Calling the Broadband Bluff
Here’s another way to frame the debate over usage-based billing: After years of broadband providers marketing super-fast, unlimited Internet access at a fixed monthly price, customers are calling their bluff.
Broadband networks were originally designed with oversubscription ratios (the total theoretical peak capacity available to all subscribers vs. the actual amount of bandwidth available) of 40:1 or even higher. That worked because not everyone was online at the same time, so the average utilization of the network was far below the maximum possible peak. Meanwhile, people were mainly using broadband to check e-mail and look at Web pages: that generates bursts of traffic, not sustained flows.
Now, first with the rise of peer-to-peer networking and then the explosion of online video, the standard broadband usage profile is destroying the assumptions the networks were built on.
Video is now estimated to be 27% of all Internet traffic (per Sandvine’s 2009 survey of 20 ISPs), surpassing peer-to-peer — formerly the top bête noire of network providers. Online video viewing is increasing in the double digits year-to-year. Expectations are that the bandwidth usage will only increase; Cisco forecasts a fivefold increase in global Internet traffic from 2008-2013. The rate of wireline Internet growth is 40%-50% per year, according to the University of Minnesota’s MINTS project — somewhat slower than in past years, but still considerable (thanks to Karl Bode at BroadbandReports for the link). It sure isn’t leveling off.
The model for the unlimited-access, eat-all-you-want network worked when people were running up to the salad bar and taking a broccoli floret or a carrot stick every half an hour. Now they’re noshing for hours at a time and the crowds are only going to get thicker: time to build a bigger salad bar.
Is it possible there will not be a significant extra cost associated with accommodating additional demand, as some (including Bode) argue? Pointing to recent quarterly filings is irrelevant, as we’re talking about longer-horizon trends. If you expect incremental, single-digit-per-year growth in Internet usage, I’d agree the costs are controllable. But with 5X growth in five years, you’re going to have to bottlenecks unless you add downstream and/or upstream capacity.
It will be a marketing challenge, clearly, to introduce the idea that if you use more of a broadband service you should pay more — after the industry has successfully spent years pushing the flat-rate deal.
Time Warner Cable’s attempt to do this blew up in its face. The New York Times, for example, noted that under TWC’s proposed cap-and-overage pricing plan, customers would have to pay $150 per month for unlimited usage — more than three times what they pay for unlimited use today. The episode was a “a bit of a debacle,” TWC CEO Glenn Britt acknowledged.
There’s no way to sugarcoat the real issue: that the old oversubscription models have been shattered, and that an all-you-can-eat plan is only viable as long as you don’t eat too much.
So far, in the U.S. anyway, the suggestion that consumption-based pricing is the fairest way to offer broadband has backfired, as TWC’s lead balloon was attacked by parties ranging from U.S. Sen. Chuck Schumer to consumer activists and tech bloggers.
A lesson from Canada, where Rogers, Cogeco and Vidéotron have introduced consumption-based billing, as summed up by Multichannel News contributor Leslie Ellis: “A slow, customer-focused approach to additional usage billing works to gently unclog the network.”
Rogers, for example, spent two years implementing the plan, which included extensive customer outreach, online tools and notifications. Cogeco, according to BroadbandReports, has had issues with its own usage-based billing plan, including inaccurate bandwidth meters.
But Rogers has demonstrated it’s possible to introduce the concept of metered billing, if it’s done correctly. BendBroadband in Oregon employs overage billing for usage beyond 100 GB per month. The question for the other U.S. ISPs is when and how they’ll figure out how to do this.
Michael C commented:
Read about the real story here...
stopthecap.com/2009/11/24/cable-companies’-big-internet-swindle-they-charge-you-40-for-broadband-that-costs-them-8-to-provide/
Michael C commented:
While I agree that looking at a single quarter's capex doesn't predict much about future trends, if you look over the capex, revenue, and profit numbers over the last several quarters/years you'll see consistently that, with regard to the broadband business side of the MSOs, capex is down, revenue is up, and profits are up year over year. You also don't see a rush to rollout DOCSIS 3.0 ahead of some fictitious "exaflood". According to TWC's own CEO:
"DOCSIS 3.0 we think is a great technology and our plan is to gradually roll that out over the next couple of years," he said. "At the moment we don't see a huge enormous demand for that extra speed but we think over time there will be a demand."
So where's the mention of all this gloom and doom FUD that Todd is spewing in this article? TWC doesn't think there's an impending problem. My point is that you can't claim the sky is falling and sell the public on the lie that the Internet tubes are bursting when you're consistently telling your investors a different story.
www.multichannel.com/article/230929-Time_Warner_Cable_Queues_Up_DOCSIS_3_0_In_NYC.php
Flunkee commented:
For starters, the statement "Investment in infrastructure TODAY is a pretty darn good indicator of expected longer-horizon trends" on its face betrays ignorance about capital spending budgets. Capex is adjusted quarterly and while companies want a predictable level of investment this number can and does go up as needed. To say an ISP's investment in 3Q2009 is a "darn good indicator" of what the network capacity needs will be five years down the road is just uninformed.
