Know Your Limits: Considering the Role of Data Caps and Usage Based Billing in Internet Access Service

Public Knowledge has released Know Your Limits: Considering the Role of Data Caps and Usage Based Billing in Internet Access Service by Andrew Odlyzko, Bill St. Arnaud, Erik Stallman; and Michael Weinberg.

Here's an excerpt:

Regardless of the motivation driving its implementation, usage-based pricing has the potential to significantly impact how networks are designed and used. This, in turn, impacts the innovation that relies on those networks. Before deciding if and when usage-based pricing is desirable, it is critical to fully understand the history of usage-based pricing, how it impacts markets, and both the benefits and harms that such a model can bring.

This paper aims to explain the basic issues surrounding usage-based versus flat-rate pricing. Section I examines the trend towards usage-based pricing in both the wired and wireless markets. Section II then considers the benefits and justifications for using usage-based pricing. This is followed in Section III by a review of the history and economics of flat rate pricing. Since broadband access is central to so many national and societal goals, the penultimate section—Section IV—discusses the problems that might be caused by usage-based pricing. Finally, we end with a series of conclusions and recommendations for responsible implementation of usage-based pricing.

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