Can Usage-based Broadband Billing Be Done Fairly?

31 Comments

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.

31 Comments

Austin

“The digital circuits used to transmit data over networks do the same thing and their power consumption is directly related to how much data is transmitted.”

WTF, Ray? You may feel that you’re speaking from common sense, but as it happens, you’re completely wrong here. Sorry, man.

Austin

Yes, it costs money to transmit data; in the sense that it costs something to build and maintain the communication network. The deployment costs in question are long paid off. ISP’s profits are rising even as their costs drop.

Here’s the point you need to embrace: Costs do not rise and fall due to the volume of data being transmitted. This is why it is fundamentally unfair to “meter” data as a means of deciding how much to bill a customer for.

However profits do rise, depending on how many customers are sharing a limited, but upgradeable resource. If telcos upgrade their equipment, then they can’t charge dearly for transmission capacity which is now even cheaper for them to provide.

Profits do rise, depending on how many arbitrary “billable events” are crafted. One example of such an arbitrary event, is passing a certain amount of transmitted data. Telcos are trying to tie their prices to their capacity shortcomings. They are under inverse pressure to upgrade their networks when they can charge more, under cover of a false crisis, and blame their customers for their problems.

Austin

Ray, for the last time; I’ve covered the fact that it takes a certain fixed amount of money to maintain the network. That includes the electricity to keep the routers and switches humming.

However, you can’t draw power out of an .ISO transmission. You can’t burn it. You can’t catch it in a bottle and use it to give your computer Internets while you’re out in the country. It’s just signal. And it doesn’t cost the ISP any extra amount of money to transmit that file, than it does when they sit there doing nothing. That is why billing should not be connected to data quantum, but rather to capacity-per-sec delivered over the monthly billing period. The ISP should cover their costs by dividing the bill evenly among all of the customers they can reasonably satisfy. If satisfaction is dropping, they must upgrade, not raise fees and divert blame.

I don’t know where you’re going with that final paragraph, but it suggests that you really don’t have your head around this. B(

Ray

I’m not sure you’ve got your head around it either. Electricity is just a electromagnetic wave too. Again your making arbitrary distinctions. It cost money to send data. I think what’s confusing you are marginal rates and benefits of scale. Your argument appears to be that the marginal rates of ISPs are zero which of course is never the case producing or providing any product. You really would have to show some kind of data the make that point. And even if the marginal rates were zero, that only would mean that metered rates I proposed would only reflect the time value of capital used to build and maintain the infrastructure, consumables needed to operate it, and profit, and that those factor don’t change regardless of the amount of bandwidth provided.

Frankly, I haven’t ignored your points as much as you haven’t made them. Your grasp of fundamental economic principles appears to be inversely proportion to your disdain of broadband service providers.

Ray

And before I forget, power is consumed as all those bytes are transmitted across a network, for the same reason a computer uses more power when its processors are actually doing something as opposed to idling. The power used by transistors in digital circuits is related to the reference voltage and the operating frequency since the transistors mostly consumed power when they’re switching. The digital circuits used to transmit data over networks do the same thing and their power consumption is directly related to how much data is transmitted. Your statement that it doesn’t cost anything to sent a file is absolutely incorrect.

Austin

Ray, both of my previous posts explained why data service is not a consumption-based utility. :P

To explain it simply; consider, that if you’re going to purchase water, gas or electric service, your utility has to go and get those things to deliver them to you. They bill you for what it cost them to acquire and deliver to you, plus the cost of maintaining their infrastructure.

In the case of data service, as you yourself seem aware, the cost of laying out the infrastructure has been already been paid off through government subsidies and high service fees. The remaining cost is to maintain the existing infrastructure. It costs essentially the same to maintain the network, whether it is idle or saturated. Clearly, the cost is not related to the volume of data going through it. Tell me where the nonrenewable input is, which must be billed for by the unit? Where are gigabytes generated? How are they destroyed? It’s a fallacy.

Note that I am specifically excluding low-tier ISPs who must pay higher tiers for access to the Internet, and the arbitrary terms of their service contracts. It doesn’t cost any money to convey bandwidth, even if they’ve written a contract that bills by the gig. It makes as much sense as charging telephone users by-the-word.