Michael C commented:
@Flunkee How about putting forth your own counter arguments and having a real debate. Anything specific you disagree with? Care to share your own thoughts and ideas? Maybe you don't have any. Maybe you just like to go around calling people idiots and not offering any thing to back that claim up. The only one sounding uninformed here is you. You have offered nothing of substance to the conversation, so I can only assume you have nothing to offer.
Flunkee commented:
No, Mikey, don't think you do. You sound completely uninformed.
Michael C commented:
Flunkee writes: "dude, u r a idiot. get a clue"
Got an clue....thanks for the tip
Golden Gopher commented:
University of Minnesota = well-known astroturfer for Big Telco / Big Cable!!! Liars! ;)
Flunkee commented:
Michael writes: "Investment in infrastructure TODAY is a pretty darn good indicator of expected longer-horizon trends."
dude, u r a idiot. get a clue
Michael C commented:
"Here’s another way to frame the debate over usage-based billing: After years of broadband providers marketing super-fast, unlimited Internet access at a fixed monthly price, customers are calling their bluff." So you agree it was false advertizing?
"Now, first with the rise of peer-to-peer networking and then the explosion of online video, the standard broadband usage profile is destroying the assumptions the networks were built on." If the assumption was that the traffic of 1999 would be the same in 2009 and never increase or change, then that was a very bad mistake on the ISP's part.
"Video is now estimated to be 27% of all Internet traffic (per Sandvine’s 2009 survey of 20 ISPs)," And I'm sure Sandvine is a truley unbiased source with no dog in the fight "surpassing peer-to-peer — formerly the top bête noire of network providers. Online video viewing is increasing in the double digits year-to-year. Expectations are that the bandwidth usage will only increase; Cisco forecasts a fivefold increase in global Internet traffic from 2008-2013." Again, I'm sure Cisco has no vested interested in this "data" either "The rate of wireline Internet growth is 40%-50% per year, according to the University of Minnesota’s MINTS project — somewhat slower than in past years, but still considerable (thanks to Karl Bode at BroadbandReports for the link). It sure isn’t leveling off." Yet you acknowledge a leveling off of the growth rate.
"The model for the unlimited-access, eat-all-you-want network worked when people were running up to the salad bar and taking a brocoli floret or a carrot stick every half an hour. Now they’re noshing for hours at a time and the crowds are only going to get thicker: time to build a bigger salad bar." I'm about to vomit all over this salad bar btw.
"Is it possible there will not be a significant extra cost associated with accommodating additional demand, as some (including Bode) argue?" What do you consider "significant" and how "significant" is it compared to the associated revenue and profit from the current all-you-can-eat model?
"Pointing to recent quarterly filings is irrelevant, as we’re talking about longer-horizon trends." Investment in infrastructure TODAY is a pretty darn good indicator of expected longer-horizon trends.
"If you expect incremental, single-digit-per-year growth in Internet usage, I’d agree the costs are controllable. But with 5X growth in five years, you’re going to have to bottlenecks unless you add downstream and/or upstream capacity." What's the capacity multiplier of DOCSIS 3.0? It's more than 5x....more like up to 10x. And DOCSIS 3.0 is about as incremental and upgrade as you can get.
"It will be a marketing challenge, clearly, to introduce the idea that if you use more of a broadband service you should pay more — after the industry has successfully spent years pushing the flat-rate deal." Selling a bold-faced lie is always a challenge.
"There’s no way to sugarcoat the real issue: that the old oversubscription models have been shattered, and that all-you-can-eat plan is only viable as long as you don’t eat too much." ...or if you just re-invest in your infrastructure and adjust your oversubscription ratios a bit
"So far, in the U.S. anyway, the suggestion that consumption-based pricing is the fairest way to offer broadband has backfired, as TWC’s lead balloon was attacked by parties ranging from U.S. Sen. Chuck Schumer to consumer activists and tech bloggers." ...and from just plain 'ole ticked off customers like myself who never considered himself an "activist" until TWC's little stunt.
"A lesson from Canada, where Rogers, Cogeco and Vidéotron have introduced consumption-based billing, from Multichannel News contributor Leslie Ellis: “A slow, customer-focused approach to additional usage billing works to gently unclog the network.”" Customer-focused?!? Gimme a break! Canada is what happens when your regulatory body is itself a lobbying front for just a few big companies. And yes, a slow approach to getting screwed is always less painful.
"BendBroadband in Oregon employs overage billing for usage beyond 100 GB per month. The question for the other U.S. ISPs is when and how they’ll figure out how to do this." Just try it and you'll see a true grassroots uproar that will dwarf what happened to TWC. If you want to try the slow approach to implementing bad business practices, then I will be here every day, keyboard in hand, fighting the cable/telco lobbying lies.