More on Metering Broadband

by on September 11, 2007 · 14 comments

Last week I posted another installment in my ongoing series about the possibility of metering bandwidth in the future (“Why Not Meter Broadband Pipes?”) Make sure to read the comments to that post because the essay provoked an interesting discussion and some outstanding suggestions from our savvy TLF readers.

On a related note, Mark Desautels, Vice President of Wireless Internet Development at the CTIA (the wireless industry’s trade association) has an editorial in RCR Wireless News today entitled, “Paying for the Bandwidth We Consume.” Mark poses a question that I have raised in some of my posts on this issue:

Much is made of the fact that consumers prefer flat-rate pricing because they know what it is going to cost each month, and that is understandable. But it also creates (potentially) huge subsidies between users. My question is: If consumers were aware of the amount of the subsidies they might be paying, would they be as opposed to paying for the bandwidth they actually use as is generally believed?

That really is an interesting question and the guys over as DSL Reports point out that there are tools that users can download to help us answer that question. They are also running a poll right now asking people how much bandwidth they use per month.


I would love to see some enterprising economists or industry consultants conduct some broad-based experiments to determine what the consumer’s “willingness to pay” looks like across various categories of broadband users. I think that if some people realize how little bandwidth they were using, they might actually be more open to the idea of pure metering right from the first byte. Mark Desautels also makes that point in his essay today:

Flat-rate pricing for Internet access and bandwidth use might have had its place during the development of the Internet, but as we move into the phase of ubiquitous access, and wide disparities of usage and file size develop, particularly on the more scarce wireless bandwidth side, long-term economic network viability and fairness demand that people pay for the bandwidth they consume. Today, it is probably accurate to say that customers who pay a flat-rate fee for access and use the Internet mostly to check their e-mail and do some shopping and research are probably subsidizing—maybe to a significant extent—those who do those things plus spend lots of time downloading audio and video content, when measured by the bandwidth consumed.

But as DSL Reports asks:

The question becomes which U.S. ISP wants to be the first to try it? Which U.S. ISP wants to have competitors attack it for charging per gigabyte usage fees? Will users tolerate the migration to a bill-by-the-byte business model? That depends entirely on how much bandwidth they’re eating each month.

All excellent questions. I hope we see some experimentation on this front–both in an academic setting and the actual marketplace.

  • Jon

    The implication that customers would save money with a pay-for-usage model is misguided. Telecos are not merely covering their costs but maximizing profits. They will charge as high a rate as possible to achieve this. Without any meaningful competition and given that customers are willing to pay current rates, why would they reduce their prices? Out of the goodness of their hearts?

    One could argue that such a model would bring on new customers who were hitherto without broadband because of the cost, but the proposition that the end result would result in higher profits for the teleco would need to be supported. Moreover it is not a given that a signifcant proportion of existing customers would see any price decrease for their usage levels.

  • Jon

    The implication that customers would save money with a pay-for-usage model is misguided. Telecos are not merely covering their costs but maximizing profits. They will charge as high a rate as possible to achieve this. Without any meaningful competition and given that customers are willing to pay current rates, why would they reduce their prices? Out of the goodness of their hearts?

    One could argue that such a model would bring on new customers who were hitherto without broadband because of the cost, but the proposition that the end result would result in higher profits for the teleco would need to be supported. Moreover it is not a given that a signifcant proportion of existing customers would see any price decrease for their usage levels.

  • http://bennett.com/blog Richard Bennett

    Let’s turn this around a little, Jon:

    “[File-sharers] are not merely covering their costs but maximizing [music collections]. They will [download] as high a rate as possible to achieve this. Without any meaningful [accountability] and given that [ISPs] are willing to [charge] current rates, why would they reduce their [downloads]? Out of the goodness of their hearts?”

    It works both ways, you see.

  • http://bennett.com/blog Richard Bennett

    Let’s turn this around a little, Jon:

    “[File-sharers] are not merely covering their costs but maximizing [music collections]. They will [download] as high a rate as possible to achieve this. Without any meaningful [accountability] and given that [ISPs] are willing to [charge] current rates, why would they reduce their [downloads]? Out of the goodness of their hearts?”

    It works both ways, you see.

  • Jon

    @Richard Bennett:

    I’m not sure you understood the subject of my post. The first sentence is essentially the thesis. It has little to do with file-sharing (a significant porition of which is not illegal) nor high bandwidth usage in general (much of which is not ‘file-sharing’ in the conventional sense, c.f. Youtube).

    Maybe you can lay out your point more explicitly.

  • Jon

    @Richard Bennett:

    I’m not sure you understood the subject of my post. The first sentence is essentially the thesis. It has little to do with file-sharing (a significant porition of which is not illegal) nor high bandwidth usage in general (much of which is not ‘file-sharing’ in the conventional sense, c.f. Youtube).

    Maybe you can lay out your point more explicitly.

