The Enemies of Usage-Based Broadband
Here’s a thought experiment: A two-lane toll highway suddenly becomes highly congested during peak times — because a growing number of people are now spending, say, 10 times as much time on the road.
Where will the money come from to expand capacity?
Do you raise tolls for everyone? Or do you establish a usage-based model that (a) shifts more of the costs to the heaviest users and (b) encourages more efficient use of the shared road?
The issue of usage-based consumption for broadband services has reared its ugly head once again, after FCC chairman Julius Genachowksi said allowing such models is important to “promote network investment and efficient use of networks.”
Predictably, many parties are interested in maintaining the status quo. Part of it is just human nature: People often will overpay for unlimited-usage plans, just because they don’t like the idea of a meter running in the background.
Then there are those who would like to consume — or have their users consume — oodles and oodles of video without having to pay more for it. “If people are forced to pay per kilobit it’s like they are forced to pay per word of a book,” Todd Weaver, CEO of online-TV streaming company Ivi, told the Washington Post.
Never mind that Weaver would like to have unlimited usage broadband mainly because he’s trying to build a business around streaming broadcast TV programming over the Internet without asking for permission to do so.
The germane question is, to get networks capable of letting millions of Internet users watching substantial amounts of HD video simultaneously, how will ISPs fund the necessary upgrades?
Some observers dismiss the economic considerations for ISPs in this debate as trivial, illogically taking it as an article of faith that the cost for additional infrastructure won’t outstrip revenue.
BroadbandReports.com’s Karl Bode, an articulate critic of usage-based pricing, claims that metered broadband models “aren’t based on real economics, given the continually dropping cost of terrestrial bandwidth and hardware.”
Really? Where is the evidence that the costs to upgrade Internet networks to handle double-digit yearly increases in bandwidth utilization into the next decade can be covered without raising rates in some way?
Arguing that ISPs have managed to accommodate increased usage without resorting to consumption-based pricing so far misses the point: The wave of video-driven Internet usage hasn’t fully crashed on the shore yet. Common sense dictates that adding hundreds of Gbps of capacity is a significant cost. (Even if Level 3, with respect to its feud with Comcast over interconnection fees, wishes otherwise.)
As I’ve said before, paying based on what you use is the fairest and most reasonable approach for operating broadband networks in the era of Internet TV — see Time Warner Cable: Three Mistakes on Usage Pricing and Why Monthly Broadband Usage Caps Won’t Really Work (But Usage-Based Billing Will).
ISPs are doing this by proxy today, with differently priced tiers based on connection speed, but longer term usage-based pricing will be a better way to address this issue.
Todd Spangler commented:
thanks for the comment, Das Kapital - I think your analogy is on the nose.
Das Kapital commented:
Mr Weaver's self-serving analogy is bogus. A more accurate version for his book buyer would be a bookstore that contracted a local company to provide same-day delivery. As the demand continues to increase dramatically, the delivery vendor has to hire more drivers, buy more cars and pay for more gas. Being an evil capitalist, he of course asks the bookstore for more money. (Which, based on the confused logic expressed in some earlier comments, this vendor would be unjustified in doing unless he was on the brink of bankruptcy.)
News Hound commented:
Chimera is right. In a true usage based model, you would indeed pay a flat fee just for having a connection, plus a metered bandwidth usage charge.
Here's what most people don't understand (especially those who choose not to, like Karl Bode). In that model, the connection fee would be the larger bill component, because FIXED COST RECOVERY is the largest component of an ISP's price structure, presuming the ISP owns its network. And the ISP who's giving you a bigger pipe (think fttp) has the highest fixed cost component.
So let's say you watch 8 hours of streaming HD video a day and I watch none, and we have the same ISP. The difference in bandwidth cost incurred by our mutual ISP may not be that great in dollar cost terms. But YOU are the type of user that made it a necessity for the ISP to invest millions in upgrading its network. I would argue that YOU should not just pay a higher bandwidth charge (the variable cost component for the ISP) but also a higher share of the capital cost of the network upgrades -- i.e. a higher connection charge. ISPs aren't upgrading their networks to accommodate users who check e-mail twice a day and surf the web a bit. They're upgrading to accommodate heavy duty video streamers and gamers. (And business users, but that's a different discussion)
Lack of competition commented:
What happened to the dial-up ISPs? Why did they go flat-rate instead of staying on time-based usage? Perhaps it was because of competition? which there seems to be a lack of for broadband!
JosephSchmoe commented:
This is a move designed to appeal to investors, not consumers.
The Exaflood is a myth, and so is the notion that Comcast, TimeWarner, Cox et al are teetering on the precipce of insolvency because of flat-rate internet billing. Their profits and future billing schemes are plain to see for anyone that can read a 10K statement.
What's more insulting than the psuedoeconomics being trotted out to justify this price gouging is the idea that these companies are planning such pricing schemes out of altruism to the consumer.
megarock commented:
"Hereâs a thought experiment: A two-lane toll highway suddenly becomes highly congested during peak times â because a growing number of people are now spending, say, 10 times as much time on the road."
Yeah, Todd, I'd take ANY OTHER ROAD OUT THERE. Just like many of us have already dumped our capped provider and found one that don't cap and charge overages or cut their clients off like Charter.
