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ACA Agrees with Economists Hassett and Shapiro that Consumption-Based Billing Promotes Universal Broadband

In connection with an issue of increasing importance to small cable providers, the American Cable Association praised a new study by noted economists Kevin Hassett and Robert Shapiro that quantified the advantages of broadband access providers' being able to offer flexible-pricing models to their customers as the optimal means of keeping the country on track toward achieving the goal of universal broadband access within a reasonable period of time.

"ACA agrees with Hassett and Shapiro's key conclusion that flexible-pricing models will speed broadband adoption because network providers won't need to raise prices on everyone in order to recover the cost of network investments largely undertaken to satisfy those who consume the most bandwidth," ACA President and CEO Matthew M. Polka said.

During a recent round of meetings in Washington, D.C., Steve Friedman, ACA Chairman and COO of Wave Broadband in Kirkland, Wash., provided copies of the Hassett-Shapiro study to senior officials at the Federal Communications Commission and to House and Senate aides on Capitol Hill. Friedman emphasized the need for consumption-based billing to ensure that those who use the network the most pay their fair share and that light users who expect steady monthly broadband rates are not treated unfairly.

Hassett and Shapiro, who released their paper in late August in association with Georgetown University's Center for Business and Public Policy, looked at how fast the country could achieve universal broadband access under conditions where providers had the choice of using either flat-rate billing plans with unlimited usage or plans that charged high-bandwidth consumers more than occasional users.

The Hassett-Shapiro paper found that when flat-rate plans were in use, broadband access providers were forced to recover their network upgrade costs from all users equally, which drove up the cost of broadband for everyone and made it harder for the most price-sensitive consumers to buy a broadband subscription.

Reliance on flat-rate plans, Hassett and Shapiro concluded, will delay broadband adoption at the lower end of the income scale and fail to close the digital divide.

"Those who condemn consumption-based billing as a nefarious plot to corrupt the openness of the Internet should study the Hassett-Shapiro paper with great care," Polka said. "Flat-rate billing shouldn't be mandated because the costs far outweigh the benefits."

Polka also noted that the Hassett-Shapiro paper lent implicit support to ACA's position that the closed Internet business model being pursued by the Walt Disney Co.'s ESPN360.com forces cable operators into paying for the service for all of their broadband subscribers just to be able offer it to a handful of customers who are dedicated sports fans.

"ESPN360's business model drives up the cost of broadband for everyone, particularly lower-income Americans who may have no interest in watching live polo matches from the United Kingdom at 6:00 a.m. It's another type of cost-sharing model that the Hassett-Shapiro study has shown to be unfair to users living on a tight household budget, and it will delay the arrival of universal broadband," said Polka. "Media conglomerates and Web giants must be prohibited from mandating unreasonable penetration requirements for their Web-based content and services in their deals with operators, and must make their content available on the Web for consumers to subscribe to directly."

Shapiro was U.S. Under Secretary of Commerce for Economic Affairs during President Bill Clinton's second term. Hassett, the author or co-author of six books and numerous articles, was chief economic adviser to Senator John McCain (R-Ariz.) in his 2000 presidential campaign.

ACA Agrees With Hassett, Shapiro That Consumption-Based Billing Promotes Universal Broadband

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