Once Again, Why Not Meter Broadband Pipes?

by on September 7, 2007 · 16 comments

Well I apologize if I’m starting to sound like a broken record by asking this question yet again, but what would be wrong with metered pricing for broadband pipes? I have asked that question several times before, most recently in my post earlier this week on wi-fi piggybacking. I pose it again today in light of another article about a handful of customers apparently having their broadband connection cut-off because of excessive downloading.

According to a front-page article in today’s Washington Post entitled “Shutting Down Big Downloaders“:

As Internet service providers try to keep up with the demand for increasingly sophisticated online entertainment such as high-definition movies, streaming TV shows and interactive games, such caps could become more common, some analysts said. It’s unclear how many customers have lost Internet service because of overuse. So far, only Comcast customers have reported being affected. Comcast said only a small fraction of its customers use enough bandwidth to warrant pulling the plug on their service.


And as the article points out, there certainly are legitimate strains that can be placed on the system by excessive bandwidth usage:

As Internet users make more demands of the network, cable companies in particular could soon end up with a critically short supply of bandwidth, according to a report released this month by ABI Research, a New York market-research firm. This could lead to a bigger crackdown on heavy bandwidth users, said the report’s author, Stan Schatt. “These new applications require huge amounts of bandwidth,” he said. Cable “used to have the upper hand because they basically enjoyed monopolies, but there are more competitive pressures now.”

These problems are only going to grow more serious in the future as the number of subscribers rises, bandwidth demand grows, and applications become more sophisticated. (Heck, I’m have a blazing fast Verizon FIOS fiber optic connection into my home but even it gets bogged down at times when I am trying to download massive high-def movie files via the XBox 360 Marketplace. Some of those downloads take hours.)

One thing is certain: In the the future, just sending letters to customers asking them to scale back bandwidth consumption is not going to be an effective strategy for carriers looking to deal with this problem. And terminating service at some arbitrary usage level is just going to enrage a large number of customers, not to mention all those groups that are constantly agitating for more regulation of broadband companies.

So, once again, the solution is metering. But, as I pointed in my last essay on this topic, “Why Not Meter?“, the problem with pure metering of the pipe is that it will likely encounter a great deal of resistance–from both consumers and potentially even policymakers. I made this point in this older essay on networking pricing:

First, broadband operators are probably concerned that such a move would bring about unwanted regulatory attention. Second, and more importantly, cable and telco firms are keenly aware of the fact that the web-surfing public has come to view “all you can eat” buffet-style, flat-rate pricing as a virtual inalienable right. Internet guru Andrew Odlyzko has correctly argued that “People react extremely negatively to price discrimination. They also dislike the bother of fine-grained pricing, and are willing to pay extra for simple prices, especially flat-rate ones.” And George Gilder, another famous Net guru, noted in his book Telecosm that, “Everyone wants to charge different customers differentially for different services. Everyone wants guarantees. Everyone wants to escape simple and flat pricing. Forget it.” Gilder basically argues that simple and flat pricing is almost always preferable from a consumer perspective and, therefore, network providers should avoid more complicated pricing schemes.

I agree with Odlyzko and Gilder, but I do not think that means we need to give up on metered pricing altogether. What I think would be most efficient and pragmatic solution is what economists call a “Ramsey two-part tariff.” A two-part tariff (or price) would involve a flat fee for service up to a certain level and then a per-unit / metered fee over a certain level.

I don’t know where the demarcation should be in terms of where the flat rate ends and the metering begins; that’s for market experimentation to sort out. But the clear advantage of this solution is that it preserves flat-rate, all-you-can-eat pricing for casual to moderate bandwidth users and only resorts to less popular metering pricing strategies when the usage is “excessive,” however that is defined.

I’m interested in hearing what others think of this idea. Are there technical reasons it wouldn’t work for broadband access? If we can use such pricing schemes for electricity or gas, why not broadband? Finally, where should the cut-off between flat-rate and metered pricing be made?

  • Roland Dobbins

    The two-tier scheme can be found many places outside the US.

