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Could Use-Based Broadband Pricing Help the Net Neutrality Debate?

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Yesterday, thanks to a leaked memo, it came to light that Time Warner Cable intends to try out use-based broadband pricing on a few of its customers. It looks like the plan is for several tiers of use, with the heaviest users possibly paying overage charges on a per-byte basis. In confirming its plans to Reuters, Time Warner pointed out that its heaviest-using five percent of customers generate the majority of data traffic on the network, but still pay as though they were typical users. Under the new proposal, pricing would be based on the total amount of data transferred, rather than the peak throughput on a connection.

If the current, flattened pricing is based on what the connection is worth to a typical customer, who makes only limited use of the connection, then the heaviest five percent of users (let’s call them super-users as shorthand) are reaping a surplus. Bandwidth use might be highly elastic with respect to price, but I think it is also true that the super users do reap a great deal more benefit from their broadband connections than other users do – think of those who pioneer video consumption online, for example.

What happens when network operators fail to see this surplus? They have marginally less incentive to build out the network and drive down the unit cost of data transfer. If the pricing model changed so that network providers’ revenue remained the same in total but was based directly on how much the network is used, then the price would go down for the lightest users and up for the heaviest. If a tiered structure left prices the same for most users and raised them on the heaviest, operators’ total revenue would go up. In either case, networks would have an incentive to encourage innovative, high-bandwidth uses of their networks – regardless of what kind of use that is.

Gigi Sohn of Public Knowledge has come out in favor of Time Warner’s move on these and other grounds. It’s important to acknowledge that network operators still have familiar, monopolistic reasons to intervene against traffic that competes with phone service or cable. But under the current pricing structure, they’ve had a relatively strong argument to discriminate in favor of the traffic they can monetize, and against the traffic they can’t. By allowing them to monetize all traffic, a shift to use based pricing would weaken one of the most persuasive reasons network operators have to oppose net neutrality.

Comments

20 responses to “Could Use-Based Broadband Pricing Help the Net Neutrality Debate?”

  1. StanS

    Reality = Raise prices for heavy users and keep the prices the same for regular users.

    Reply
  2. Brad

    I see TW running into a buzzsaw with this.

    Some possible effects of this:
    – people now have more incentive to “steal” other people’s WiFi (anyone read Schneier recently?)
    – people user more bandwidth at the office
    – Non-TW VoIP users being slammed because of their phone calls’ bandwidth
    – Resistance from sites that require users to have lots of (cheap) bandwidth, e.g. YouTube

    I could go on and on…. but trust me, this is an uphill battle. I used to live in Germany. The “pay as you go” model used to be ubiquitous. Now everywhere you see advertisements for …. “flat rate”….

    TW is going the wrong direction. Build out your network. Continue to charge in tiers for pipe thickness. Treat your customers with respect.

    If they charge someone who uses 100GB/month let’s say $50, are they going to charge granny $1/month for her < 1GB usage? Of course there are also fixed costs, so that was more rheotorical, but the average American will begin to view the cable companies much in the way they view today’s cell phone companies, i.e. with contempt & spite.

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  3. Barry

    In addition to David’s observation about telecom companies going against net neutrality to protect their other businesses (telephone, cable TV), I’m concerned that the telecom companies, despite implementing tiered bandwidth pricing for their own customers, will still try to double-dip by charging content purveyors (read: Google) who otherwise aren’t their customers for delivery of content at a “preferred” rate.

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  4. Chris

    This is how it is in Australia for a large percentage of the plans. You pay an amount for a set GB quota. When you go over you are either charged an excess data charge, or more likely have you download speed capped to a very low rate until the next pay period when you are returned to full speed and your monthly quota is reset.

    This way seems fairer to me than all you can eat, with a small number of leechers being supported at the expense of the many. Perhaps its the fact that I’m use to this type of internet. I’m not aware of anyone in Australia that offers real unlimited internet (in fact the internet service providers have been force to remove that word from their advertising). If you want to download 100GB a month, why should you pay the same as someone who only downloads 5GB per month?

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  5. Miral

    Ditto to what Chris said for New Zealand. However the biggest problem is that the data caps on the plans are very uneven with price, and offerings vary wildly across different ISPs.

    We do have some supposedly “all you can eat” plans (though the term now is “fair use” plans), which actually just means that they’ll leave you alone until you start using significantly more than the average amount of data, at which point they’ll try to get you to change to a more expensive plan. (And the performance is universally terrible, partly due to data shaping and partly due to too many people on too small a network.)

