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Summary:

The debate over the implementation of usage-based billing frameworks (so-called “metered billing”) for broadband services is far from over, but some execs view it as inevitable. If that is indeed the case, what would be a fair construct? Or is it even possible to be fair?

As 2009 draws to a close, the debate over the implementation of usage-based billing frameworks (so-called “metered billing”) for broadband services is far from over. But while as Stacey has pointed out, some broadband execs believe metered billing is inevitable, existing and proposed implementations contain significant shortcomings. So if metered billing is inevitable, what would be a fair construct? Or is it even possible to be fair?

One of the reasons so many consumers view metered billing negatively is that early attempts to implement it have been somewhat crude. For example, most metered billing incorporates a flat price up to a ceiling (the “cap”) and a per-gigabyte (GB) charge above that level (the “meter”). Criticism of such an approach rightly points to the following deficiencies:

  • Most non-technical consumers don’t know what a gigabyte is. Head over to the computer section of any Best Buy, for example, and you’ll see hard drive capacities expressed in term of photos, songs or movies. If retailers have figured out how to speak the language of the average consumer, why can’t broadband operators?
  • Even technical consumers (myself included) have no idea how many gigabytes they consume in a given month. As a result they’re unsure if they’ll be penalized for their usage or not.
  • Most offerings fail to provide consumers with real-time visibility into monthly usage — which is appalling given the tools available to most wireless users.
  • Just as electric utilities are trying to encourage energy consumption during non-peak hours, cap-and-meter models treat a byte at 3:00 a.m. as having the same cost as a byte at 7:00 p.m.

Arguably the fairest approach would be one in which the entire bill is variable and in which unit (per-byte) cost declines as usage increases. Fair in that all users pay relative to the quantity of resources they consume but, like any good business relationship, heavier users enjoy volume discounts. This approach might seem too radical for all involved, however; even consumers who save money may look askance.

So assuming the above problems could be ameliorated, and further assuming that the “cap-and-meter” approach is the one that prevails, what exactly is a fair cap?

In 2009 the average U.S. broadband household downloaded 7.27 GB/month, according to market research firm IDC, a figure it expects to grow to 12.5 GB/month by 2013. However, looking at the average is deceiving because the mean is undoubtedly much lower. Using a simple “80/20 rule” (20 percent of the users consume 80 percent of the traffic) results in the top 20 percent of users downloading 29.1 GB/month (growing to 50.3 by 2013) while the lower 80 percent download 1.8 GB/month (growing to 3.1 by 2013). A 90/10 split results in the top 10 percent of users downloading 65.4 GB/month (growing to 113.2 by 2013).

These back-of-the napkin numbers don’t conclusively show exactly what a cap should be but they do suggest that it should high (say at least 30 GB and probably more like 65 GB) and also that it should be indexed to increase annually as average traffic loads increase. Without indexing the cap consumers would encounter the same problem many encounter with the alternative minimum tax.

Yet while capping and metering is not the best approach to usage-based billing, it seems to be the train that’s leaving the station. Broadband service providers have rolled out caps ranging anywhere from 5GB to 250GB; those at the low end would be well advised to push them higher, unless their real goal is to encourage heavy users to churn off their networks.

Kevin Walsh has over 25 years of telecommunications and networking industry experience and is currently an executive at Zeugma Systems.

By Kevin Walsh

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  1. Is metered billing so big a technical hurdle for ISPs in the US that they have not been able to implement it properly so far? India has had metered billing for as long as I can remember. ISPs for both fixed line and wireless charge per MB after a certain limit.

    The net is pretty expensive in India compared to the countries in the West on a cost per mbps basis, mostly a result of limited international connectivity and monopolies constructed and maintained by the government until very recently.

    But broadband penetration is pretty high in the US or other ‘developed’ countries. ISPs make a lot more money too. So whats stopping them from implementing a per GB rate right now?

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    1. No, metered billing is not a technological hurdle for US ISPs. It is simply that US consumers very strongly favor fixed pricing. To the extent that one US Senator actually proposed a bill outlawing metered pricing of broadband.

      Alas, there’s a bit of a “something for nothing” mentality here.

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      1. It’s not “something for nothing” mentality. It’s the same mentality that believes having free access to the public library is a benefit that affects everyone in the community in a positive way. Having access to the the Internet at this point is even more important than a library, because it’s like a library to the power of infinity.

        Information is the greatest power there is.

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  2. Nothing matters except for video. Video is 20x everything else combined.

    All of this is a smoke screen to stop IPTV deployments that bypass your cable subscription. By capping the video the cable companies force you into maintaining your cable subscription, using their on-demand, their DVR, etc.

    Even 250GB a month is far too low when you start watching IPTV. 30GB would only let you watch a couple of movies a week.

    Don’t fall for the cable companies’ misdirection. Controlling P2P is just a front for these caps. P2P use has been falling recently due to the licensing of services like last.fm, youtube, pandora, etc.

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  3. Over time, the cost of metering and billing for bandwidth will exceed the cost of providing that bandwidth in the first place. Telcos are (as usual) swimming against the tide. The problem isn’t that consumers aren’t paying their freight downstream, the problem is that the Telcos are screwing one another on interconnect upstream. Much as they tried to do on SMS, and are successfully doing on mobile roaming, etc.

