or four high-definition movies, they wrote.

A lot of that increasing demand does seem to be streaming movies, but YouTube videos and gaming also are contributing to the increase, said Williams.

“Two-thirds of the peak traffic is online video, and half of that is Netflix,” Williams said. “Another big chunk is YouTube.”

That growing appetite has raised the stakes for companies and for government as they think about building capacity in the future.

“The growth in online video has created a sense of urgency,” Turner said.

In Europe and in cellphone networks, a typical pricing scheme is one economists call a ”three-part tariff,” where users pay an access fee for a usage allowance of a certain amount in gigabytes of data. Customers who go above their allowance in a billing period pay additional overage fees.

That model might reduce overall use and congestion, saving money in the long run for both consumers and providers, the researchers believe.

Some broadband Internet companies are turning to that model, but Google and some other companies have a different pricing model — a flat price, which buys a large amount of capacity, more than many customers use.

ISPs face a broad choice of either charging customers for how much they use, or laying expensive fiber-optic cable to every house instead of continuing to use coaxial cables. Those decisions are important economic ones for companies, but also have implications for the good of society — social good, as the researchers call it.

Another question they’ll study is what difference it would make in use if providers charged a different rate at different times of the day; like electricity use, Internet use peaks and ebbs during the day.

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gaflyboy
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gaflyboy 01/09/14 - 12:00 pm
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Fine study, but ...

Why are taxpayers on the hook for any of this? US military veterans get their pay cut while taxpayers pitch in on something the private market should do entirely themselves.

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