    No, there’s no technical obstacle – the SPs have the necessary technology (how else could they decide whom to police down, heh?), and metering is common for enterprise transit (big pipes for companies/orgs). The obstacle is a Mexican standoff – nobody wants to do it because the first one to go metered will be savaged by the competition.

    A two-tier metered sytem is the solution to the broadband downloading capacity issue as well as the ‘network neutrality’ issue. But it seems that no broadband SP is willing to stick its neck out for fear of having its head chopped off.

  • Roland Dobbins

    The two-tier scheme can be found many places outside the US.

    No, there’s no technical obstacle – the SPs have the necessary technology (how else could they decide whom to police down, heh?), and metering is common for enterprise transit (big pipes for companies/orgs). The obstacle is a Mexican standoff – nobody wants to do it because the first one to go metered will be savaged by the competition.

    A two-tier metered sytem is the solution to the broadband downloading capacity issue as well as the ‘network neutrality’ issue. But it seems that no broadband SP is willing to stick its neck out for fear of having its head chopped off.

  • Charles

    What I think would be most efficient and pragmatic solution is what economists call a “Ramsey two-part tariff.”

    That’s how cable and dsl internet was priced in Québec in 1999. I haven’t had an account there since 2005, but I believe it’s still priced the same way.

    I don’t know where the demarcation should be in terms of where the flat rate ends and the metering begins; that’s for market experimentation to sort out.

    How about the point where telcos decide to cut-off customers? Up to that point they seem pretty happy with your usage, at least in as much as they’ll let you continue. That would logically be their break-even point or at least the point where their return goes below a magic treshold.

    Regarding net neutrality, though, while this solves or at least alleviates the bandwidth problem (and I agree with you that metered pricing is a large part of the solution to the current “situation”), it doesn’t address anti-competitive practices. If my ISP decides to block or degrade any packet that has to do with my vonage service, I’d be pissed. I know the standard answer to this is to say that “customers have a large array of providers to choose from”, but that simply isn’t true everywhere. I live in northern new mexico. I have 2 choices, comcast or qwest, with one or the other still not accessible in certain arease. So the choice is really more like 1.5, depending on which appartment I rent. I find it unfortunately foreseable that they would both decide to throttle down any packet that has to do with vonage and then just say that their service is so much better. They both have a huge incentive to do this, after all, they both offer voip service that they try to market bundled with their isp services.

    In any case, though, I agree with you that metered pricing is definitely a large part of the equation. Anti-competitive practices still have to be adressed though, and in a way that gives the consumer a direct voice and confidence in the market. It doesn’t appear enough for me to say that it suffices for vonage to be able to file against an isp that would decide to put forward such practices. At least, from a consumer point of view.

  • http://www.techliberation.com/ Tim Lee

    Adam, I think this is generally a good argument, but I can think of a couple of reasons telcos might be doing it the way they are. One factor is that not all bandwidth is the same. On any communication network, you have a lot of spare capacity most of the time. It’s only during periods of peak usage that the customer’s bandwidth uses has any marginal effect. Some customers might consume a lot of bandwidth but keep weird hours, contributing very little to the overall congestion problem. Other customers might use a moderate amount of bandwidth but do it only during peak hours. A bandwidth cap might needlessly constrain the former user while doing little to ease congestion problems.

    The same principle applies to different networks. The amount of congestion experienced by any one user is a complex function of the kinds of connections employed upstream from him and how many users he’s sharing that link with. On a part of the network that’s been recently upgraded, or that has relatively few users, there may simply be no congestion problems. Other parts of the network might have lower-quality links or more users competing for the same bandwidth.

    So the ideal metering policy will be different from network to network and from one time of day to another. Telcos can either adopt a one-size-fits-all policy that will be too restrictive in some areas and not restrictive enough in others, or they can adopt a more complicated metering policy that’s expensive to implement and prone irritate and confuse their customers.

    On the other hand, with their current policy, they can give the vast majority of users an all-you-can-eat plan. And when there are congestion problems, they can look at their logs and pinpoint the specific users who are using the most bandwidth in the particular time and on the particular network that’s having problems.

