Usage-Based Pricing Is Coming, But Don't Freak Out Just Yet

Monthly Time Spent Watching Video On Internet

Photo: Nielsen

Federal Communications Commission Chairman Julius Genachowski came out in favour of usage-based pricing for broadband yesterday. While it is not necessarily a sure thing, it looks like internet service providers are close to achieving one of their long-standing goals: the ability to charge large data consumers extra money per month.Usage-based pricing also tends to freak out online video advocates, and with good reason: over-the-top video takes up gobs of data and the extra charges could price them out of competitiveness.

However, for now it doesn’t look like they have much to worry about. Comcast will not charge an extra fee for consumers until they exceed 300 gigabytes per month.

To put that in perspective, only 1 per cent of U.S. internet users currently use that much data per month. AT&T has a lower threshold, at 250 GB, but it is still high nonetheless.

Online video companies are right to be worried about usage-based pricing, especially if it is going to replace TV as we know it as some claim. According to one estimate, streaming a 2 hour HD movie through Netflix uses ~3.5 GB. With 300 GB at your disposal, that’s about 85 movies (assuming you use the Internet for nothing else).

According to Nielsen, the average American watched a little more than 4.5 hrs of video a month on the internet at the end of last year. Americans between the ages of 18 and 24 are almost double that, at 8 hours a month, but most still shouldn’t worry about exceeding their cap.

However, given that Americans watch more than 130 hours of TV per month on average, usage-based pricing is a huge impediment to the idea of cord-cutting. Furthermore, it is fair to assume that usage-based pricing will start to trickle down to lower levels and will affect more users.

Finally, there is also the worry that the cable providers like Comcast will use usage-based pricing to bully their way into the over-the-top market. For example, Reed Hastings believes that Comcast is favouring its own video content coming through its wires.

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