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Summary:

As broadband matures, carriers aren’t merely upgrading their networks, they’re also upgrading their pricing plans realizing that different service levels offer a more nuanced way to manage traffic on their network, and increase their sales.

AT&T this week said it would join other broadband providers in trialing tiered broadband services. The trial packages range from the ability to download between 20 and 150 Gigabytes of information and are supposedly an effort to help AT&T manage the growth of traffic on its network. But the move is more likely an attempt to capture some of the value of the content moving through its pipes without getting in trouble with regulators.


As broadband matures, carriers aren’t merely upgrading their networks, they’re also upgrading their pricing plans, the thought being that different service levels offer a more nuanced way to manage traffic and increase sales. For an example of multiple plans in action, check out PlusNet, a UK-based ISP that lists at least four different service plans on its web site. Kurt Dobbins, chief technology officer of IP services with Arbor Networks, a company that sells network management equipment to both AT&T and PlusNet, says this is to be expected in a mature market, especially in light of the FCC’s efforts to ensure transparency when it comes to delivering broadband services.

“Carriers are all seeing a fundamental growth in traffic, and very few of them are seeing the equivalent growth in subscriber acquisition, so they’re spending billions more on bandwidth capacity but are seeing no new revenue,” Dobbins says. “This is an answer to how they will grow revenue.”

The end result will be bills that have different tiers of speeds and caps, as well as different service levels for different applications. For example, users would be able buy a voice and video service that would prioritize those types of traffic as more important than gaming or a virtual private network line. Dobbins also says the use of such tiers could help offload traffic by allowing customers to, for example, shares files during off-peak hours, and perhaps see that traffic not count against their cap. In a quote that would make any telco marketing maven proud, he called that, “giving the customers something for free.”

“The service provider business models are trending to some form of usage-based billing, but the end game is value-based pricing and subscriber opt in,” says Dobbins. “In the case of usage-based billing and caps, ISPs see that as an interim step.”

Because Dobbins works for a company whose sales would do very well under such pricing schemes, he may be a bit biased, but the scenario is still a likely one. Even today, AT&T is making a distinction between levels of service for its U-verse television offering as compared to video delivered via broadband.

Carriers, in creating these sorts of plans, relegate the Internet to entertainment or a productivity tool, and encourage consumers to view it that way as well. That’s unfortunate because the Internet is far more than a source of Tina Fey videos or a line back to the office; it’s a direct connection to people and information that can be harnessed in ways we are only now discovering.

Such uses include medical monitoring via the Internet, or interactive collaboration to make music or to design buildings. Carriers are refining their offerings to price those services according to their value. I can’t argue with their right to do that (in a truly competitive market), even if it means that I end up paying more. The downside is that it will put certain valuable services out of reach for some. So instead of being a great equalizer, the Internet ends up perpetuating the inequalities in education and access to information that exist today.

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By Stacey Higginbotham
  1. They are so mean! Imposing caps at 250 GB that seem huge today, but one year later they are small because of new services. That’s when they can start to charge a fortune for every extra bit. On top they’ll sell you add-ons like non-throttled P2P that once were free.

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  2. By perpetrating I take it you meant perpetuating.

    Whenever I see GigaOM complaining about the imposition of bandwidth caps (and I see you are more understanding of it than others) I just substitute “electricity” for “bandwidth”. Would you expect the power company to give you a flat rate regardless of consumption? Of course you wouldn’t. Now the marginal cost of bandwidth is very low – if noone is using it, it’s essentially free. But as you say, building out capacity is very expensive, and the suppliers need some kind of return on that investment.

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  3. That’s like in native American times when the land was free. In came the White man, and suddendly land had a price and was not for everyone anymore. Although the land hadn’t changed it’s service or quality.

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  4. I find this atrocious. If it were not for the internet I would not have access to half the friend and knowledge I have now. The internet provided sources of information and interaction that I could never have experienced in my hometown.

    This move seems to be removing that ability. If I want to have access to that resource, I have to pay for the knowledge as well as the access. One could compare that to charging for access to the public library, then charging you to read the books. I can only see this as the beginning of stagnation for the internet.

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  5. as user become more disappointed with the complexity we will see more people both simply relying solely on wifi on there laptops out and about or just going for the absolute cheapest option to get a link at home. but even more so anyone who lives in a shared environment(apartments, condos, gated communities) will start to demand ‘free’ WiFi as part of there rent or condo fees and consumer paid IP services will start to decline in america.

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  6. Fortunately it’s unlikely that these pricing changes will succeed for long. Now that the TV white spaces have been freed, there should be enough access competition so that consumers can get what they want – which will usually be unmetered access through fat but not infinite pipes.

    It’s hard to overestimate the difference having this huge amount of spectrum available for UNLICENSED use will make. That’s why we do have to watch that telcos don’t manage to gut the regulation in congress or the courts to preserve their ability to charge duopoly rents.

    More on the value of the white spaces here – http://blog.tomevslin.com/2008/11/the-white-space.html

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  7. Here’s the rub. The cost of delivering more bandwidth is falling rapidly to nearly zero. The cost of new infrastructure continues to decline almost as rapidly. Even with flat revenues, the carriers can provide more, and make more money. The problem is access is controlled largely by a duopoly. Until there is more competition (not just from wireless), nothing will change. With a federal government that is also a political duopoly, it’s not likely that regulatory change to create competition is coming.

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  8. I live in Israel and see the same thing happen here. I think this is something we should fight as customers, Internet should be kept not limited.

    my comments at http://www.commentino.com/orim

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  9. This makes us want to make our own internet company that gives the services we have now before they change for the price we have so other companies that change will lose business to us.

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  10. Nigel Says: “But as you say, building out capacity is very expensive, and the suppliers need some kind of return on that investment.”

    Yes, because clearly their existing profits are awful? They make a very healthy profit under the flat-rate pricing model, and that doesn’t include ad revenue, revenue from selling user browsing history, etc.

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