Wednesday, July 13, 2011

The Busy Hour Peak and All Other Times

          Regulators often confront stakeholders keen on changing the rules of economics to secure a competitive advantage.  Currently in Canada the CRTC has under consideration an incumbent carrier proposal that would mandate metered service even for wholesale rates.  Incumbent carriers try to make metered service come across as more efficient and fair.
            On its face metered service makes sense: who wants to subsidize a heavy user?  But whether a subsidy exists depends on such factors as the cost of service, what the carrier charges and whether the heavy users/potential subsidized users cause the carrier to invest in new plant capacity.  Put another way the incremental cost to provide even a heavy user one additional unit of capacity trends toward zero unless and until providing that incremental additional unit forces the carrier to make new capacity investments. 
            Consider a parallel between an Internet minute of use and water contained in a reservoir created by a dam.  Unused Internet packet delivery capacity is similar to unused water that eventually flows out of the reservoir downstream. For Internet switching and routing foregone usage occurs instantaneously on a regular basis, while the water in a lake or reservoir appears to stay there even as water flows out also on a regular basis.
            It appears quite clear that when carriers hanker for usage based pricing they want to competitively disadvantage resellers.  Would these very same carriers completely abandon the offering of unmetered “private lines” to end users?

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