With broadband, as with other utilities such as electricity and water, people should pay for what they use, according to an editorial in The Financial Times today. Demand and use of the Internet has risen faster than capacity can keep up, which means that the all-you-can-eat model of unlimited broadband per month no longer applies, argues Andrew Harries, chief executive of Zeugma, which makes equipment that can be used to provide metered service. However, he neglects to explain that the ISPs’ version of metered broadband isn’t priced like your water or electricity, but is instead priced like a cell phone plan.
According to Harries:
A little history might shed light on this topic. In the early, pre-bubble days of the mid-1990s, broadband technology was still experimental. There were a variety of digital subscriber line (DSL) technologies vying for supremacy and DOCSIS 1.0 was still in development and it was primarily technical limitations that resulted in broadband being marketed as a flat-rate service.
Further, with Napster and streaming of high-definition video not even on the horizon, broadband operators believed that counting bytes was more trouble than it was worth. Hence, broadband was ushered in as a flat-rate service.
Broadband wasn’t marketed as a flat-rate service solely because of technical limitations. It was marketed as such in order to get people to sign up for it. This is how companies, even back in the dial-up days, got people to go online and explore. AOL (s twx) stopped charging people by the hour back in 1996. When snappier speeds came on, ISPs had to convince people those speeds were worth it, and so they offered flat-rate pricing and talked about faster surfing. And people took them up on it.
Speed is still a huge element of the ISPs’ marketing, even if many folks can’t tell the difference between a web page loading at 5Mbps and 15Mbps. So why push speeds? Because people can tell the difference between tiers for heavy-data services such as video steaming and large downloads. Carriers may complain that we’re using more broadband, but they are actively exploiting that demand in their marketing of faster (and more expensive) service tiers to customers.
But they want to exploit their customers’ wallets as well. And here’s where I have the biggest issue with Harries’ article. He bases his entire argument about metered billing, when in fact he’s talking not about true meters but about a consumption- or usage-based plan analogous to those offered by cell phone companies. This causes him to back off from his most interesting statement (emphasis mine):
To make matters worse, broadband prices have generally declined over the same period – possibly not fast enough to satisfy some. But when coupled with the increase in average speed, the price-per-bit paid by consumers has dropped like a rock.
From where does the capital come that is needed to expand broadband capacity further? Even the academics that populate “public interest” organisations lobbying for greater net regulation recognise, at least abstractly, that broadband operators need to earn a profit if they are to continue to invest in infrastructure.
Given these circumstances, don’t usage-based billing frameworks make sense?
Whoa. In the first part he’s talking about the decline of prices per bit paid by consumers, but he later switches from his use of the phrase “metered broadband” to “usage-based billing frameworks.” There’s a simple reason for this. Metered billing is something I can’t argue against intellectually as long as my ISP charges me based on an actual price per bit. I would be paying for my actual usage, exactly as I pay my water or electric company. But carriers would never want to do this because it would reduce their profits.
Instead, when ISPs talk about meters they’re talking about different service tiers that don’t reflect actual usage, but herd customers into set plans where most will be paying a monthly fee for more than they use. And if they go over their tier, they get walloped with fees. Last month when Verizon (s vz) CTO Dick Lynch talked about meters, it wasn’t an accident that he compared the future of metered broadband to wireless plans, which are tiered service plans that have proven hugely profitable.
Verizon in its third quarter reported 28.3 percent operating income margin for its wireless service, and for more of a hint, check out its statements last year to investors when it introduced an unlimited $99 plan. Basically it argued that the revenue lost from the few who would benefit from the plan would be more than made up by those joining it out of fear that they may go over their minutes. Of course wireline ISPs want a piece of that.