An OpEd in the Financial Post by UOIT professors Chirag Surti and Jeff Moretz asks “Why not just charge by the gigabyte?”
Presently, a healthy yet misguided debate rages on about UBB versus unlimited Internet plans offered by third party resellers. Few have either recognized or even discussed a simple solution to the problem. Why not just meter the use, no matter who uses it, without tiers?
I have a feeling that these professors may not have been listening to folks who are not crazy about usage sensitive pricing. We have a number of political parties saying that they will regulate usage sensitive prices, we have a movement that wants all pricing to be unlimited and yet they conclude that few have “recognized or even discussed” such a simple solution!
I suspect that in this multi-gazillion dollar internet access business, that at least one ISP somewhere in the world has done market research into how consumers respond to flat rate versus usage sensitive prices. As many of us have come to learn, as expressed by Andrew Odlyzko (U Minn) in a paper [pdf, 158KB] about a decade ago: “Users value simplicity, and in particular flat rates.”
I recommend the Odlyzko piece to all “Internet pricing and the history of communications“. He provides pricing examples “based on two centuries’ worth of data on the evolution of mail, telegraph, telephone, and data services.”
Users value simplicity, and in particular flat rates. That is why ISPs won’t charge by the gigabyte.
So they end up doing both and making no one happy. There are plenty of things that they could do to give consumers more control over internet charges, such as cutting them off when they hit there limit and having them buy more transit if they want to. But ideas like this give power to the consumer to control what they pay, which is something ISP’s aren’t interested in.
Charging buy the Gig would be interesting, especially for people using 3 or 4 Gigs a month and paying for internet tiers they really don’t need.
As a users, I do value simplicity. But I find the proposal by UOIT professors to be simpler for the user than the current system. The current system is neither truly flat-rate nor truly usage-sensitive.
Let’s also look at wireless voice plans: x minutes before 9PM, y minutes after 9 PM and weekends, $z for long-distance, $a for call display ….. Where’s the simplicity?
The simplest solution is a flat fee and no usage caps at all. That’s what Canada needs . . . and breaking up all major corporations.
In Soviet Russia, ISP pays YOU!!!
Charging by the Gig alone would be inefficient. You want to charge according to the pressure places on the system at peak periods. This is what causes congestion and triggers eventual expenditures for relief.
If a user has high usage, but mostly avoids peak periods, he places very little pressure on the network. This would be the case if the user has a comparative low speed, but downloads 24 hours per day — high usage, but relatively little of it at peak period (whenever that is).
Similarly, charging by speed alone is inefficient. A short burst of traffic at high speed would likely miss the peak period altogether, or if it does occur at peak, would place relatively little pressure on it (if the burst is short enough).
Ideally, we would want to charge for usage at the peak. But the peak differs in different parts of the network, and making sure that one charges each customer for his particular contribution to peak congestion is beyond present administrative capacities, or at least would be very costly to implement.
As the next best approximation, charging by both speed and usage is probably not bad.
George
“….People who want to ban tiered internet restrict the choices available to consumers with no differentiation allowed based on the amount of use. Usage tiers enable flexible low price plans at higher speeds….” M. Goldberg
According to Goldberg we have two types of consumers:
1. Consumer ‘A’ (the innocent user) likes a high speed line of 25Mbps but downloads only 25GB/mth and pays $15/mth.
2. Consumer ‘B’ (the hog) also has the same high speed line of 25Mbps but downloads unlimited GB/mth and pays $50/mth.
Mr Goldberg suggests:
Consumer ‘A’ is justified with having a choice of paying the lower cost because he downloads less GB than ‘B’. or the other way around ‘B’ deserves to be paying more because he uses the infrastructure more.
The way I see it:
Consumer ‘A’ wants the best quality high speed infrastructure be laid down and maintained at his place similar to ‘B’ but has decided to use it sparingly unlike ‘B’….but the question remains, did it somehow cost less than the one laid out for ‘B’? No.
