Usage based broadband pricing: It's good for you?

Usage based broadband pricing: It's good for you?

Summary: Metered broadband access is inevitable and may even be good for adoption of speedy Internet access.

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Metered broadband access is inevitable and may even be good for adoption of speedy Internet access.

That's the argument from Bernstein analyst Craig Moffett in a research note. Moffett sets the scene:

  • The FCC's open Internet push allows for metered broadband.
  • AT&T has introduced usage caps across its wireline business. DSL customers are limited to 150 GB of monthly consumption. U-Verse subscribers get 250 GB, or the same as Comcast. Users will be charged an extra $10 a month if they exceed the cap and it's $10 per 50 GB after that.
  • AT&T has already introduced tiered wireless plans.
  • Time Warner Cable has a few usage based pricing pilots underway.

Referring to the AT&T's move last week on DSL and U-verse caps, Moffett said: "This move marks the beginning of the end of unlimited broadband."

The end of unlimited broadband will annoy a lot of tech watchers, but give broadband providers another model. And this model has no incentive to penalize Netflix or any other potential rivals to cable. Moffett writes:

The goal of moving to usage based pricing is not to undermine competition from Netflix (or anyone else… although it certainly wouldn't be good news for Internet video). And it is most decidedly not to simply "raise prices for broadband" as Public Knowledge or New America would have it (although it might well do precisely that, too). Instead, it is nothing less than to re-align the entire business model of today's infrastructure providers with the next generation of communications… so that broadband providers might stop fighting against the tide and embrace it instead.

With usage based pricing, broadband providers, and Cable operators in particular, can create an "iso-profit" curve, where the amount they make from a physical connection is about the same whether someone uses that connection for linear video or, alternatively, web video. The goal is not to stifle competition, but instead to create indifference not just to the end state of video by-pass, but indeed for all points along the way. The adoption of usage based pricing would be transformational to the debate for Cable operators, inasmuch as it would essentially indemnify them against all potential outcomes.

Add it up and Moffett argues that metered broadband will actually increase adoption. Broadband adoption is in the 63 percent range today. A sizeable chunk of America refrains from broadband due to costs. Usage based pricing changes that equation and allows more people try out broadband.

Topics: Telcos, Broadband, Networking

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  • RE: Usage based broadband pricing: It's good for you?

    Why would you even post this garbage?

    If operators want to "embrace" UBB, they should charge people $0.00 if they don't use their connection that month and move up from there depending on usage.

    Will that happen? No. Because it's a money grab like so many others have stated. They want to collect the amounts they already are collecting, and them some more. This in no way helps people who use lower amounts of bandwidth compared to others.
    grazed
    • Yes, why would you post this garbage?

      @grazed

      It does cost the carriers something to have you as a subscriber, monitor usage and bill you, even if the bill is $0. Before you make such opinionated posts, you should have at least SOME understanding of how a business functions.
      Economister
      • RE: Usage based broadband pricing: It's good for you?

        @Economister

        It was a simplified example. Real world costs wouldn't equate to more than ~$3.00. However, if they did charge said minimum to cover their costs, they would still lose a ton of money on people who only occasionally use their internet service.

        Basically, if they were fair about it like electric/gas companies are, they would lose more money than they would make from metered billing. This is why it's a money grab and nothing else.
        grazed
      • RE: Usage based broadband pricing: It's good for you?

        @Economister
        Mom and Dad always gave him free internet, so should ISPs, right?
        oldskooldj
      • RE: Usage based broadband pricing: It's good for you?

