I’m hearing refreshing outbursts of sanity recently on mobile-data pricing (and puzzlingly, grumbling from people I normally agree with). Usage-based data pricing is inevitable. Just because the rumblings are coming from phone companies doesn’t mean they’re wrong.

The Problem · Here’s the simplest way I can put it: Fixed-price unlimited-volume data pricing is a totally, unfixably broken idea. Because once the network operator has your monthly payment, they’re powerfully incented to keep you from using the network; there’s only downside in people enriching their lives via the Internet. It’s painfully obvious that the world really needs a pedal-to-the-metal damn-the-expense buildout of wireless data capacity. But how on earth are we going to get that if the incentives are all backward?

Why? · First, by way of background: Verizon warns demand will outstrip LTE capacity ‘as early as 2013’. Now, one ought to take the regulatory filings of any large business with a grain of salt; but this one rings true to me. Everyone I know with a smartphone keeps finding cool new things to do with it, and every one of them makes good use of an Internet connection. Plus there are in excess of a million new smartphone users every day.

Who? · Time-Warner wants variable pricing. T-Mobile does too, and you can add Vodaphone, Ericsson, Telkomsel (from Indonesia), Telenor (Norway), and IBM to the list.

How? · I can sense Net-heads all over the world rolling their eyes and shaking their heads: “Nope, I gotta have flat-rate data”, they’re thinking, “because otherwise the telephone company will rape me.” Let’s not go into whose fault it is that people feel this way; they do and it has to be dealt with. Here’s how:

Ruthless transparency from the telco as to how much you’ll pay for every MB.

A price-per-MB that, off the top, feels reasonable.

A price-per-MB that falls during the course of the month as you use more and more.

A lightweight API so that you can obsessively check how much you spent in the last week or hour or ten minutes. So that after a while you won’t need to.

Do those things, and people will sign up for bandwidth by the bucketload, because it delivers intense real-life value.

For Extra Credit · Pay commissions! If you’ve got the economics pointing in the right direction and you want people to use more bandwidth not less, then what you do is encourage people to write apps that use lots, and pay the developers a little kick-back.

This is why I just about puked when, back in February, some telecom exec said that app developers should kick money into the pot to cover the bandwidth cost so their users wouldn’t worry about it. This in spite of the fact that the app developers are getting crumbs while the telcos harvest gold.

I tweeted: “This notion that apps should pay for bandwidth is insane. Telcos should pay developers a commission for helping them sell bandwidth.”

I got some puzzled responses to that, and at least one major news organization reached out and asked if I wanted to expand on that, on Google’s behalf. Uh, please look at that disclaimer in the right margin: I have no idea if Google has a position on how bandwidth should be priced, and if we did, I’m 100% sure I wouldn’t be the one we pick to broadcast it.

Speaking of Distortions · Based on the telco commentary, I’m optimistic that we’ll get to a more rational data pricing regime. That will still leave a horribly distorted market, particularly in North America, because of the phone subsidies.

If this problem isn’t obvious to you, read Carriers Whine: We Wuz Robbed!, an exquisitely-cynical rant from Jean-Louis Gassée.

Just imagine how much clearer things would be if people bought phones from phone builders not networks, and people paid networks just for network services not phones. Sigh.