Earlier last week, the CRTC (Canadian Radio-Television and Telecommunications Commitee) dropped a bomb on the Canadian world of Internet: ISPs in Canada will soon be obligated to charge internet users according to their broadband usage, or commonly know as Usage-Based-Billing (UBB). Put simply, the more you download, the more you pay. It’s no surprise this decision raises lots of questions and anger from Internet surfers & programmers alike; everyone wonders if it’s really a good idea.
From what I’ve been able to gather, it seems like a certain download threshold will be set (around 25Gig per month) whereas if users don’t cross that limit, they won’t have to pay the extra cash just like a typical cellphone plan. UBB is not new; in fact, it was among the first revenue models for ISPs and dial-up modems back in the early 90′s. Users had to pay according to the time they spend online. But the times have changed and now people are connected 24/7 and d/l speeds are much, much faster. So are surfing habits.
Behold the strategy
To help understand the what the CRTC’s strategy is, we’ll use the good old Supply and Demand curves. UBB’s mechanics are identical to those of a new tax (graph above):
Suppose that Q is the quantity of broadband usage and P, the average price per Gigabyte downloaded. With no UBB, the market’s equilibrium is at P1, Q1. Inducing a ‘tax’ on downloads will create frictions in the market, as the demand for broadband is lower than the quantity offered by ISPs (Q2, P2 on the graph). The supply of broadband will therefore be lowered, but sold for a higher price.
The total revenue will shift from (Q1 X P1) to (Q2 X P2).
If (Q1 X P1) > (Q2 X P2), ISPs will have lost money.
If (Q1 X P1) < (Q2 X P2), ISPs will have gained money.
To sum up, the CRTC wants to lower the quantity of broadband used by users. Why would they want to do that? That is very debatable.
Why limit broadband?
The obvious answer is, limiting piracy, which is in my opinion the strongest argument in favour for this decision. Yes everyone likes free stuff, but software companies still have to pay their employees and stockholders. Perhaps by billing those who download non-stop day and night what they should actually be paying, piracy will diminish. The thing is, geeks will find a way to bypass this. They always do. That includes tapping their neighbour’s WIFI. Argument dismissed.
Others are claiming that the CRTC works closely with cable companies, who obviously feel the pain from the shift of advertising dollars. Another strong argument if you ask me, but doing that sounds more like we want to keep the status quo and kill innovation.
The truth is, broadband usage is increasing exponentially year over year because websites are simply richer in content. Applets, Flash files, videos and others are now part of our surfing lives and simply won’t go away. What will happen if Canada is regulated by broadband quotas, are we going to lag behind like we do with mobile devices? What if one day surfing the web will become too expensive because download limits are too easily reachable thanks to outdated policies?