No, it cost the same.
The laying out of the infrastructure at ‘A’s residence costs the same as ‘B’s.
The maintenance of the infrastructure at ‘A’s residence costs the same as ‘B’s.
Apart from the above two costs and a profit the real tranfer of GBs really has no significant costs once the line is laid out and turned on and is going down in time (in spite of what the Telco’s will tell you).
Why then is ‘B’ paying three times of ‘A’?
Is ‘B’ (the Hog) really the one subsidizing ‘A’s high speed line?
I work for one of the larger ISPs in Canada and our current tiered pricing approach was actually designed with direct input from consumers. We have spent a ton of money on consumer focus groups over the years to understand our customers most important needs when it comes to pricing and billing and then tried to build plans that meet their needs better than our competitors.
Obviously consumers would love “free” service but the majority are actually very realistic and understand that they will have to pay for the service they want. Whether it is cell phones or the internet we have consistently found that consumers want some certainty around what their bill will be at the end of each month and they don’t want to pay for more than they need. But they do want the flexibility to consume more once in a while if their circumstances changes. That is why so many plans offer a “bucket” of minutes or GBs and then a bit of a premium price for consuming capacity over the plan limits. If consumers find their consumption patterns are consistently pushing them over their plans limits they understand they can save a few bucks by upgrading to a bigger plan or conversely they can downsize their plan if consumption decreases.
The reason plans are structured the way they are is because of consumers have said they like the approach.
As for the idea of charging exclusively by the Gig – I can assure you that consumers will hate it as it fails to satisfy their very important need for bill certainty.
I chose my current ISP because they had no caps on the amount of data I can download and upload. I specifically avoided the larger telecoms because they did exactly that. It’s not that I download a great deal compared to others, but because I don’t want to worry about the occasional time that I might go over and be charged extra. I also recognized that over time the amount of data I utilized would increase and that imposing artificial limits on what I could use was both unfair and unnecessary since no matter how much data I downloaded or uploaded it would not affect the overall performance of the network in any way.
Indeed, my ISP had a guaranteed bandwidth that they alone were responsible for managing. They may have leased it from Bell, but Bell guaranteed their bandwidth in their contract. Bell would provide bandwidth, my ISP would manage it. If there were problems, it was my ISP’s responsibility to manage it. It was in the contract. Unless, of course, it was Bell’s problem to begin with.
Then Bell came after my ISP claiming that their customers were hogging Bell’s bandwidth, demanding additional compensation through UBB. How could my ISP be hogging Bell’s bandwidth since Bell guaranteed under contract a certain amount to my ISP? In fact, because of contractual obligations, that bandwidth belonged to my ISP not Bell. Bell had no right to demand anything from my ISP other than the terms of the contract they signed. So, off they went to the CRTC in an attempt to change the law and therefore the conditions of that contract.
Bell guaranteed a certain amount of bandwidth to my ISP under contract. They are required to provide it. It is none of their business what my ISP does with it. Now, they want to tell my ISP how to manage the bandwidth that they are selling to my ISP. That in turn affects me.
I chose my current ISP to get away from Bell and all the other telcos who gouge Canadians with poor product and worse service. Now Bell is coming after me in an attempt to negate that choice. They went to the CRTC to undo my ‘free market’ choice and impose their monopolistic policies on me. That is where it has gone too far.
While in the past I accepted the dictum that the provider can set the terms for their service and it is up to the customer to decide if he wants the service or not, Bell’s clear attempt to change, through the law, the conditions of a contract they signed with my ISP and therefore, though force mageuer, my contract with them is a step too far.
By going after my ISP, and all other independent ISPs, they are going after me. I am pushing back. Bell will not be allowed to charge UBB on wholesale contracts. Once we have decisively won there I will then go after Bell and the other telco’s to free their residential customers and have UBB abolished.
They came after me. Now I’m going after them.