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Usage-based pricing has rapidly become one of the most controversial topics in Internet policy. Many broadband providers have been migrating from all-you-can-eat, flat-rate pricing to a variety of consumption-based pricing models. This trend has been most prominent in the wireless broadband sector, where monthly data limits were an almost inevitable solution to the surge in data demand unleashed by the smartphone and tablet revolution. Some fixed broadband providers have adopted much larger data caps for residential broadband use as well.

While regulators have generally approved this shift, some consumer groups have viewed the change with skepticism, fearing that usage-based pricing will usher in an era of higher prices, deteriorating service, and increasingly anticompetitive conduct. They are concerned that data caps serve as anticompetitive tools with which broadband providers can protect their legacy cable affiliates from upstarts such as Netflix and Hulu. They also fear that firms will use capacity constraints to create artificial scarcity and pad profits while avoiding necessary network upgrades.

Professor Daniel Lyons evaluated the public policy implications for usage-based pricing strategies. Professor Lyons is an assistant professor at Boston College Law School. He specializes in the areas of property, telecommunications and administrative law. Before joining the faculty, Professor Lyons practiced energy, telecommunications, and administrative law at the firm of Munger, Tolles and Olson in Los Angeles. He also clerked for the Judge Cynthia Holcomb Hall of the Ninth Circuit Court of Appeals.

Hudson Senior Fellow Harold Furchtgott-Roth facilitated the discussion.