Smart Data Pricing

Chapter 2Customer Price Sensitivity to Broadband Service Speed: What are the Implications for Public Policy?

VICTOR GLASS, STELA STEFANOVA, and RON DIBELKA

2.1 Introduction

In the prebroadband era, ¹ recovering a local telephone company's network costs for voice service was a relatively straightforward process. The users of the local network fell into two categories: end users who bought phone service and long-distance carriers who sold long-distance service to end users. The pricing arrangements were also relatively clear. The end user bought local service from the local telephone company and long-distance carriers such as AT&T and MCI paid the local phone companies for the use of their networks to complete long-distance calls. The relationships between the local and long-distance companies were clearly defined by Federal Communications Commission (FCC) rules and a standard tariff defined the services rendered by the local telephone company and the charges to long-distance carriers.

The broadband world has complicated network cost recovery considerably. In the broadband world, voice service is only one application traversing broadband networks, so it is no longer straightforward to separate it from other services. Accessing many applications over a broadband pipe produces diverse traffic patterns among users in comparison to traditional voice service, and to a large extent, usage is not closely tied to the prices they pay for broadband services. End users can buy a variety ...