        @Economister <br>What he meant was that if you meter usage you have to give a price break to low usage as you charge more to higher usage. What metering really means is the provider wants to provide a barely adequate system then charge a stiff price for those who want full speed in the hopes they will discourage such usage so the system won't be shown to be inadequate when it actually is.
        shanedr
      • It costs them 3 cents / GB

        @Economister : I thought that with that name you'd know a bit of economy:<br><br>The problem is not that it costs Something to provide bandwidth. The problem is that it costs them 3 cents / GB (Including operational costs) and they want to charge $10.<br><br><a href="http://www.theglobeandmail.com/news/technology/gadgets-and-gear/hugh-thompson/what-is-a-fair-price-for-internet-service/article1890596/" target="_blank" rel="nofollow">http://www.theglobeandmail.com/news/technology/gadgets-and-gear/hugh-thompson/what-is-a-fair-price-for-internet-service/article1890596/</a><br><br>I would not mind UBB if the price they wanted to charge was somehow realistic. Let's say $0.30 / GB (a 1000% markup)<br><br>If I use 1 GB I pay 30 cents<br>If I use 200 GB I pay $60<br><br>That is real UBB.<br><br>But they want to charge a base rate for "up to" a max amount, regardless of how much you use. $10/GB after that.<br><br>Do you now have SOME understanding of how a business functions?
        rarsa
      • RE: Usage based broadband pricing: It's good for you?

        @Economister

        And those cable providers can charge whatever they wish BECAUSE THEY HAVE A MONOPOLY!!

        End the monopolistic practices and licensing before instituting UBB!
        James-SantaBarbara
    • RE: Usage based broadband pricing: It's good for you?

      @grazed

      Even the electric company won't charge nothing, because even the ability to use their service is something that costs them money even if you do not use electricity. However you are correct that a more realistic minimum charge needs to be established, and that a linearly based billing structure is needed to make this fair.
      Michael Kelly
      • Linearity and fairness

        @Michael Kelly

        It does not need to be linear at all. The cost per GB could easily drop as volume increases.

        "Fairess" is a highly misused concept. It usually means more for the person/group asking for fairness and less for everyone else.
        Economister
      • RE: Usage based broadband pricing: It's good for you?

        @Economister

        Don't know if I agree with that. If an ISP needs to double its capacity, the customer who downloads 200 GB/month is twice the reason for that need than the customer who only downloads 100 GB/month.

        If bandwidth were an almost unlimited resource (so long as the last mile exists) I'd agree with you, but in reality it is not even close to that. That's why electricity is billed linearly.

        And in the interest of true fairness, I say this knowing that this method would be more "unfair" to me than most other customers, since I do use Netflix pretty much daily.
        Michael Kelly
      • So &quot;fairness&quot; to you....

        @Michael Kelly

        does mean you would like to pay less, which is what I said about "fairness" in the first place. At least then we understand it is based on simple selfishness, which in itself is not necessarily a bad thing, rather than some higher moral consideration.

        About linearity: Electrical power is often not billed linearly. Large commercial and industrial customers often pay much less per kwh than residential customers do. Whether unit charges are linear, increasing or decreasing with volume will depend on the cost of providing the service as well as incentives if any that the provider or society wish to apply. My point was that there is no inherent need for it to be linear, which still stands.
        Economister
      • RE: Usage based broadband pricing: It's good for you?

        @Michael Kelly , actually in states where solar powered homes give power back to the grid, home owners have deleted their annual electricity costs and they only pay $15-$25 in taxes/fees mandated by state/federal. So that statement has been proven to be completely untrue for a number of years.
        royalef
      • RE: Usage based broadband pricing: It's good for you?

        @Michael Kelly

        Not true. PG&E does not send me a bill for natural gas in the summer, when I don't use any.
        tkejlboom
      • RE: Usage based broadband pricing: It's good for you?

        @Michael Kelly

        First, you don't know that the user using 200GB is the reason for an upgrade. It's in fact quite likely they're running at off peak times, anyway. In fact, your analogy to power is perfect, in that we have MASSIVE UNUSED CAPACITY in our internet backbone. Moffett's contention is NOT that this is the right way to deploy. His contention is NOT that it is fair. His contention is that if we just let the assholes running our last mile distribution screw over their customers, they'll rush to build out their networks so they can screw even more people.
        tkejlboom
      • RE: Usage based broadband pricing: It's good for you?

