roundtable: Future Internet Pricing

roundtable: Future Internet Pricing

Future Internet Pricing

James Love (love@Essential.ORG)
Fri, 10 Mar 1995 13:12:52 -0500 (EST) 

Date: Fri, 10 Mar 1995 13:12:52 -0500 (EST)
From: James Love <love@Essential.ORG>
To: roundtable <roundtable@cni.org>
Subject: Future Internet Pricing 
Message-Id: <Pine.SUN.3.91.950310131235.12483E-100000@essential.essential.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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