    I think it’s important not to underestimate the value consumers place on “all-you-can-eat” promises, especially for a commodity like bandwidth that doesn’t make intuitive sense to most people. If telcos start quoting a bandwidth cap, even a very high one, a lot of consumers are going to fret about exceeding it, even if they’re nowhere close to the limit. They may feel a lot more comfortable just paying a flat monthly fee and not worrying about how much bandwidth they’re using.

  • Charles

    What I think would be most efficient and pragmatic solution is what economists call a “Ramsey two-part tariff.”

    That’s how cable and dsl internet was priced in Québec in 1999. I haven’t had an account there since 2005, but I believe it’s still priced the same way.

    I don’t know where the demarcation should be in terms of where the flat rate ends and the metering begins; that’s for market experimentation to sort out.

    How about the point where telcos decide to cut-off customers? Up to that point they seem pretty happy with your usage, at least in as much as they’ll let you continue. That would logically be their break-even point or at least the point where their return goes below a magic treshold.

    Regarding net neutrality, though, while this solves or at least alleviates the bandwidth problem (and I agree with you that metered pricing is a large part of the solution to the current “situation”), it doesn’t address anti-competitive practices. If my ISP decides to block or degrade any packet that has to do with my vonage service, I’d be pissed. I know the standard answer to this is to say that “customers have a large array of providers to choose from”, but that simply isn’t true everywhere. I live in northern new mexico. I have 2 choices, comcast or qwest, with one or the other still not accessible in certain arease. So the choice is really more like 1.5, depending on which appartment I rent. I find it unfortunately foreseable that they would both decide to throttle down any packet that has to do with vonage and then just say that their service is so much better. They both have a huge incentive to do this, after all, they both offer voip service that they try to market bundled with their isp services.

    In any case, though, I agree with you that metered pricing is definitely a large part of the equation. Anti-competitive practices still have to be adressed though, and in a way that gives the consumer a direct voice and confidence in the market. It doesn’t appear enough for me to say that it suffices for vonage to be able to file against an isp that would decide to put forward such practices. At least, from a consumer point of view.

  • http://www.techliberation.com/ Tim Lee

    Adam, I think this is generally a good argument, but I can think of a couple of reasons telcos might be doing it the way they are. One factor is that not all bandwidth is the same. On any communication network, you have a lot of spare capacity most of the time. It’s only during periods of peak usage that the customer’s bandwidth uses has any marginal effect. Some customers might consume a lot of bandwidth but keep weird hours, contributing very little to the overall congestion problem. Other customers might use a moderate amount of bandwidth but do it only during peak hours. A bandwidth cap might needlessly constrain the former user while doing little to ease congestion problems.

    The same principle applies to different networks. The amount of congestion experienced by any one user is a complex function of the kinds of connections employed upstream from him and how many users he’s sharing that link with. On a part of the network that’s been recently upgraded, or that has relatively few users, there may simply be no congestion problems. Other parts of the network might have lower-quality links or more users competing for the same bandwidth.

    So the ideal metering policy will be different from network to network and from one time of day to another. Telcos can either adopt a one-size-fits-all policy that will be too restrictive in some areas and not restrictive enough in others, or they can adopt a more complicated metering policy that’s expensive to implement and prone irritate and confuse their customers.

    On the other hand, with their current policy, they can give the vast majority of users an all-you-can-eat plan. And when there are congestion problems, they can look at their logs and pinpoint the specific users who are using the most bandwidth in the particular time and on the particular network that’s having problems.

    I think it’s important not to underestimate the value consumers place on “all-you-can-eat” promises, especially for a commodity like bandwidth that doesn’t make intuitive sense to most people. If telcos start quoting a bandwidth cap, even a very high one, a lot of consumers are going to fret about exceeding it, even if they’re nowhere close to the limit. They may feel a lot more comfortable just paying a flat monthly fee and not worrying about how much bandwidth they’re using.

