By Yinka Adegoke

BOSTON (Reuters) - The head of the Federal Communications Commission said he supports cable companies' charging for Internet based on how much a subscriber uses the service, and also welcomed a cable industry initiative to share Wi-Fi hotspots around the country.

Most Internet service providers charge a flat fee and price their packages based on the speed of the service. Cable providers have been considering charging based on usage, similar to the way utilities charge for electricity.

"Usage-based pricing would help drive efficiency in the networks," FCC Chairman Julius Genachowski said on Tuesday, speaking at the cable industry's annual NCTA Show.

Genachowski said usage-based pricing would also be fairer to users and would encourage competition.

Cable providers have explored usage-priced pricing, but the idea has not been well received. There have been concerns that the companies were trying to raise their fees.

Comcast Corp, the No. 1 U.S. cable operator, said last week that it would conduct a trial of usage-based pricing in two markets.

Netflix Inc Chief Executive Reed Hastings asserted that Comcast was potentially favoring its own Web video content over rivals that use its Internet pipes. Comcast executives have vigorously contested that claim.

An FCC spokesman further clarified Genachowski's remarks in a statement.

"The Chairman's remarks today about usage-based pricing emphasized the importance of consumer choice; competition, which includes over-the-top video competition; and lower prices for consumers."

But the FCC's reaction drew sharp criticism from public interest groups long concerned with cable companies' handling of broadband pricing.

"Broadband providers should be free to try different pricing strategies," said Free Press Policy Director Matt Wood. "But the FCC's apparent endorsement of these plans only makes sense in a world with real broadband competition. Unfortunately, the wireline broadband market is at best a duopoly and is trending toward a cable monopoly."

Time Warner Cable, the No. 2 U.S. cable company, launched a trial of usage-based pricing in 2009 but was forced to end it after negative feedback from consumer groups. It launched a new trial in February.

CABLE WI-FI

Genachowski praised the cable industry for its leadership in the development of Wi-Fi services and welcomed an initiative by several cable companies to allow their customers to access each other's free Wi-Fi hotspots.

Comcast, Time Warner Cable, Cablevision Systems Corp, Cox Communications and Bright House Networks said this week that they would share access to more than 50,000 hot spots.

For example, Comcast customers visiting New York would be able to access Time Warner Cable or Cablevision Wi-Fi hotspots by logging into the generic CableWiFi hotspot with their Comcast details.

The initiative could put extra pressure on telecoms companies such as Verizon Wireless and AT&T Inc, which would prefer that customers pay for 3G or 4G wireless packages for iPad tablets, laptops and other devices.

The cable companies are determined to keep pace with consumers' demands by adding more flexible and mobile features to their service plans.

(Reporting By Yinka Adegoke; editing by John Wallace and M.D. Golan)