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  6. MathFox

    I do think that having your customers pay for their network use is a far more sensible plan than having content providers pay for “priority” handling. In a market with sufficient competition it will give rise to diversification of subscription plans where the cost of connectivity is more fairly distributed over the customers. With insufficient competition these plans could end up as a way to extract fees from customers to post nice company profits.

    In the (pretty competitive) Dutch broadband market caps (and per Megabyte fees) have been abolished because the customers didn’t like them, so I don’t expect that Time-Warner’s plans will fly.

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  7. paul

    I don’t really think that usage-based pricing would remove an argument against net neutrality. Many of the services that ISPs want to charge extra tolls (VOIP, some streaming video) aren’t so much bandwidth hogs as quality-of-service hogs. So the ISPs change a few words and make the same (mostly bogus) arguments as they do now.

    And in addition to the obvious issues about not adjusting lower-tier prices to account for the lower usage, there’s a huge question about accountability here. Who among us would trust a typical ISP to do a good job of measuring the packets actually sent or requested by every user and charging appropriately? There would be an enormous incentive for ISPs to allow excess packet traffic aimed at their users.

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  8. Eye for eye, bit for bit

    Why not extend Time Warner’s model to other areas? For example:

    – families who watch more TV should pay more,
    – the granny who uses the bus more frequently should also pay more,
    – the frequent flyers who make airline companies overbook their flight should pay more,
    – and last, but not least, the managers at Time Warner who waste the time of psychiatrists more frequently should pay more,

    I love that model.

    Reply
  9. Nicolás

    Venezuelan ISPs offer both per-use and unlimited plans. Almost everybody starts with a per-user plan since they are cheaper. The problem is that you can’t query what’s your usage until you get the monthly bill and there is no easy way to dispute an outrageous charge — “your computer must have a virus” is the answer from the call center — so most users switch to an unlimited plan after a few months. Less headaches this way.

    I agree is fair to charge per-use, but short of a screen in my router-modem (just like the power meter outside my house) I don’t trust the ISPs not to miscalculate how much I owe them.

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  10. Hawkeyeaz1

    It won’t work.

    I give two reasons:
    Firstly, phone companies (who are often the same as the ISP now days, or soon will be) offer “unlimited local” and sometomes “unlimited long distance calling” for a flat rate. If you live talking to someone on the phone (and some people do–especially cellphones), then you are a high bandwidth user, and are not charged more. However, the user who only makes maybe a 5 minute call a day (or less–if it is for emergency purposes only), will be paying the same price. Sure, if they had done this years ago (for internet–and to some degree they did), then it would work. But not now.

    Secnodly, devices are increasingly becoming dependant upon the internet. It will be only a few more days (figurative) before all devices that require electricity are connected to the internet. Thus, bandwidth needs of customers are going to increase. Sure, some users will still be ‘minimalistic users’ and some ‘heavey users’, but it will not longer be a factor of min usage multiplied by a certain number–it will be a base usage all devices require, plus personal use. And some of those devices are, or easily could be video devices, which will (or may) stream HD video.

    Admittedly, a fair portion of the internet traffic likely will be going wireless via WiMax or even possibly the up and coming 700Mhz spectrum going up for auction right now, but ISPs will still be in control, and still will be billing (even if it is advertizers) for the bandwidth used.

    Internet has become a utility, and there is no realisitic way (aside from becoming Amish or something) to avoid it.

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  11. Andy

    I seriously doubt the real motive is to reduce network load. I suspect they want to make sure the fee is expensive enough to download multi gig movie files. The d/l price tier floated around is 20-40-60GB/month. Such an oddly round number.

    Since Warner is dominant broadband player, they are pretty much has monopoly in a lot of area.

    I hope a competitor will emerge out of this debacle. Comcast is not doing too hot lately financially. I wonder if this is due to consumer backlash.

    Also, seriously is bandwidth really that scarce? The scandinavian and the japanese get 10-100 times the size of what we have here for same price.

    Reply
  12. Steve R.

    I don’t have an opinion on whether paying a usage fee would or would not affect net-neutrality. What is troubling is that the simple initial fee schedule over-time will metamorphize into a plethora of incomprehensible plans.

    Reply
  13. andyo

    I smell stink. These big telecom companies are not to be trusted at all. If anything, instead of charing more, just make cheap limited plans for people who don’t use their internet that much, but still like speed. That’s the way Blockbuster did their plans for people who only rent a couple of movies a month, and it’s pretty fair. Besides a couple of price raises (which aren’t really unfair, but their timing in-between was bad) and features reduction I think the Blockbuster model runs well.

