In a recent New York Times article, the head of the cable television trade
association, Michael Powell, made a curious observation about Internet Service
Provider business strategy. He sees no revenue
enhancement possibilities in deliberately lowering the value proposition of
broadband Internet access by blocking or degrading specific content deliveries:
“They’re as
self-interested as Google or anybody else, but they believe they’ve found a
good business selling internet access on open, unobstructed pipes. They don’t
see how one could create a profitable business model by degrading the
experience of their consumers.” See https://www.nytimes.com/2017/07/13/business/net-neutrality-broadband-companies-fcc.html?_r=0
Mr. Powell
may have made a plausible observation about the broadband market, but there is
another big transport market where a rush to the bottom enhances a carrier’s
bottom line: commercial aviation. Three
of the four major carriers in the U.S. have created a new Economy Minus service
option where previously bundled features are prohibited, or available at a
surcharge. United even prohibits “Basic
Economy” passengers from carrying onboard a small bag.
Economists
and others might welcome the proliferation of pricing options where consumers
have to reveal preferences by paying for specific service enhancements. But in most cases, the legacy carriers
offering this new degraded service option have not lowered the fare. They have reduced the service bundle and now
priced out specific elements.
So much for
not profiting from a degradation in the value proposition.
An ISP
already has experimented with unbundling and separately pricing specific
service elements. For a brief time in
selected markets, AT&T floated a new $29 monthly fee for enhanced privacy
protection for broadband customers. See https://arstechnica.com/business/2015/02/att-charges-29-more-for-gigabit-fiber-that-doesnt-watch-your-web-browsing/. Most consumers thought privacy protection
constituted an integral part of their subscription, but of course they haven’t
read their subscription agreements that would disabuse them of that
presumption.
ISP service
diversification, unbundling and pricing experiments evidence a maturing
market. As part of this transition,
absent an explicit prohibition, expect these carriers to follow the airlines’
lead in pushing the envelope on price increases and service element unbundling.
