Can Usage-based Broadband Billing Be Done Fairly?

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.

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