Regulators Are Talking About Potential Peak-Time Charges For Australian Internet Services

The chairman of the Australian competition authority, Rod Sims, has talked at length this morning about “congestion pricing” for internet service providers at a regulators’ conference in Brisbane.

A pricing framework that considered congestion levels could lead to data being more expensive at busier times of the day, instead of the flat fees for standard amounts of data.

The ACCC / AER conference in Brisbane will hold a breakout session on congestion management for communications tomorrow morning, chaired by one of the ACCC commissioners, Joe Dimasi.

Sims said the rapid rise in supply and consumption of audio and video content over the internet posed challenges for infrastructure, and noted Telstra had previously suggested consumers could be charged based on the quality of service rather than by overall download volume, or data caps.

Telcos already charge different prices for different data speeds, and can currently prioritise types of traffic on their networks. But with large numbers of people using networks at the same time, quality can deteriorate for customers. Sims has previously flagged that the ACCC monitors congestion issues on networks, but it significant that regulators are now focusing such attention on congestion options and that the ACCC chair has raised pricing changes in his opening speech.

At the end of his speech he also said that setting up a regulatory framework for the National Broadband Network would be a challenge ahead for the ACCC.

Here’s the key excerpt from his speech, with some empasis added. You can read it in full here.

CONGESTION PRICING

Most infrastructure involves networks that are, variously, subject to peak use at some times, and little use at other times. Spreading out that use will have obvious efficiency benefits for society. It has been long argued, for example, that customers should pay different tariffs for electricity at different times. In principle, tariffs set in this way should allow for more efficient network and generation utilisation, thus delaying the need for capacity expansion.

More recently congestion pricing has also been discussed in the context of communications.

Australians are consuming more audiovisual content (films, TV, video an online gaming) than ever before, and providers are diversifying the ways in which they deliver the content depending on the type, scale and reach of the services they are providing.

In particular there is much more content being delivered by Internet Protocol (IP). For example, Foxtel is moving to IP with Foxtel Play and Foxtel Go; the ABC’s iView allows catch up free-to-air TV; and TV manufacturers such as Samsung and Sony are providing internet enabled TVs.

Content delivery methods are increasingly creating opportunities for new market participants and prompting content providers, both traditional broadcasters and the established online players, to develop and diversify their existing services.

These developments have the potential to stimulate pro-competitive outcomes and increase consumer choice and quality of experience. This additional content, however, requires capacity, and if this is not met by additional investment, network congestion will result.

Network operators are, therefore, increasingly adopting traffic management practices to manage the use of capacity on their networks. For some, this includes giving priority to time critical data such as voice services, and lower priority to content generated by peer-to-peer programs.

The same technical capability that allows network operators to prioritise different categories of traffic, however, could potentially be used to disadvantage competing third party services, such as over-the-top (OTT) voice and messaging services, as has been observed overseas in Korea and the Netherlands.

Telstra has called for an industry debate around the potential for network operators to manage traffic by modifying their pricing practices, suggesting that charging consumers could be based on the quality and time of service they wish to receive rather than a download cap or data rate.

Finally, I have long argued that there are strong arguments for road congestion pricing. We can either use price or traffic queues to rationalise demand.

Looking to theory, the advantages of congestion pricing for infrastructure services are clear and even uncontentious. Why then is there such gap between theory and practice?

One explanation is consumer caution. The challenge for us is to understand this caution and see what types of safeguards might need to be put in place. I specifically note some of the questions raised in the Friday Communications session:
• Is there a role for consumers in determining how congestion is managed?
• What is the regulator’s role, and does its role differ when the network operator is wholesale only or vertically integrated?

We recognise that congestion pricing is a challenge that regulators have to confront. Given the questions posed across the conference program on this issue I hope that we will be able to make progress in our thinking on this challenge.

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