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Sep 28

FCC Chairman Should Clarify Tiered Pricing Remarks

Tech news blog GigaOm reported this week that FCC Chairman Julius Genachowski might be backpedaling on his stated support for pricing flexibility for broadband Internet services.  If true, that would be an unfortunate – and unprecedented – flip flop on a key issue that has given high-tech entrepreneurs some certainty amid this economic turmoil.

Dating back to 2010, Chairman Genachowski has been an ardent supporter of an ISP’s ability to create pricing “tiers” that provide higher levels of service to those high-end users who enjoy streaming hundreds of hours of video or downloading tens of thousands of songs in a month while giving relief to consumers who use far less data. Such tiers, he has said, allow ISPs to “promote network investment and efficient use of networks, including measures to match price to cost.”

In its Open Internet Order in 2010, the FCC made the option of flexible, usage-based pricing tiers official policy.

“[P]rohibiting tiered or usage-based pricing and requiring all subscribers to pay the same amount for broadband service, regardless of the performance or usage of the service, would force lighter end users of the network to subsidize heavier end users. It would also foreclose practices that may appropriately align incentives to encourage efficient use of networks. The framework we adopt today does not prevent broadband providers from asking subscribers who use the network less to pay less, and subscribers who use the network more to pay more.”

The Chairman publicly supported tiered pricing as recently as this summer, when he told an audience at the annual Cable Show in Boston:

“Business model innovation is very important. There was a point of view a couple of years ago that there was only one permissible pricing model for broadband. I didn’t agree.”

But at a Silicon Valley event earlier this week, Genachowski – asked about his feelings on data caps and their impact on innovation – said:

“Anything that depresses broadband usage is something that we need to be really concerned about.”

Though the GigaOm authors take this as a reversal of policy, I’m not entirely certain. After all, caps and price tiers are two different things, and the Chairman was not asked about tiered pricing. Nor was he asked whether app developers should be prohibited from having the option to pay ISPs for a higher quality of service in delivering their bits to end users.

But for businesses, certainty on this question is paramount. Since the 2010 Order, companies as large as ISPs and as small as the thousands of application developers and device manufacturers that populate the online ecosystem have relied on the clear policy direction of the FCC. This policy told the business community that innovative pricing models would be permitted and that the marketplace – not courts or bureaucrats – would decide the success or failure of those models. And since then the business community has acted on that certainty.

Genachowski’s remarks could throw all of this certainty into disarray, and at a terrible time. As the Progressive Policy Institute wrote in a recent study, the “App Economy” enabled by broadband over the last five years has created 500,000 new jobs for tech entrepreneurs, many of whom are minority-owned businesses taking advantage of the ever-booming technology field. Chairman Genachowski should clarify his remarks and reaffirm the FCC’s previously-articulated policies on price flexibility before this uncertainty chills investment and opportunity in the economy’s lone bright spot.

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