roundtable: Common Sense and INFRASTRUCTURE ANALYSIS

roundtable: Common Sense & INFRASTRUCTURE ANALYSIS

Common Sense & INFRASTRUCTURE ANALYSIS

Richard K. Moore (rkmoore@iol.ie)
Tue, 21 Feb 1995 14:28:05 +0000 

Message-Id: <v02110102ab6ecd8e2016@[193.120.234.105]>
Date: Tue, 21 Feb 1995 14:28:05 +0000
To: roundtable@cni.org, tpr-ne@MITVMA.MIT.EDU
From: rkmoore@iol.ie (Richard K. Moore)
Subject: Common Sense & INFRASTRUCTURE ANALYSIS


I want to follow up on the "pricing basis" issue, as I think it is more
central to the future of cyberspace than many people realize.

Please note:  I'm talking about the rates COMMUNICATIONS CARRIERS would
charge for transmitting messages & other content; I'm NOT talking about
what CONTENT OWNERS and RE-PACKAGERS would charge for their intellectual
properties.

Also note: RESOURCE-BASED pricing does not mean there are no discounts 
for volume or pre-committed purchases, nor that the number of recipients 
isn't a factor.  But ESSENTIALLY: resource-based means a "publisher" 
pays the carrier for the number of bytes transported (times number of 
recipients), while vaule-based means they pay the carrier a percentage 
of what they're charging the consumer.

With sincere respect, I think the kind of absolutist analysis offered by
Curt & others (example at bottom) is _not relevant_.

I think it is clear that EITHER a resource-based or a value-based pricing
scheme COULD WORK from a market point of view:

     RESOURCE-BASED pricing is used quite effectively in all the following
     familiar cases:
             post office, telephones, fax, car rentals, express couriers,
             electrical & other utilties, public transportation,
             hourly legal services

     VALUE-BASED pricing is used quite effectively in all the following
     familiar cases:
             credit-card purchases (from the pont of view of the retailer),
             contingency-based legal services, third-party sales-reps,
             on-consignment retailers

Not all of the above are categorically "correct".  Some came about by
conscious government policy (e.g. utilities); some came about from private,
pre-emptive intiative (credit cards).  Rail freight, which is now
essentially resource-based, was in the past value-based (19th Century:
California -- Southern Pacific).

The relevant considerations in the case of cyberspace-TRANSPORT arise from
the effect the pricing-basis will have on develpment of:
        o  commercial MEDIA MARKETS
        o  TECHNOLOGICAL INNOVATION
        o  CARRIER PROFITABILITY
        o  NON-COMMERCIAL uses of cyberspace

It is clear that commercial MEDIA MARKETS will develop equally well with
either approach.  CONTENT PUBLISHERS will simply pass on their costs to 
the consumer.  The consumer costs of COMMERCIAL products will in either 
case be affordable (at least to the urban middle class) becauase carriers 
and content owners want to make money, and because of competition from 
video rental stores, newspapers, home video games, etc.

TECHNOLOGICAL INNOVATION would be best served by a RESOURCE basis, because
carriers would then have an incentive to reduce their costs, so as to
better compete with other carriers, and to increase their margins.  With 
a VALUE basis, carriers would be more concerned with upside opportunities
than they would with costs.  They would be promoting joint-venture
agreements with content owners, and simply pass on their infrastructure
costs (indirectly or directly) to the consumer.  A value-basis would lead
to a FAT CAT environment, where greater efficency might acutally reduce
profits!

Thus it is clear that CARRIERS will stongly prefer a VALUE BASIS.  This
gives them maximum flexibility to cross-subsidize services, and in general
to maximize their upsides.

It is in the NON-COMMERCIAL uses of cyberspace that the consequences of 
the pricing basis are crucial.  This is why I'm so concerned.

If the pricing basis is RESOURCES, then those of us who want to message
with friends and public-interest groups will BENEFIT from the rapid growth
of commercial cyberspace: the greater the volume of usage, and the greater
the richness of commercial media, the lower we could expect prices to be
for non-commercial usage, especially for text-based messaging.

But in a VALUE-based regime, NON-COMMERCIAL usage would suffer terribly.
Prices of both small and large content, and to small and large audiences,
would be competing with high-money-value commercial content.  In the 
case of 1:1 messaging, we'd do OK: carriers will want to cash in on 
replacements for long-distance phone calls.  But in the case of 
NON-COMMERCIAL GROUP COMMUNICATION we'd be OUT IN THE COLD: we'd be 
competing for channel access with the commercial players.  Getting "our 
message" out to the public would be as costly and restricted as is 
current access to the broadcast-television channel.

That is why I am convinced that a value-basis leads inevitably to a
DEMOCRATICALLY STERILE medium, while a resource-basis could enable the
further flowering of the Inernet-community culture which we are only now
beginning to learn to exploit for grass-roots (i.e. genuinely democratic)
political purposes.  There will still be battles to fight, and the
ever-present incentive for price-gouging, but a resource basis is the
PREFERRED BASIS for non-commercial use, and is quite suitable as well 
for commercial development.

There are obviously ideological-political forces at play in this debate
(i.e. Resurgence of the Right), but I think we'd do better to emphasize 
the points I've outlined above in any political effort in the near 
future.


**********--->> BOTTOM LINE: Socially conscious people and groups should 
                make resource-based pricing a TOP PRIORITY in our 
                lobbying and position papers.  In this regard we should 
                seek alliances with whoever we can, including possibly 
                cable operators and content owners (but not necessarily 
                the biggest ones.)

---
At 12:58 PM 2/20/95, W. Curtiss Priest wrote:
   >As an economist I must comment on RESOURCES USED versus VALUE.  For
   >'allocative efficiency' (placing 'scarce resources' for output for
   >greatest 'utility'), pricing should ALWAYS be done on VALUE, NOT on
   >RESOURCES USED.


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