  • http://radgeek.com/ Rad Geek

    Of course, this kind of scheme is exactly how nearly every cell phone plan in the United States works: you’re allowed a certain level of usage (minutes of talk time) at the fixed monthly rate, and if you exceed that level, you are metered and charged for your excess usage. Different plans allow for different levels of unmetered usage, which with cell phone plans is rather important, since the charges for usage over the limit are exorbitant.

    Tim Lee: It’s only during periods of peak usage that the customer’s bandwidth uses has any marginal effect.

    Every cell phone plan which offers unlimited nights and weekends already engages in this kind of time-based calculation.

    I don’t think this sort of change would actually be much of a novelty for people who are used to buying telecommunications services.

  • http://radgeek.com/ Rad Geek

    Of course, this kind of scheme is exactly how nearly every cell phone plan in the United States works: you’re allowed a certain level of usage (minutes of talk time) at the fixed monthly rate, and if you exceed that level, you are metered and charged for your excess usage. Different plans allow for different levels of unmetered usage, which with cell phone plans is rather important, since the charges for usage over the limit are exorbitant.

    Tim Lee: It’s only during periods of peak usage that the customer’s bandwidth uses has any marginal effect.

    Every cell phone plan which offers unlimited nights and weekends already engages in this kind of time-based calculation.

    I don’t think this sort of change would actually be much of a novelty for people who are used to buying telecommunications services.

  • Phil Sheard

    Interesting post Adam.

    I saw this thread through Google alerts and this is my first time on your blog.

    I work for a UK ISP – PlusNet (www.plus.net) – that has been ‘metering’ broadband for a number of years now.

    Tim Lee makes an excellent point that most people don’t know how much their usage is, so any number that is presented, be it 1GB or 1000GB will seem too low.

    PlusNet’s tackled the problem through open communication and education.

    Take a look at these links:

    * Our view that “unlimited” broadband is a myth – http://www.plus.net/unlimited_broadband/

    * …and on that all-you-can-eat attitude and why sharing is necessary – http://www.plus.net/support/broadband/quality_broadband/sharing_broadband.shtml

    * ‘View my usage’ – an online display of everything you could want to know about your behaviour – http://www.plus.net/support/broadband/usage/vmbu.shtml

    Thanks for the post

  • Phil Sheard

    Interesting post Adam.

    I saw this thread through Google alerts and this is my first time on your blog.

    I work for a UK ISP – PlusNet (http://www.plus.net)</a> – that has been ‘metering’ broadband for a number of years now.

    Tim Lee makes an excellent point that most people don’t know how much their usage is, so any number that is presented, be it 1GB or 1000GB will seem too low.

    PlusNet’s tackled the problem through open communication and education.

    Take a look at these links:

    * Our view that “unlimited” broadband is a myth – http://www.plus.net/unlimited_broadband/

    * …and on that all-you-can-eat attitude and why sharing is necessary – http://www.plus.net/support/broadband/quality_broadband/sharing_broadband.shtml

    * ‘View my usage’ – an online display of everything you could want to know about your behaviour – http://www.plus.net/support/broadband/usage/vmbu.shtml

    Thanks for the post

  • http://www.techliberation.com/ Tim Lee

    Rad Geek, one difference is that people know what a minute is. Most people have no idea what a megabyte is. So if you institute a cell-phone-style plan where people have a capped number of minutes during peak hours, it’s going to create some anxiety among users who have no idea how much bandwidth they use but worry that it’s going to be too much.

  • http://www.techliberation.com/ Tim Lee

    Rad Geek, one difference is that people know what a minute is. Most people have no idea what a megabyte is. So if you institute a cell-phone-style plan where people have a capped number of minutes during peak hours, it’s going to create some anxiety among users who have no idea how much bandwidth they use but worry that it’s going to be too much.

  • http://www.manifestdensity.net Tom

    Good points all around — I’m sorry to be commenting so late. A few quick responses:

    - Tim’s point about ISPs needing to manage network segments differently is a good one, but I don’t see that it’d be too much of a problem. ISPs already offer different terms in different areas in the form of varying prices and promotional offers. Users might be a little irked to find out that users elsewhere have higher caps, but in most cases they wouldn’t know or care. I certainly don’t know how my DSL bill would be different if I lived elsewhere (but I’m sure it would be).

