Comcast Ruling Means Web Usage Fees - TheStreet

The Federal Communications Commission is set to vote against the way

Comcast

(CMCSA) - Get Report

has managed bandwidth on its Internet network --- a move that industry observers say will have the unintended consequence of pushing cable operators to usage-based pricing.

With a majority vote spearheaded by FCC Chairman Kevin Martin, regulators will rule that Comcast violated federal policy by willfully delaying Internet traffic for users of person-to-person (P2P) applications, including the much-maligned

BitTorrent

service. BitTorrent is a client used to download and share large files, often illegally pirated movies and music, and one that also eats up an enormous amount of bandwidth.

During an interview with

CNBC

Friday, Martin said the FCC will order Comcast "to stop that practice where they're blocking consumers' access to certain kinds of content and applications and that they have to disclose that to their customers. One of the most troubling parts of this was not only were they blocking access, but they were hiding it from their own customers."

Craig Moffett, analyst with Sanford Bernstein, writes that the FCC's decision "will effectively prohibit network operators from employing application-specific network management techniques. In layman's terms, network operators won't be able to discriminate based on application or content.

"Regardless of who you believe, or where your individual sympathies lie, the FCC's vote ... will have important consequences," Moffett continues. "Think of it as a 'here's what you can't do' open letter."

Without the ability to target and discriminate against P2P users who are hogging massive amounts of bandwidth, Comcast and its rivals will resort to using other tools to control their networks and bandwidth usage.

That likely means a push by network operators to a usage-based pricing model may be on the horizon.

For some companies, usage-based pricing is already being employed. Last month,

Time Warner Cable

(TWC)

imposed monthly caps on the amount of data Internet users in Beaumont, Texas, would be allowed to upload and download. Subscribers who go over these caps will be charged $1 per gigabyte.

While a usage surcharge isn't expected to affect users who simply browse Web pages or check email, Internet users who download high-definition movies from

Apple's

(AAPL) - Get Report

iTunes store or

Netflix's

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download service could be subject to extra fees if they go over their quota.

Based on Time Warner Cable's provisional pricing plan in Beaumont and his own estimates, Moffett says that an

average

TV household would end up spending $185 a month on broadband usage fees. Of course, that hefty amount assumes that the household subscribes to the "Turbo" tier service and streams 57 hours of HD video per week, which is the amount the Nielsen Media Research estimates the average amount of TV consumption in the U.S. to be.Certainly, this is one extreme example, but it illustrates the rising costs of Internet usage that could slam subscribers.

"Throw in some music downloads, some photo sharing perhaps, maybe a website or two, and the costs start to spiral further," Moffett writes. "A 'Lite' tier customer would spend even more."

The practice of usage-based pricing wouldn't confined to cable operators.

AT&T

(T) - Get Report

is also mulling a surcharge for DSL customers who go above the normal amount of downloaded data on the Internet.

Last month, AT&T spokesperson Michael Coe told

TheStreet.com

that given the usage trends the company is seeing, a form of usage-based pricing for those customers who have abnormally high usage patterns is "inevitable. Usage-based pricing is one way to deal fairly with Internet usage, which is very uneven among broadband users."

"Broadband use is surging," Coe said. "Based on current trends, total bandwidth in the AT&T network will increase by 4 times over the next 3 years." He noted that AT&T's analysis of broadband users shows that a small percentage of customers use a large percentage of total bandwidth. The top 5% of consumer DSL subscribers use 46% of the total bandwidth, while the top 1% of subscribers are using 21% of bandwidth.

By Martin's own admission, the FCC wants to make sure network operators "are able to recoup a fair return on that investment. We haven't put any kind of limitations on how much they are going to be able to charge for broadband access and indeed we don't have any regulations on that." That certainly leaves the door open for companies to charge whatever they see fit, which would have ripple effects on consumers and their Internet usage.

"To put it mildly, behavior would change," Moffett writes. "Suddenly, users would stop to think about whether they did or didn't want to click on a link to a video of their grandchildren

and whether they want to use BitTorrent at all. After all, the reason people use BitTorrent today is because it's free (read: illegal). But at $1.00 per incremental gigabyte, it's not free anymore."

From an investment angle, a shift to usage-based pricing might end up being the best thing that ever to happen to network operators, even if some consider the move a regression to the charge-by-the-hour models employed by the earliest Internet service providers, like America Online, Prodigy and CompuServe.

For consumers, though, "it might be the worst thing that ever happened to applications and content," Moffett says.