ISPs are access providers, not bandwidth providers. They’re masquerading as utilities that provide a consumable resource, because in that scenario they can charge more for a resource that is scarce. And they can control the scarcity by simply delaying upgrades and blaming “hogs” for QOS problems. They can make even more money by picking a list of arbitrary thresholds and making them into billable events. If they succeed, they’ll never want to change the system, and they’ll have considerable incentive to keep their service mediocre. I only want to be charged simply and fairly to enjoy my service by Mbit/sec/mo.

Ray

I guess that argument would work if bytes could be delivered without using power, or any other resource, if networks never ever had to be expanded because of demand, or retired for lack there of, and never broke down.

If your argument relies on an artificial distinction between on say, an Apple and a Byte, I can only reply that one usually travels much faster than the other, and the “bite” of one is usually more nutritious than the “byte” of another. However, there’s no reason they shouldn’t follow basic economic supply and demand.

Austin

Ray: except that, to compete by getting customers to consume more bandwidth access, then they’d actually have to provide that access. It’s a certainty that they’ve oversold the capacity of their networks already. They stand to make more money by carrying on a charade and blaming “hogs” for network problems. They’d rather rig the game so that they can charge more as access becomes more scarce. If they ever tried to flood the market with bandwidth access, then the value of it would plummet.

Data is NOT a consumption based utility! Nor is wireless or wired telephone, either. Data services are conveying data, not generating it or consuming it. ISPs simply want to charge as though it is because it gives them a foundation for their arbitrary billing-events system, and because ignorant folks are used to paying by consumption for other vital utilities like water, gas and electricity.

Ray

I guess that argument would work if no infrastructure is require to provide water or electricity. In fact, before the first drop of water exited a facet or the first light switch was flipped, millions of dollars of infrastructure was required. Today the total investment is in the trillions for the country as a whole. Congress has seen fit to give our current broadband providers billions in subsides and tax breaks in the name of infrastructure; plans are to provide billions more in the form of “stimulus.”

You make the statement “Data is NOT a consumption based utility!”. Why not? Land-line long-distance service in many communities certainly is. I used both T-Mobile ToGo and AT&T GoPhone wireless voice. They’re certainly consumption-based. In fact, the only significant thing I regularly purchase that isn’t is my DSL broadband service. What makes it so different, especially, since like water and electricity, it becomes more of a necessity every day?

Ray

I firmly in the “meter” billing (like how we pay for water and electricity) camp as apposed to the “access” billing camp (like how most consumers pay for cell phone, cable and satellite service, and non-packaged broadband service.) Unfortunately, Kevin Walsh doesn’t address two important key issues:

  1. In most U.S. markets, consumers have access to only two broadband providers: the phone and cable companies. Generally broadband pricing is not competitive, especially if purchased “naked” (not part of a package of services.) For metered pricing to be attractive, broadband pricing in general needs to be competitive. There was a legislative attempt a few years ago to increase competition by forcing DSL providers to sell bandwidth at cost to independent ISPs. However, most of those ISPs in my area have either went out of business or simply resell the phone companies broadband at the same price. A competitive broadband marketplace would solve many of the issues voiced in the previous comments.

  2. The problem with “access” markets is that sellers concentrate on marketing and selling access. In the case of broadband that means packages and fixed-rate contracts. If the market was metered and competitive, the focus would shift to cramming as many bytes down customers throats that they could swallow. The U.S.’s relatively low speed inefficient network infrastructure would be transformed over night becuase providers would have a very persuasive economic incentive to do so.

Austin

NO, it is unfair to charge for bandwidth using a “consumption” model, since there is nothing being consumed!

I am not some fool who thinks everything should be free, but I am also not some fool who glosses over the lies from the ISPs and lets them take advantage of me intellectually. Please don’t mock me about believing in some “bandwidth fairy”.

ISPs do not have great “bandwidth” generators in their basements which exert effort to create gigabytes and pump them to America’s porn and bittorrent fans. ISPs are merely -conveyors- of bandwidth. They’re more akin to owners of toll-bridges. Except where in the past, they’ve charged a car owner a flat fee to use their conveyance, now they want to charge each time they pass, by the head, they want to know why you’re crossing and charge different rates accordingly, and what you’ve got in the trunk so they can charge you by the importance of your shipment that moment (aka network management).

