What’s the Problem with Usage-Based Billing?

By James Erwin

Usage-based billing, or UBB for short, is common practice across most industries. You get billed for the amount of electricity you use at home, the amount of gas burned to heat your apartment, and even the number of hours a lawyer works for you. The broadband industry should not be any different, but an effort is afoot to change that.

In mid-June, FCC Chair Jessica Rosenworcel announced an inquiry into data caps and has a history of criticizing the practice. ISPs have usually offered different tiers of service at different price points to consumers, with their most expensive offering including unlimited data and cheaper plans charging for more usage. Most ISPs agreed to waive data caps during the COVID-19 pandemic to enable a faster and more seamless transition to online work. While it is improbable that the evenly-split FCC will move forward with any rulemaking at this time, Democrat commissioners and left-wing activists seem likely continue to advocate for unlimited consumer data for all.

This may sound like a good proposition, but it falls apart under the most basic scrutiny. As mentioned above, usage-based billing is entirely commonplace for a host of industries. Requiring all ISPs to offer unlimited bandwidth because some have in the past is like requiring every five-star Italian restaurant to offer unlimited breadsticks just because Olive Garden does. If one accepts the premise that high-speed broadband is now a necessity, not a luxury, and uses that as justification for outlawing usage-based billing, why shouldn’t the same logic apply to electricity? It has been government policy for close to a century that universal electricity is imperative for access to modern life. Despite this, electric utilities still put meters on our houses and measure our usage to charge us. In my own apartment in DC, our electricity bill this month was significantly higher that April’s because we ran the fans and window units more in the August heat.

Of course, electricity requires power generation, which is not free for electric companies. It therefore makes sense that utilities charge us for the number of megawatts we use per hour. As it turns out, network maintenance and ongoing upgrades by ISPs are not free either.While it is true that ISPs offered flat rates during COVID, that does not mean it was a sustainable model for everyone forever. ISPs will always have network maintenance and upgrade costs associated with the infrastructure that delivers service to consumers and the capabilities of these networks improving over time.

Even if one accepts the misbegotten notion that it costs ISPs nothing to provide unlimited bandwidth to all consumers, the FCC has no legal basis to interfere with commerce on such a micro level. No consumer has been unfairly taken advantage of because they elected to pay a lower price for a plan with a data cap, so there is no demonstrable consumer harm that could justify state intervention. In many ways, this issue recalls the debate over so-called “net neutrality,” when unfounded fears of data throttling spread by Netflix and left-wing activists prompted the FCC to force ISPs to treat all bandwidth the same. The result seems to be that it was actually the net neutrality policy that slowed the internet when you compare speeds before, during, and after it was in effect. Not only is this a bad precedent to set for the state micromanaging commerce, but it would also likely diminish the quality of service.

Additionally, under the Roberts Court’s current jurisprudence on the major questions doctrine, the FCC would almost certainly exceed its authority in this matter if it tried to intervene. The FCC should not waste time and resources on rulemakings with a high likelihood of inviting a rebuke from the judiciary.

Finally, it is to the advantage of the consumer that different tiers of service are on offer. The paternalistic notion that consumers cannot make their own decisions about what is in their best interest should have long ago been excised from our public discourse. A programmer who works from home makes more money and needs far more bandwidth than a barista who only uses the internet in her off hours. The programmer can afford the unlimited data required for her job and leisure time, while the latter might choose to save money by only paying for the period of intense usage after hours as she streams her favorite show. Consumers are economically rational and will take the option best suited to their budget and needs; the FCC should not protect them from having to make these decisions while slowing down the entire network in the process.

Some ISPs may still choose to offer flat rates for unlimited bandwidth, as is their right. It is also their right to offer different tiers of service that carry data caps. If the FCC really wants everyone paying a flat rate for unlimited bandwidth, perhaps they should let ISPs with these different approaches compete and see what the consumers choose.