    I pay like $35 or something for a 3 Mbps DSL connection (which actually only goes to 2.5 Mbps, and before I complained was capped to 1.6 Mbps, due to the copper wires and their station being too far). In Japan and most probably other places, they pay like the equivalent of $15 for a connection many times the speed of mine. If the telecom corporations did what they were supposed to do years ago, but slacked because of lack of competition, there wouldn’t need this, and perhaps they don’t even need it, they just want to charge more.

    Reply
  14. Richard

    I remember a few years ago one of the futurology “Gurus” at British Telecom showing a graph that plotted billing costs against the cost of providing the service – this showed that billing costs will in future dominate if a pay per use model is persisted with – so I reckon pay per use is probaly a non-stater becuse of the cost of monitoring usage and calculating the bill.

    My own ISP ises a cost versus contention ratio model – which I rteckon is probably the most sensible option.

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  15. epp_b

    It’s good to see that I’m not the only one who thinks this is bad idea. Largely, because of one simple fact you need to keep in mind: the telcos NEVER do ANYTHING with the public interest in mind. They are not planning this to find capital to improve infrastructure, address capacity concerns, instill the idea of having a neutral network or for any other reason that they will claim. They are doing it to cut costs and increase profits. The telcos have proven time and time again that they will stop at nothing, in their insatiable greed, to increase profits, no matter what the expense to the public. When will we learn this?

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  16. Spudz

    “I don’t have an opinion on whether paying a usage fee would or would not affect net-neutrality. What is troubling is that the simple initial fee schedule over-time will metamorphize into a plethora of incomprehensible plans.”

    That’s exactly what happened with cell phones, so it seems likely.

    No, what we need is actual honest-to-God broadband competition and then let the market sort itself out.

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  17. Chris S

    The catch, I think, is that the telecoms want to charge you based on what goes up and down the last mile to your house.

    But they actually get dinged the most when that traffic exits their network, and is subject to other carriage charges. Meanwhile, traffic entirely within their network is “capital cost” – once you have built the network, that all comes pretty much at zero marginal cost.

    Looking at these two together, you can see that a telecom would suddenly LOVE you to run BitTorrent or any similar P2P app. If there are ten of you downloading ‘file x’, then you each pay for the volume of data — but the telecom only pays carriage on ONE copy.

    Far better – but yes, more complex – is for the telecom to find a way to manage both the network and billing so that you pay three parts – overhead (possibly flat rate), internal traffic (low cost), and external traffic (high cost). This would drive the development of more sophisticated P2P apps that should improve performance and save money for everyone by getting the most value out of each part of the network.

    It would also mean that apps like ISP-provided email, which are entirely ‘internal traffic’ would be dirt cheap. Apps like VoIP, which are actually fairly bandwidth thrifty, would also be cheap. And smart P2P apps could leverage demand – think 10000 users wanting the same file – to ALSO be cheap. Meanwhile, tons of new capabilities can make use of the bandwidth that isn’t being wasted.

    From the telecom’s point of view, having people do a hundred things over their network at a reasonable price means everyone wants one. Think of it as expanding the pie, rather than finding different ways to recut the current one.

    Reply
  18. supercat

    IMHO, the most reasonable pricing model would be to allow users the option to have unlimited bandwidth with a specified minimum Quality of Service (using prioritized best-effort delivery) but also allow users to pay per megabyte for a temporary major boost of QoS.

    Infrastructure costs revolve around peak usage, and varying a user’s QoS to conform to their desired price point seems far more reasonable than billing them each month based upon usage.

    Even if one wants to charge people per megabyte, I think the way to do it would be to have a price that combines QoS and total delivered content, such that e.g. getting 1GB/month with fast service would cost the same as getting 2GB/month with slower service; if someone in on that subscription plan, the speed of their service could vary inversely with the amount of data they’ve received. That way, people who are on a plan level that really isn’t suitable for their needs will want to upgrade, but people won’t be surprised when they get their bill.

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  19. Bob Schmidt

    The short answer to the question posed is No, use-based pricing in and of itself will not help the Net Neutrality debate. Network Neutrality has nothing to do with pricing. It has to do with common carrier obligations and “must carry”-like rules. Lowering price by dumbing down service and dinging for overages say nothing about what or whose bits are sent or in what priority and those are the factors that come to mind with respect to NN.

    Reply
  20. Nathanael Nerode

    Entirely in favor of use-based pricing — if it eliminates the frankly artificial caps on use and similar restrictions which are in the current offerings.

    Unclear whether it will really affect the net neutrality issue.

    Reply

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