As others have commented above, an ISP’s network effectively costs the same whether it is fully utilized, or sitting idle. However, a network is losing potential profit if it is underutilized, and this is one of the reasons ISPs wish to keep their old (and fully paid-for) equipment creaking along as long as possible. If ISPs are forced, by regulation or even market pressures, to upgrade to modern equipment, then their charade is over. Modern equipment provides an order of magnitude more capacity, and use less power and space. Slight increases in operating costs are really tied to increased tech support issues arising within a larger pool of concurrent users. Sure, as a group they’re using more bandwidth, but it’s their population, not their downloads, that cause an increase in profit-sapping trouble tickets to be generated!

If we allow ISPs to make money by inventing arbitrary “billable events”, then service will degrade and costs will go up. It’s an anything-goes party for them. Network upgrades will be delayed, because it helps them maintain a “shortage” of capacity which is the basis of their pretense to charge more for it. It’s an embargo. People who are used to being charged for actual consumable utilities are simply being taken advantage of.

ISPs should simply charge a simple flat rate per month, in tiers arranged by maximum capacity to the customer. 100Mbit/sec/mo should cost twice what 50Mbit/sec/mo does. No caps. No throttling. No port blocking. Symetrical. ISPs can charge whatever the market will bear over the flat cost of keeping their switches and routers humming, but access should be unlimited. Not “unlimited hours of the day” like the telco weasels are asserting for mobile data plans, but unlimited data transfer, up to the provisioned limit of the customer’s service plan. This will cause ISPs to compete with each other in order to provide the fastest service at lowest cost, instead of mediocre servcice filled with profitable gotchas for them.

One other matter needs to be addressed separately, and that is where subordinate ISPs contract with other providers for their Internet access. Disingenious folks like Mr. Glass will assert that “gigiabytes do darn well cost me money”, and that is certainly true for him personally. Mr. Glass does not have intercontinental fiber that connects to thousands of “meet-me” centres. He has no choice but to purchase his access from those who have it, and he is contracted to pay a flat fee for access, maintain a certain peering ratio, and pay a fee for gigabytes when his company exceeds its “allowance”. It sucks to be him. That access doesn’t cost his provider anything per-gigabyte. It’s arbitrary, and basically a mechanism to keep HIM from disrupting his provider by exceeding the capacity they have reserved for him. They comprise a cartel, which Brett has no means to circumvent. He is an access reseller and not a bandwidth provider, despite what he insists. I’ve debated with him before. He was deceptive and unconvincing. He sees an opportunity to make more money out of his own customers by pretending that new “market realities” are “forcing” him to jack up fees. If knowledge of how things really work become widespread, then he’ll be under pressures he knows won’t lead to greater enrichment. I know he’s smart enough to understand this.

However, if you live in a town where Time Warner or Verizon supply service, the game is entirely different. They are their own backbone provider. They have enough excess capacity to sell at profit, or simply to keep their own peering ratios even. It is impossible to force them to experience a net loss. They’re sitting on a mountain of dark fiber, and keeping it dark so that the “value” of their live resources doesn’t plunge. Their networks have been paid for long ago, and now their expenses are essentially down to maintenance and administration. They have no business pretending that residential data traffic is killing their industry. It is well documented that their costs are dropping even as their profit margins are increasing. Yet they want to raise rates -using an inappropriate fantasy yardstick- during a deep recession! As others have written, this is surely about keeping people from leaving their tv/video services. For example, let me be the first to predict that cable companies will be offering amnesty from big penalty fees if an “offender” agrees to sign up for their cable service. How nice of them, eh? Just like folks who are locked by contract into using an obsolete cell phone for 2 years, they’ll be locking folks into their ever-more obsolete cable tv service.

David

It would also seem that the person writing this article happens to sell the equipment needed to implement these caps and metering… That would seem like a huge conflict of interest to me. While I’m sure usage based billing would improve his bottom line. It seems to me it comes at the cost of stifling inovation on the internet and screwing customers for their internet service. Why don’t we focus on lighting the dark fiber. Increases the through put of the last mile (kill analogue cable). It seems dumb to put in this capping and metering system in place when all that is really need is to move to switched video for cable ISPs and DSL2 for DSL isps. Who is going to stop the ISPs from over charging for bandwidth once these meters are in place?

David

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.

Mag

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

Scott

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.

David W

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.

Brett Glass

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?

David

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.

Brett Glass

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.

Scott

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.

Zigurd

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.

A S

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.

Jon Smirl

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”.

Anonymous

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.

Griffon

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.

Ian Bell

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.

Jon Smirl

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.

Alok P

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?

Brett Glass

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.

Scott

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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