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AT&T fires back at Netflix on bandwidth pricing

AT&T's general counsel posts a response to a Netflix op-ed piece criticizing usage-based pricing for fixed Internet service.

The war of words over usage-based pricing on Internet service continues to heat up.

AT&T General Counsel Wayne Watts AT&T

AT&T General Counsel Wayne Watts fired off a response to an op-ed piece in The Wall Street Journal (subscription required) by Netflix General Counsel David Hyman criticizing the need to charge consumers a different price based on the amount of data they consume at home.

The piece, which ran on Friday, said bandwidth pricing was "bad news for consumers and threatens to slow down the innovation powering today's Internet economy."

Watts, however, argued that the continued need to invest capital in network upgrades crucial to handling that increased bandwidth necessitates that kind of pricing model. Usage-based pricing, meanwhile, allows consumers to pay for what they use, he said.

"It is hardly surprising that the general counsel of Netflix, a company that accounts for a whopping 30% of peak-hour Internet traffic in North America, would oppose Internet service providers charging customers based on how much Internet data (movies) they download," Watts said in a letter posted on WSJ.com today.

The Internet service providers have slowly been moving toward usage-based pricing, something that mirrors the moves in the wireless world. In May, AT&T set usage caps for its DSL and U-Verse Internet service.

Watts said that only 2 percent of AT&T broadband customers use 20 percent of the bandwidth on its network.

Many of those users are likely to be Netflix customers as well. The immensely popular video-streaming service has caused headaches for ISPs because of the incredible amounts of traffic it generates. Usage-based pricing could mean higher prices for consumers who constantly stream movies.

The back-and-forth also comes as Netflix deals with a huge backlash from subscribers after announcing a price hike. The increase affects customers who bundle together the streaming service with a DVD rental, and analysts believe the move is designed to get customers to switch to a streaming-only option.

"We believe the dramatic price increase on hybrid DVD-by-mail/streaming service plans is aimed at killing off the DVD business as fast as possible," said BTIG Research analyst Rich Greenfield.

That increased focus on the streaming side is only going to lead to more traffic for the ISPs. It's no wonder AT&T was quick to respond.