The thing is internet has been unlimited for years. These same providers have been building and expanding their networks just fine while still generating substantial profits. Just ask AT & T. Just ask Comcast who made enough money to consider buying NBC/Universal.
Trust me, when the providers profit enough to consider buying a multi billion dollar corporation they don't need to charge us even more for the same basic service. And yes, we pay some of the highest prices IN THE ENTIRE WORLD already because these providers damn well know this has nothing to do with network congestion - it has everything to do with fattening their wallet before wireless technology improves enough to make the wired lines of the cable and telco companies a moot point.
Matt commented:
you're full of it, buddy.
bandwidth capability has been going up and up for years, and so now they want to up the costs even further even though they can be upgrading this entire time?
the enemy of usage based billing is every consumer that exists, mostly because usage based billing is a straight up cost increase.
mwa423 commented:
The argument for billing broadband like a utility (like most of us pay our electric or water bills) falls apart at this point: It is very difficult for me to sneak into your house and turn on your water without noticing, just like it is as difficult to come into your house and plug in space heaters to run up your electric bill. Even if I am your neighbor in an apartment building, it's difficult for me to use your utilities. However, a sufficiently motivated hacker/virus/etc. could run you up multiple thousand dollar bills without you ever noticing. Let's say your average unsophisticated broadband user sets up a WEP encrypted wireless network (or let's say your average unsophisticated cable installer sets up a WEP encrypted wireless network) and some neighbor in the next apartment over helps themselves to a couple hundred gb.
This is where usage based billing will fall apart, because even grandma who actually did only check her email and look at pictures of the grandkids will get unlucky and end up with $1000 bill she doesn't know how she got and has no way to fix.
Explain what will happen in that scenario?
jehowe commented:
Don't kid yourself, the flat-rate model is already extremely profitable. And nothing the providers have either tested or rolled out so far has been anything other than punitive, discouraging use while generating higher revenues.
If this really isn't about increasing investors profits, then I really am at a loss as to how US providers are bungling their business plan. If one were to pick up and drop any of our large providers into the European terrestrial space where you survive by competing, they would immediately sink to the bottom.
joe commented:
Why should I pay for a certain speed connection and how much I use? Usually the connections that work that way come with an SLA, 99% update, local call centers when I need help and they should call me when there is an issue. Also give me a fair price!
I think what is being debated by Karl Bode and I fully agree, is that ISPs are raking in the money hand over fist and not putting it away for upgrades. I think they all have the 56k mentality where it was enough and there were possibly no upgrades without multiple lines anywhere on the horizon, Much akin to putting away money into savings when paid not many people do. It seems ISP as a business are more focused on the costs of today and how to lower them to make more profit and the costs of tomorrow will be handled another day and by then we will have raised the subscriber base and the rates they pay.
On a more personal rant I am very upset and tired of providers complaining anytime someone wants to use the service they pay for. Yes, have this speed use as you like! Oh you'd like to use Netflix... sure, hey Netflix pay us, Youtube YouToo while we are at it. Also lets completely destroy the notion of online backup
derpalicious commented:
How uninformed Todd is about the evolution of the Dial-Up Internet. All Todd has to do is review the history of Dial-Up Internet Service. I will do it for him.
First there was AOL which was developed before the generic internet, where customers paid a subscription fee and an additional fee for connect time after their allotment was used up.
Second many Dial-Up ISP's began competing both on price and speed. ISP's had to upgrade the speed capability of their modem pools at no charge to their customers or loose their customer base.
Third most Dial-Up ISP's were not able to develop the technology to accurately charge customers for usage or found the backroom operation for usage sensitive pricing was to costly to implement. Rather than raising prices, they were forced to lower prices in order to remain competitive.
Fourth those ISP's that were charging for usage went to flat rate pricing because of competition.
AOL was the last hold out to change to flat rate pricing as many customers bailed out in favor of generic flat rate Dial-Up.
Unfortunately Todd Spangler wants to go back to the good old days when Dial-Up ISP's charged a monthly fee plus an additional fee for usage over the monthly allotment. If it were not for the monopolistic nature of Broadband Service Todd would be speaking out of the other side of his mouth, complaining of to much competition and discussing how to attract customers through novel features or services. Todd wants to go full speed in reverse.
anon commented:
Heres a reply to this article. OP must read it.
http://www.dslreports.com/shownews/Were-Not-An-Enemy-Of-UsageBased-Billing-111816
chimera commented:
The issue with the models that are being used is that they are not true usage based models. In a usage based model you would pay a flat fee simply to have a connection and then a specific rate per megabyte of consumption.
Given the fact that we have something like 10% of the users online consuming 90% of the bandwidth this change would result in a price drop for the vast majority of users. This is not what we are seeing as part of these proposals, and this is I tend to side with Karl on this.
Todd Spangler commented:
Thanks for the comments, Paul. Time-of-day billing is certainly a possible element in the mix here, akin to the way mobile phone plans are constructed.
Paul commented:
Usage based pricing isn't such a bad idea, however, if I'm going to be obligated to a quantity of bits (Kb, Mb, Gb, etc), then I want my provider to be held to their advertised speed/throughput. On the other hand, I want the value of those bits discounted proportionally if the speed drops (like in the evenings when the Internet slows considerably). Why should I have to pay full price for half the advertised throughput? Throw in 3rd (neutral) party metering and we're all set!