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Defending Google Fiber’s Broadband Pricing Freedom to Price Discriminate – Part 19 Broadband Pricing Freedom Series

Google deserves kudos for standing up to net neutrality critics who want no restrictions on the use of their broadband service, and for standing firm on principle in its new terms of service that Google enjoys the broadband freedom to price-discriminate between consumer and commercial customers, and also between broadband use that doesn’t compete with Google Fiber, and broadband use that does compete with Google Fiber, because the latter would undermine Google Fiber’s ability to earn a return on its substantial infrastructure investment.

Google recently clarified its terms of service to allow normal consumer broadband usage that involves a server that enables consumer applications like home security, multi-player gaming, and video conferencing, but continues to prohibit commercial use of servers on a consumer contract. See Google’s own words in its Google Fiber Acceptable Use Policy:

  • “…you agree not to use or allow third parties to use the Services provided to you for any of the following purposes:” …
  • To operate servers for commercial purposes.” …
  • “To make the Services available to anyone outside the property to which the Services are delivered, to resell the Services directly or indirectly, except as explicitly approved by Google Fiber in writing, or to create substitute or related services through the use of or access to the Services (for example, to provide Wi-Fi services to third parties outside of your residence).”

Google gets it. Economics not only is integral to Google Fiber’s incentive to build additional competitive broadband infrastructures that can earn a return on investment, but economics is integral to profitably operating Google Fiber so it can continue to be offered and offered in more places.

Kudos again to Google for deliberately and practically distancing itself, in this instance, from the uneconomics of net neutrality and its supporters that somehow imagine that economics and profit are bad and have no place in a free and open Internet.  

Let’s be clear about what Google is rightfully and wisely doing.

Google is reserving its right and competitive business freedom to price discriminate and offer a business gigabit service at a substantially higher price than a consumer service, because that is what the market will bear and because businesses naturally gain more monetary value from a Google Fiber gigabit service than a consumer can.

This business-consumer economic rationale for price discrimination is akin to the economic rationale and business pricing freedom to price discriminate based on usage vs. flat unlimited rate. That’s because it enables the broadband provider to price to both: reasonably manage the network and to ensure that those that most need and value the broadband service pay more than light users that value it less.

Price discrimination is normal, integral, and standard pricing procedure in any competitive marketplace with different customer needs, wants, means and purposes.      

I also want to defend Google’s price discrimination motive for not allowing consumers to use a lower Google Fiber consumer price to use the service for commercial purposes or to compete with Google Fiber by offering a competing broadband or WiFi service in their neighborhood.

Google is well aware that most people have little use for over ~15-25 Mbps, and virtually no consumer needs more than 50-100 Mbps for the foreseeable future. Google’s grand plan here is that they want to push the nation to gigabit speeds because their business and data center infrastructure needs it.

Remember, when they introduced Google Fiber the first time they emphasized that their reason for pushing bandwidth speeds so fast and so far is that bandwidth speed growth is not keeping up with Moore’s Law computing power growth and storage cost declines that both drive Google’s scale advantage. They characterized bandwidth as the weak leg of Google’s business stool.

Thus Google appreciates that their big investments in Google Fiber are to goad the sector to fund an American Internet infrastructure that can provide Google the speeds it alone can exploit on a mass market scale.

In addition, Google knows that price discrimination between consumer and business is essential to their broader gigabit Internet plans. That’s because they can’t allow consumers to undermine Google Fiber’s investment or unused high speeds (think of the unused 950 Mbps of broadband speeds as Google’s own de facto Google commons) because then people would learn a gigabit is not what most people need.

Google’s vision can’t countenance consumers successfully reselling Google Fiber to a couple dozen neighbors in their neighborhood at $5-$15 per neighbor.

If consumers could resell their 950 Gigabits of bandwidth that they aren’t going to use to their neighbors, then Google would not have the number of Google Fiber sign-ups to warrant building out Google Fiber to new neighborhoods. Egg meet chicken. Chicken meet egg. Price discrimination is the essential answer to Google’s chicken-egg conundrum.   

In sum, Google Fiber’s economically-rational and publicly-beneficial price-discrimination between consumers and businesses is a real service to everyone. It also proves that before someone truly understands broadband infrastructure economics, it is easy to fantasize that the uneconomics of net neutrality and the Internet commons is somehow good for everyone.

There is no reason Google has to allow over-the-top net neutrality demands to undermine the competitive and economic viability of their competitive, for-profit, broadband infrastructure investment in Google Fiber.

Broadband competition is strong and getting stronger from Google Fiber. And price discrimination is integral to the competitive benefits that consumers ultimately reap from broadband competition.

Broadband Internet Pricing Freedom Series

Part 1:  Netflix' Glass House Temper Tantrum Over Broadband Usage Fees [7-26-11]

Part 2: Netflix' Uneconomics [9-6-11]

Part 3: Debunking the Carping Over Broadband Usage-Pricing [3-1-12]

Part 4: Is Netflix the AOL of Web Streaming? [3-9-13]

Part 5:  Consumer Groups' Advocacy Hypocrisy [4-25-12]

Part 6: “Leaf” Vision & Broadband Usage Caps [4-27-12]

Part 7: Broadband Pricing is Naturally Evolving to Usage Tiers [5-17-12]

Part 8: Obsolete Analysis Will Doom DOJ's Antitrust Probe of Cable [6-14-12]

Part 9: Video: Scott Cleland Discusses Netflix' DOJ Complaint [6-19-12]

Part 10: SCOTUS Indecency Ruling's Effect on Net Neutrality [6-20-12]

Part 11: U.S. Net Neutrality Movement in Retreat [7-9-12]

Part 12: FCC Creates “Abundant” Uncertainty [9-17-12]

Part 13: The Real Motive behind Opposition to Broadband Usage Based Pricing [11-14-12]

Part 14: The Uneconomics of Data Cap Price Regulation and Legislation [12-20-12]

Part 15:  Wireless Plan Innovation Benefits Consumers & Competition [5-13-13]

Part 16: America's Private Video Market Success [5-16-13]

Part 17: Defending Google Fiber's Reasonable Network Management [7-30-13]

Part 18: “Monopolist” Assertions Devoid of Facts or Economic Understanding [10-2-13]

 

Q&A One Pager Debunking Net Neutrality Myths