        @Michael Kelly - electricity is NOT always billed linearly. Many utilities charge less per KWh if you have an electric water heater, electric heat, electric car, et al. I count 10 different electric residential rates on the back of my utility bill, and over 50 different rates for non-residential.

        Still, I think $1/GB for the first 40GB, $0.50/GB for the next 60GB, $0.25/GB for the next 100GB, and $0.10/GB after the first 200GB (that's half the proposed U-Verse excess-usage charge... or less than half, if what the article means is there's a $10 fine for overuse, PLUS the $10/50GB charge) would be enough incentive for them to make the last mile glass instead of copper and be offering 10Gb speeds by 2015.

        If I ran a phone company I'd be replacing as much copper as possible with glass, anyway... at $4/lb, their wires would likely be worth far-more as scrap than they make hanging on poles.
        Darr247
      • RE: Usage based broadband pricing: It's good for you?

        @Economister
        "The cost per GB could easily drop as volume increases."

        Are you smoking crack that you actually believe they will drop the price and allow revenue to be lost in a pay as you go model? If the price per GB drops it will be realized and maintained by the ISP. It's not going to hit the consumer. They are also not trying to go to this model to lessen the cost of broadband for anyone. They are doing it to attract more customers who don't want to pay retail for unlimited, and stick heavy users with higher fees. It's a win win for the ISP. Today's internet doesn't really parallel the electricity usage model in that with 100% usage of electricity, 50% of that usage is not utilized to serve up advertisements to the subscriber. It IS that way with broadband. Am I going to pay for the bandwidth required to serve up ads? What about if I get a virus that starts sending email without my knowledge? I'll be paying for that too. Service Pack 20 just downloaded last night, oops, I guess that hits my monthly usage as well. This pricing model is designed to ease into this pay as you go structure so we're not immediately aware of the penis tip penetrating our asses. How do we stop this? It's bad enough the cell phone providers have the model in place so they are already full hump. I'd like to boycott any potential for double penetration now while we still have a chance. I hate corporate america!!
        ibanez1998
    • RE: Usage based broadband pricing: It's good for you?

      In Australia, UBB is the norm and has been for years. It allows ISPs to manage the load/costs on their infrastructure and allows users to pick a cap that suits their needs. The bigger the cap, the higher the costs. I agree with others that a big driver of UBB is to protect the interests of cable TV providers. That's been the case here. But I would love unmetered broadband !!
      jsim@...
    • RE: Usage based broadband pricing: It's good for you?

      @grazed

      Next question: Why is broadband so outrageously expensive in the U. S. to begin with?

      I've been living in Germany for close to a quarter of a century. Internet used to be prohibitively expensive here--now you can get a 16 megabit DSL contract for as little as 20 dollars per month, and a 50-megabit VDSL plus unlimited phone service to Western Europe and--yes--even the U. S. is 50 Euro per month (that's about $70).

      Thus, broadband in the U. S. is expensive to begin with, probably due to a cartel-like situation among the internet providers. And they are making it more, rather than less, expensive. Wouldn't that be something for the FCC to look into?
      Mad*Max
    • RE: Usage based broadband pricing: It's good for you?

      @grazed
      Pretty close. We need to give ISPs a reason to expand capacity, and that means moving to a minimal charge ($5?) for connectivity, and a sliding-scale charge per GB, decreasing as you get more toward wholesale level. The utility doesn't then need to worry about business vs. personal use or even whether you're reselling via WiFi.

      If cost per GB is $0.03, then we should start at $0.06 (100% margin) and work toward $0.04 (33% margin) as we hit the 250GB mark. If my napkin math is right, that would make the formula for cost per GB something like .03+[.03/(e^.0044x)], where x is the number of GB used. Integrate and add $5 and you should be good.

      THAT would give the industry a reason to expand capacity.
      daengbo
    • RE: Usage based broadband pricing: It's good for you?

      @grazed
      silvereagle38