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Another point of view
Does Flat-Rate Unlimited User Access Threaten The Internet?
(CommunicationsWeek 11/25/96 posted w permission)
Economics, like thermodynamics, rests on three principles: You get what you
pay for; you can't get something for nothing; and If supply and demand
cannot be balanced by price adjustments, you get shortages.
Politics is the art of denying these principles. Public policy is the
science of implementing programs based on these denials until crisis
arrives, at which point dueling lobbyists work to shift blame to convenient
villains. Business is the craft of seeking profits in a market distorted
by public policy without becoming a designated villain.
No, I'm not talking about Medicaid. I'm talking about low-cost, flat-rate
Internet access, a market distortion that has caused demand to outstrip
supply so dramatically that a shortage is upon us. As we pass from a state
of denial to the ritual search for villains, let's reflect on how we got
into this mess.
Supply and demand in the telephone business were kept in balance the past
60 years by public policy operatives that, truth be told, did a more
efficient job than most. The system worked because demand for voice
telephony can be precisely characterized based on statistical parameters
that remain stable over decades. Switch designers and traffic engineers
thus can deploy resources that deliver a very high quality of service.
This monopolistic regulatory scheme encouraged over-investment by granting
network operators a guaranteed return on capital.
The contrived balance gave consumers over-priced, metered long-distance
service and under-priced, flat-rate local service. Although demand for
local service was artificially enhanced, shortages rarely occurred because
billions in funny money flowed from cross subsidies, codified into
per-minute access charges paid by long distance companies.
What is more important - and rarely acknowledged - is that voice telephony
is not infinitely price elastic. At some point, flapping your gums for
another five minutes, calling grandma one more time, or leaving your phone
off the hook all night with a call connected is not worth the bother even
if it's free.
Not so for data, whose traffic statistics differ substantially from voice.
These differences are playing havoc with the stability of a system finely
tuned by voice-centric provisioning rules. What's even more destabilizing
is that a drop in the price of data connectivity always will stimulate more
demand. Human ingenuity hasn't come close to the point where using more
data isn't worth the bother. Nailing up data connections for hours at a
time is fast becoming a way of life.
Back in 1983, local calls terminating on data-networks were exempted from
per-minute access charges. This was not a big deal because there were so
few data users. But today, thanks in part to the stimulus of flat-rate
pricing, we are awash in exponentially growing waves of demand. This is
crashing down on an inflexible, highly regulated system that is getting
crushed under the load.
Of course, everyone assumes that the evil phone monopolists are crying wolf
when they suggest a move to measured service. The reaction of the computer
industry has been "screw 'em, they lived off the fat of the land for years,
let them pay the price now."
The DATA Coalition, an industry lobbying group comprising several dozen
high-tech companies, is demanding no less than the permanent enshrinement
of flat-rate unlimited service entitlements.
The uncomfortable truth is that the biggest single threat to the future of
the Internet is nota slackening in the growth of demand, but chronic
overload caused by failed pricing mechanisms.
This is true not only for local access but for the Internet itself. Intel,
Apple, IBM, Microsoft, Compaq, Netscape, and the rest of them ought to know
# # #
Bill Frezza is president at Wireless Computing Associates. The opinions
expressed here are his own. He can be reached at firstname.lastname@example.org or
Copyright 1996 CommunicationsWeek