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Verizon CTO advocates for metered broadband pricing

The day when consumers pay for every megabyte they use while downloading video, streaming music, or updating their Facebook statuses may be closer than you think.

Will consumers one day pay for every megabyte they use while downloading video, streaming music, or updating their Facebook statuses?

They just might. The notion of metered billing gained a major supporter Tuesday when Verizon Communications' CTO Dick Lynch told press and attendees at at fiber-to-the-home industry conference in Houston that broadband service providers "cannot continue to grow the Internet without passing the cost on to someone," according to Telephony Online.

In the future, broadband service will likely be sold in packages based on how much bandwidth a person consumes, Lynch said during that press conference at the FTTH Conference & Expo, according to reports. This metered approach is similar to how the wireless industry has operated. Voice calls are charged by the minute. Wireless carriers have long offered a "bucket" that gives subscribers a set number of voice minutes or data service. And when users go over the allotted amount, they are charged on a per minute basis.

But broadband has typically been sold in the U.S. at a flat rate. For example, consumers might pay $40 or $50 a month for 3 Mbps of service. Verizon offers its Fios Internet service, which provides 15 Mbps for $55 a month, without a Verizon phone service contract. Fios is Verizon's fiber to the home network that offers nearly limitless bandwidth capacity.

But even this super fast infrastructure that Verizon has been building for the past five years has its limits, Lynch said. He didn't announce a pricing shift, the blog GigaOm reports. But he said that even Verizon, with all its fiber capacity, will have to be careful about how it manages its bandwidth and traffic.

"We're going to have to consider pricing structures that allow us to sell packages of bytes, and at the end of the day the concept of a flat-rate infinitely expandable service is unachievable," GigaOm quoted him as saying.

Prior to Tuesday, Verizon has never advocated for metered broadband service. But the company has defended the right of other carriers to do so. In the past, Verizon has always maintained that is has plenty of capacity to offer any kind of bandwidth intensive services its customers may want. And it has often pointed out that its cable competitors cannot, because they are much more limited in terms of capacity.

During the formal portion of his speech Tuesday, Lynch once again bragged about Verizon's Fios network. The network, which has been under construction for five years now, will reach 15 million homes by the end of the year. And the company is offering up to 50 Mbps downstream and 20 Mbps upstream, some of the fastest speeds in the country.

Lynch also said during his speech that Verizon is spending $17 billion this year to build out its Fios network, maintain its 3G wireless network, begin deploying its 4G wireless broadband network, and expand its global IP network.

When he talked about why Verizon decided to make the investment in a fiber network, he explained how fiber would allow the company to add capacity indefinitely to keep up with future demand.

"Fiber gave us a future-proof technology to meet our customers' bandwidth needs today and for years to come," he said, according to a transcript of the talk. "(And) as demand grew, we (knew we) could add more capacity by upgrading the end-point optics and electronics, without changing the fiber infrastructure."

So why would Verizon need to meter its bandwidth if the company seems to have plenty of capacity?/p>

That's a good question. Lynch didn't say that Verizon had metered broadband plans in the works today. And he was quick to point out that the company is not shifting its pricing, But he did say that he hoped the that the Federal Communication Commission's plans to make Net neutrality principles formal regulation would not hurt broadband providers' ability to offer such premium bandwidth offerings, Telephony Online reported.

According to Lynch, Verizon wants to be able to offer tiered levels of service, allowing some customers to pay more for different levels of traffic. For Verizon, the idea of tiered or metered billing may not be so much about controlling bandwidth as much as it is about making money.

Dick Lynch,
Verizon CTO" credit="Verizon" />

Market leader
There's no question that Verizon has more bandwidth capacity than any other major commercial broadband provider on the market. Cable companies are working hard to upgrade their networks to Docsis 3.0 technology and AT&T is upgrading its fiber as much as it can. But Verizon is the only one that has taken the gamble to take fiber all the way to the door step.

And because it has enough capacity to serve its customers' very heavy bandwidth needs, Verizon doesn't have to throttle its traffic like other providers, such as Comcast, have done. And because it doesn't have any real bandwidth constraints, it doesn't have to look to metered billing as a way to control network usage, as Time Warner Cable once suggested.

But as Lynch said, Verizon wants to keep its options open. And it doesn't want the FCC with its Net neutrality rules to screw it up.

What's somewhat ironic in Lynch's argument for metered billing is the fact that voice calling in the U.S. is actually moving toward the broadband model. Verizon Wireless and its major competitors AT&T and Sprint Nextel offer unlimited talking plans that charge subscribers a flat rate for voice minutes. But Verizon is being careful not to lump data into the same bucket. While there are supposedly unlimited wireless data services, they are actually capped at 5GB per month. This unlimited wireless service is offered to air card subscribers as well as smartphone users.

Soon Verizon Wireless will be putting more stringent bandwidth caps on wireless plans for its regular feature-phones. And customers, who buy some phones with Internet access and Qwerty keypads, will be forced into one of two data plans with low bandwidth caps.

It seems like these moves suggest that Verizon is looking for more ways to monetize its network.

"We don't want to be in a position to offer a public Internet service only," Telephony Online quoted him as saying. "Customers would have to pay for premium services, but it would allow us to differentiate based on the type of service, time of day, etc."

Verizon has every right to get the most money it can from its customers for its service. The company has invested heavily in its network. And most experts would agree that it has one of the best wired and wireless broadband networks in the U.S. But judging from how people reacted to Time Warner's suggestion that they might tier service or offer metered billing, it's not likely to go over well with consumers.

People are used to paying a flat rate for broadband service. And while most people know what a minute during a phone call feels like, they have no idea how many megabytes it takes to send e-mails, download pictures, surf the Web, or update their Facebook status.

Still, Lynch is convinced that the government must make sure that regulation does not hurt the company's opportunity to make money in this way.

"We need to guard against turning technical and business decisions into political decisions," he said during his speech. "Dynamic industries like ours require flexible solutions that can evolve and adapt to a changing environment--not rigid regulatory solutions that are one step behind the marketplace."