Verizon CTO sees eventual move to metered broadband

Caution: Pricing paradigm shift ahead.

Verizon Communications Chief Technology Officer Richard Lynch told a 2009 FTTH Conference & Expo press conference today that the broadband industry “will see a pricing paradigm shift” because Internet service providers “cannot continue to grow the Internet without passing the cost on to someone.” His comments are believed to mark the first time a Verizon executive had publicly supported metered billing at some point in the future.

It’s Verizon’s hope that the FCC’s current pursuit of net neutrality as part of a national broadband policy doesn’t result in rules that limit ISPs’ ability to offer premium bandwidth offerings, while maintaining open access to the public Internet, Lynch said. When asked how Verizon would meet the burgeoning demand for bandwidth for Internet video and other services, Lynch admitted “the concept of a flat-rated infinitely expanding service for everyone just won’t work.”

“We are going to reach a point where we will sell packages of bytes,” Lynch said. “Now I’m not announcing a new pricing plan. But we have already gone this way in wireless because that is where the resource is most constrained.”

The other half of FCC Chairman Julius Genachowski’s speech a week ago, laying out expansion of the agency’s Internet principles, dealt with transparency of network management, and Lynch said Verizon has no problem with that, as long as requirements are reasonable.

“If someone wants to know the location of every router in my network, and its capacity and parameters of every router, then I have a problem,” Lynch said. “People do have a right to an understanding of what they can expect. But they can’t be engineering the network for us or with us.”

Verizon wants to be able to offer levels of service via private IP options for which customers will pay a premium, Lynch said. “We don’t want to be in a position to offer a public Internet service only. Customers would have to pay for premium services, but it would allow us to differentiate based on the type of service, time of day, etc.”

“I think this is the first time I’ve heard someone from Verizon say there is a need for metered billing,” said Vince Vittore, an analyst with The Yankee Group. “They were the one holdout, and certainly they are not going to move to it immediately. But their cost structure is certainly different, as a tier-one [carrier], their transport costs are a fraction of the smaller operators.”

Lynch said Verizon is not considering a wholesale option for its FiOS fiber-to-the-premises network at this time, but he didn’t completely rule it out.

“We would consider [wholesaling], but I don’t think we’ve seen any logical business plan that makes sense,” Lynch said. “Verizon has seen a movement in the public as a whole to want more open options, more openness in general. We’ve moved to open development on the wireless side, and we are doing the same thing with our software development kit for FiOS, inviting third-party developers to participate.”

Lynch’s primary concerns with Genachowski’s recent net neutrality push is that the FCC may be creating regulatory burdens that won’t improve things for consumers.