Predictions 2011: If Pay-Per-Use Comes to Broadband, Then What?

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Ed.: This is the second of a two-part post. The first post ran on Saturday.

In yesterday’s post, I outlined arguments from a much lengthier analysis (PDF) regarding recent carrier announcements concerning tiered pricing for broadband services. Not only is such pay-per-use a clear trend, but arguably the natural outcome of rational consumer decision-making, as light users actively choose not to subsidize heavy ones by paying for more capital-intensive resources than they use. However, if pricing plans are no longer “unlimited,” but increasingly granular and usage-sensitive, one can predict massive disruptions in the current ecosystem and reversal of some trends of the last few years. However, as with all such shifts, this will create new opportunities and drive new technology breakthroughs. Here are some thoughts on such a future:

  • Fewer Ambient Applications. There will be less live streaming video from coffee pots. In other words, less passive push, more active pull.
  • Truth in Labeling. Foods and beverages need to disclose calories from protein, fat, and carbohydrates. Apps and content may need to disclose total data transferred or peak data rates. Drugs need to disclose potential side effects (may cause congestive heart failure), apps and content may need to do the same (may cause congestive network failure).
  • Certifications and Guarantees. It’s easy to blame a network provider for high charges, but you don’t blame the electric company when your kids leave the lights on or the water company because a broken faucet ran up your bill. Similar to Energy Star labeling for appliances, programs may be developed to certify “bandwidth-efficient” endpoints. Or, guarantees: “This app will never transfer more than 50 MB per month or double your money back.”
  • Real-time and Projected Monitoring and Billing. Taxis provide visibility into the amount owed in real-time. You have electricity, gas, and water meters at your house. Providing ubiquitous access to your current data consumption, rated to provide visibility into your projected bill, is next. You may be calling from the airport to tell the kids to turn down the resolution on their web video.
  • Price Caps. The EU has already been active in capping roaming fees and monthly bandwidth charges.
  • Network Enhancements and Trade-Offs. The same way that increased gas prices drive fuel efficiency, usage-sensitive pricing will drive enhancements in compression algorithms, less chatty protocols, and less predictive caching. Drivers pay thousands more for hybrids to save on gas, similarly, it may be worth spending processing resources to save on network resources.
  • Application Design Changes. Rather than dumping a voluminous amount of data, expect more, well, more buttons, such as at the top of this article, requiring continuous positive acknowledgement. Higher interactivity demands lower latency, therefore greater application dispersion.
  • Increased Caching and Premises Appliance Sharing. No matter how many times my kids stream the same movie, our players fetch all of the content anew. Expect more caching, subject to laws and DRM. And, expect players from various manufacturers to query each other.
  • Congestion Pricing. A number of cities have instituted dynamic congestion-based pricing for tolls and roads, and it has been proposed to do the same for the Internet. Simplified congestion pricing might mean free nights and weekends. They knew to wait until after 9:00 p.m. to call Aunt Martha, and may learn to have an immersive multi-screen 3-D, high-definition video call with her after 9:00 p.m. as well.
  • Security. Letting your neighbor tap into your wireless access point may not seem like such a good idea anymore. Expect more users to turn security on, and more access point vendors to focus on simplicity and usability of security administration.
  • Peer-to-peer. If letting your neighbor uncontrollably increase your monthly data bill is unwise, perhaps neither is letting everyone on the planet using your peer-to-peer client do the same. Some telcos are implementing edge optimization for content delivery, using peer-to-peer in the set-top box. Usage-sensitive plans will drive a need to differentiate traffic which a user generates vs. traffic that the provider generates.
  • Intelligent, Policy-Based Optimization. Better to cache that movie now or download it tonight, when the forecast is for a twenty percent chance of lower data transfer rates? A predictive optimizer that believes rates will drop but knows you won’t stay awake long enough to watch the movie anyway may make the decision for you.
  • End-to-End Open Interoperability and Integration. Some TVs can talk to media players via “HDMI Consumer Electronics Control,” others can’t. Expect device manufacturers to increasingly support interoperable control so that a streaming media player doesn’t rack up charges when no one is watching.
  • Conservation Culture. People have learned to turn their thermostats down in the winter, and to wait for sales on Black Friday and Cyber Monday. Lack of concern for usage under flat-rate plans is sometimes referred to as “moral hazard,” but I would just describe it as “rational indifference to consumption at zero marginal cost.” Reduced consumption is a well-known effect of metered pricing.
  • Cost-Based Adaptivity. Technologies such as Scalable Video Coding degrade gracefully to smaller screens and lower frame rates and quality due to network congestion. Future technologies may do the same based on real-time network data pricing.
  • Return to Ownership. Recent trends have favored on-demand rental over ownership. Shifting breakeven points may cause these trends to moderate or even reverse. Don’t toss that DVD shelving unit yet. If you can rent a house with an option to buy, perhaps similar models will emerge where streaming a movie will entitle you to a discount on purchasing it on physical media.
  • Shifting Business Models and Ecosystems. People who drive to the video store for a DVD (as some still do) expect to pay for the data transport costs (e.g., fuel, car wear and tear). People who rent by mail expect that the cost of delivery and return postage is borne by the video service. Expect a variety of customer-pays, provider-pays (i.e., bundled pricing), and advertiser or other third-party supported models to vie to become accepted industry practice, although in any event, the consumer ultimately pays with either eyeballs or hard dollars. Creative partnerships between content providers and network service providers will also materialize. “With connection charges, this movie will cost $1.57 to view. This offer expires in five minutes and prices are not guaranteed until you press ‘Watch Now.’”

The counter-argument to this whole chain of thought is that the cost per bit (stored or transferred) is approaching zero. That sounds compelling, but the inverse of that argument is that the amount of bandwidth per user is approaching infinity, so the real question is which trend outweighs the other. The answer can be found in the fact that carriers’ annual capital expenditures are well north of a hundred billion dollars globally on network infrastructure and they’d like to see a return on that investment.

Many industries have providers offering pay-per-use and/or flat-rate plans. Other industries seem to gravitate to unlimited pricing, and then swing back to usage-based models. The evolution of pricing models for fixed and mobile bandwidth will offer challenges to some businesses, but opportunities for others to differentiate themselves with greater transparency or by developing new features and products that implement some of the ideas above.

Joe Weinman leads Communications, Media, and Entertainment Industry Solutions for Hewlett-Packard. The views expressed herein are his own.

Image courtesy Flickr user mugley.

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