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  4. Metered billing can be done very fairly and transparently. But that is not what is really on the table. Tiered billing is what is going to be pushed, so light users will not be saving any money in general and heavy users will be bleed ridiculously even though they only have a incremental cost over light users.

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  5. Frankly, I don’t understand the scarcity of Internet bandwidth in America. If there were four people in my house and each of us had a separate TV in our rooms, we could each watch a different HD video channel for long periods of time and the cable companies would never call us bandwidth hogs or want to impose metered billing on us. So, why are they making so much noise only for Internet users? This is a sincere question. As long as this question is not answered, I cannot be convinced that telecom companies have a real case as far as Internet bandwidth goes.

    The telecom companies should not be spending time and resources on usage-based billing. They should concentrate on providing so much bandwidth that it would be almost impossible for anybody to become a bandwidth hog or affect other users. There are no hogs for public TV signals, no hogs for cable TV. I don’t affect my neighbors if I listen to a single FM radio station 24X7. Why should this be different for the Internet connections? I am sure the technology can be deployed so that there are no hogs for Internet bandwidth as well.

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    1. When you and your neighbors all watch HBO there is only a single video stream. If you and all of you neighbors watch the same movie on-demand it make several hundred streams since you all didn’t start watching simultaneously. On-demand IPTV takes up far more bandwidth than normal cable.

      There are ways around this problem by putting caching servers close to the consumers. But cable is trying to charge companies like Google exorbitant prices for doing that. That’s one of the causes of the net neutrality fights. Google is being charged based on the damage they do to the cable companies’ TV business, not the cost of getting the Internet traffic to the consumer’s home. The pricing is not “neutral”.

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      1. Actually that is not true. Analog cable takes up far more bandwidth then all the other services combined. If we did away with analog cable on cable lines everyone would have more bandwidth then they could handle. You could have several 1080p blu rays streaming to your house and still the node would be fine.

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  6. No, it can’t be done fairly if the vendor has a strong incentive to play “gotcha” with overages, or to upsell you with the danger of expensive overages.

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  7. Gee…. No one complains that usage-based metering of power, water, or natural gas is unfair. What’s different about broadband?

    In any case, the consumer simply doesn’t realize just how much bandwidth costs. My ISP pays $100 per Mbps per month, and that’s wholesale. We’d rather shape traffic than meter, but since the proponents of “network neutrality” regulation — who are funded by large, greedy corporations who want to see ISPs lose money so that they can get more eyeballs — say that’s “evil,” what else can we do but meter?

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    1. Your ISP is by far in the minority. The large ISPs have to invest money to run fiber/buy fiber already run. Then connect upto data centers establish free peering agreements with other ISPs and then call it a day. They aren’t getting charged much at all for bandwidth. Their costs are almost entirely related to maintanence, electricity, and investment in expanding the network.

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      1. David, you’re wrong. ISPs like mine are the MAJORITY. There are more than 4,000 of us nationwide.

        You are also incorrect about peering arrangements. Very few carriers ever get free peering — only those that own NATIONWIDE fiber. You can count these on one hand. And these guys aren’t getting off cheap either, because their networks are hugely expensive to build and maintain.

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    2. Brett you can’t compare physical goods (water/gas/electricity) with light-based signaling. You can actually use up all the water/gas or electricity on the grid, but you can’t “use up” the electrons needed to pass bits around on a wire. Once the network is there, it can be utilized at full speed for a year and it will cost the exact same as if it weren’t used at all. As David said, the costs are maintenance, electricity, and expansion. Once the network is there, there’s almost no cost just as once you set up a small network in your house you don’t have to pay more or less based on how many bits you pass around on it. That’s silly.

      Big-business is DEFINITELY anti-neutrality because they want to charge as much as possible (they are a business after all) and they want to control/sell content instead of become a dumb-pipe.

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  8. This post just opens another Pandora’s box. Everybody and their dog is hyped about “the cloud” even as caps and throttling are espoused by ISPs. Before thin clients and online apps are possible the customer and broadband providers will have to come to some reasonable understanding. Online apps will never be a player until we can work on projects or upload files without having to wonder how we’ll pay the tab.

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  9. what’s wrong with per byte billing starting with first byte ? just like electricity/water ?

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    1. Bytes are not a physical good like gas/water. There is no cost difference between sending 1000 bytes versus sending none at all. An unused network costs EXACTLY the same as a fully utilized network.

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  10. I think it is time to turn ISPs into utilities. If we don’t they are going to implement this stupid metering, which has no relationship to their actual costs and consumers will be put over a barrel with no way to put the cat back in the bag.

    This is the end of the internet. ISPs cannot be allowed to place artificial caps and unregulated prices on access to the internet using the public right of ways and accepting tax money to do it. This is just wrong. If they aren’t getting charged by the bit, they aren’t, then they shouldn’t be allowed to charge us by the bit. This is just a way for them to increase the internet fees while their Cable TV business dies.

    Metering is not the answer, and I’m sick of people buying into this stuff. How about you expose the cost analyses of the costs for broadband service from the ISPs perspective and then we can have a rational debate about how metering makes sense. Maybe small ISPs need more negotiating power to get bandwidth at cheaper costs from the larger ones. But the Comcast’s and AT&T’s don’t need metering just look at their profit. You’re telling me that just because they are a coporation I as a customer and supposed to pay more for my service so they can raise make more and the stock can go up. I call BS. If they want more money, how about providing better/more service. Not trying to double down the costs for the services you already have.

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