    - Consumers will need to be made aware of how much bandwidth they’re using, but it’s not a very hard problem, I don’t think. Sending daily emails once users have hit a usage threshold (prior to the limit at which prices increase) would suffice — it’s what my web host does, and it works fine. And it’d be trivial for router manufacturers to stick a little LED bar graph on routers to provide even more immediate feedback — it’s easy to imagine all sorts of alert services that could spring up. Consumers can deal with metered electricity, water and gas. I think they’d be able to get used to metered bandwidth pretty quickly.

    - There’s no reason it has to be either/or. ISPs can simply offer both payment options, then slowly adjust the flat fee upward over the course of a few years to shift customers over to metered pricing. The limited broadband choices in most areas make me think that this wouldn’t send customers fleeing — they’re already used to prices gradually going up.

  • http://www.manifestdensity.net Tom

    Good points all around — I’m sorry to be commenting so late. A few quick responses:

    - Tim’s point about ISPs needing to manage network segments differently is a good one, but I don’t see that it’d be too much of a problem. ISPs already offer different terms in different areas in the form of varying prices and promotional offers. Users might be a little irked to find out that users elsewhere have higher caps, but in most cases they wouldn’t know or care. I certainly don’t know how my DSL bill would be different if I lived elsewhere (but I’m sure it would be).

    - Consumers will need to be made aware of how much bandwidth they’re using, but it’s not a very hard problem, I don’t think. Sending daily emails once users have hit a usage threshold (prior to the limit at which prices increase) would suffice — it’s what my web host does, and it works fine. And it’d be trivial for router manufacturers to stick a little LED bar graph on routers to provide even more immediate feedback — it’s easy to imagine all sorts of alert services that could spring up. Consumers can deal with metered electricity, water and gas. I think they’d be able to get used to metered bandwidth pretty quickly.

    - There’s no reason it has to be either/or. ISPs can simply offer both payment options, then slowly adjust the flat fee upward over the course of a few years to shift customers over to metered pricing. The limited broadband choices in most areas make me think that this wouldn’t send customers fleeing — they’re already used to prices gradually going up.

  • Jamie

    Here in New Zealand, most broadband plans follow a tiered model. In the majority of cases, you get a certain amount of full-speed traffic per month (e.g. 10GB). Once you’ve transferred that amount of data, you’re speed-restricted to 64KB/s up/down.

    There are some providers who are a little different. Some charge per extra GB, rather than restricting speeds. Another gives you daily caps, rather than monthly, meaning you have a shorter wait if you’re speed-restricted. There are also a number of “unlimited” plans that have fair use restrictions.

    All of this creates a flexible market, and people are happy to shop around for what suits them best. New users tend to go with providers that give good customer service. Low-end users might go with a low speed, cheap offering. High-bandwidth users pay more for higher speeds and bandwidth caps.

    Now we just have to wait for our main lines company to unbundle the local loop (plans currently in progress), and we’ll have a really competitive broadband industry.

  • Jamie

    Here in New Zealand, most broadband plans follow a tiered model. In the majority of cases, you get a certain amount of full-speed traffic per month (e.g. 10GB). Once you’ve transferred that amount of data, you’re speed-restricted to 64KB/s up/down.

    There are some providers who are a little different. Some charge per extra GB, rather than restricting speeds. Another gives you daily caps, rather than monthly, meaning you have a shorter wait if you’re speed-restricted. There are also a number of “unlimited” plans that have fair use restrictions.

    All of this creates a flexible market, and people are happy to shop around for what suits them best. New users tend to go with providers that give good customer service. Low-end users might go with a low speed, cheap offering. High-bandwidth users pay more for higher speeds and bandwidth caps.

    Now we just have to wait for our main lines company to unbundle the local loop (plans currently in progress), and we’ll have a really competitive broadband industry.

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