  • eric

    I thought the TLF looked with scorn on a la carte cable pricing. Yet TLF looks favorably on broadband metering? I am confused. If a man should not pay for bits he does not download, why should he pay for channels he does not watch? Aren’t the people who only watch one or two cable channels subsidizing TV for the more voracious viewers?

    Something doesn’t add up here. I know that technically we are talking about two different distribution schemes here, but in economic terms the two examples are not all that dissimilar.

  • Lewis Baumstark

    I can’t recall anyone on TLF dissing a la carte cable pricing; I suspect they would be quite happy with paying less to get only a select few channels. The problem is usually with government-mandated a la carte pricing.

  • eric

    I thought the TLF looked with scorn on a la carte cable pricing. Yet TLF looks favorably on broadband metering? I am confused. If a man should not pay for bits he does not download, why should he pay for channels he does not watch? Aren’t the people who only watch one or two cable channels subsidizing TV for the more voracious viewers?

    Something doesn’t add up here. I know that technically we are talking about two different distribution schemes here, but in economic terms the two examples are not all that dissimilar.

  • Lewis Baumstark

    I can’t recall anyone on TLF dissing a la carte cable pricing; I suspect they would be quite happy with paying less to get only a select few channels. The problem is usually with government-mandated a la carte pricing.

  • Barnaby

    If consumers were aware of the amount of the subsidies they might be paying, would they be as opposed to paying for the bandwidth they actually use as is generally believed?

    It would not be enough for consumers to be aware of the subsidies, they would also have to be convinced that their price would be reduced by an amount equivalent to their subsidy – should metered pricing be implemented on a from-the-first-byte basis.

    I doubt any broadband providers would be willing to price service from the first byte (where 0 bytes per month would cost $0.00). If providers implemented some sort of base service charge that included no usage or some limited usage, consumers would likely still just prefer a flat rate charge.

    At least one major broadband provider has stated that the average residential broadband customer utilities 1-3 GB of data transfer per month, and that very few customers exceed the undefined excessive use threshold. Would broadband providers really want to drastically reduce the monthly charge for the vast majority of their customers just to be able to increase the monthly charge to those very few that transfer high amounts of data? Especially if the high volume users (and possibly everyone else) would likely curb their usage?

    Per byte pricing would kill off IPTV business models, and exploration on the net in general. If Amazon has priced a video rental download at 99 cents, but the potential customer has to stop and think about what the data transfer will cost – they will probably just not bother – before they have even finished crunching the numbers.

  • Barnaby

    If consumers were aware of the amount of the subsidies they might be paying, would they be as opposed to paying for the bandwidth they actually use as is generally believed?

    It would not be enough for consumers to be aware of the subsidies, they would also have to be convinced that their price would be reduced by an amount equivalent to their subsidy – should metered pricing be implemented on a from-the-first-byte basis.

    I doubt any broadband providers would be willing to price service from the first byte (where 0 bytes per month would cost $0.00). If providers implemented some sort of base service charge that included no usage or some limited usage, consumers would likely still just prefer a flat rate charge.

    At least one major broadband provider has stated that the average residential broadband customer utilities 1-3 GB of data transfer per month, and that very few customers exceed the undefined excessive use threshold. Would broadband providers really want to drastically reduce the monthly charge for the vast majority of their customers just to be able to increase the monthly charge to those very few that transfer high amounts of data? Especially if the high volume users (and possibly everyone else) would likely curb their usage?

    Per byte pricing would kill off IPTV business models, and exploration on the net in general. If Amazon has priced a video rental download at 99 cents, but the potential customer has to stop and think about what the data transfer will cost – they will probably just not bother – before they have even finished crunching the numbers.

  • eric

    Lewis, TLF has poo-poohed a la carte pricing in terms of regulation, yes. But in a monopoly or duopoly situation where fat and happy providers have no incentive to compete with innovations like a la carte pricing, there is no alternative to regulation. So yes, the context is different, but not that different, because broadband is often a monopoly or duopoly in any individual area — the same companies are providing both TV and broadband here. And consumers may not have a choice to decide whether they like flat rate or metered service. The free market requires real options in order for the consumer to determine success or failure of a given product in the marketplace. I don’t like regulation any more than the next man. But if I want to buy a pair of shoes I have 100 choices. If I want broadband, there are only two choices, and hardly a dimes worth of difference between them. Therefore the “free market” is not actually very free, in terms of options.

  • eric

    Lewis, TLF has poo-poohed a la carte pricing in terms of regulation, yes. But in a monopoly or duopoly situation where fat and happy providers have no incentive to compete with innovations like a la carte pricing, there is no alternative to regulation. So yes, the context is different, but not that different, because broadband is often a monopoly or duopoly in any individual area — the same companies are providing both TV and broadband here. And consumers may not have a choice to decide whether they like flat rate or metered service. The free market requires real options in order for the consumer to determine success or failure of a given product in the marketplace. I don’t like regulation any more than the next man. But if I want to buy a pair of shoes I have 100 choices. If I want broadband, there are only two choices, and hardly a dimes worth of difference between them. Therefore the “free market” is not actually very free, in terms of options.

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