The all-you-can-eat buffet is a particularly apt example to use to illustrate the problem with unlimited Internet pricing policies. Consider a restaurant that has an unlimited-trip buffet with 3 price tiers. The low price tier offers a small salad plate for $7. The middle tier offers a dinner plate for $12 and the “big eater” tier gets a platter for $19.95.
The small eaters are happy to have a price tier that accommodates their tiny appetites. A small percentage of diners purchase the high-end platter and are able to sate their huge appetites in just a couple of trips to the buffet but more interestingly is that quite a few of the middle tier diners take trip after trip after trip to the buffet with their mid-sized plate. Intent on getting as much value for their dining dollar as possible, they eat far more at a buffet than they would at a normal meal. But that is the way a buffet works. An operator prices the tiers such that with an average or normal patronage, they would make money despite the huge consumption by a few of the patrons. It is this way with all-you-can-eat Internet as well. The operators price the Internet service to make money as long as the usage is “normal”. The problem is that “normal” has changed dramatically over the last 10 years. Data exchanges have gone from simple email to photos to music to video. From small dimension video clips of just a few minutes duration to feature length movies!
Can you imagine the way that the buffet restaurant would be impacted if several pro, college and high school football programs ate every meal at that restaurant? The buffet would always be depleted, issues of “fairness” arise and many customers would be impatient and unhappy with the shortages, the restaurant needs to increase production but can’t do so unless they raise prices. The patrons at the Internet buffet have increased consumption and the access provider has had to increase middle mile resources in order to keep them happy. Meanwhile, the price for the Internet access connection hasn’t experienced a commensurate increase. Maybe this is due to competition in the area and fear of losing a subscriber?
Consider what might happen if our buffet were to change formats and become a “Mongolian barbecue” instead. This type of buffet gives all patrons a large platter and allows them to put as much or as little food as they want on the platter since, at the checkout, the food is weighed and the patron is charged per ounce of food. They pay the same per-ounce charge for what they take no matter how much they take, no matter what they take. The effect is that diners will take whatever food they want but are not as likely to overeat. Since the average eater is not paying more than their share in order to compensate for the big-eaters, the average eater pays less at a “per ounce” buffet than they would for an equivalent meal at a flat rate all-you-can-eat buffet. On the other hand, the heavy eater’s price for a comparable meal goes up, maybe even double what they would pay at a smorgasbord. These are the patrons that may be upset at the new pricing. Some will see the fairness in it and maybe curb their gluttonous ways while others will take their patronage to another restaurant. One could argue that these are good customers for the competition to have!
I am certain that you can see the parallels with buffet and Internet service with respect to price policies. A service provider that can transition from flat-rate access fees to usage-based pricing has the ability to allocate expensive middle mile costs fairly to each subscriber. Average consumers should expect to see a reduction in monthly Internet service fees whereas heavy users will likely see increases. Abusers may jump ship to competition but the average user will be much happier with the quality of the service due to its inherent fairness.
So that’s the basic idea around usage based Internet service. A service provider can implement it in one of many ways. One extreme is to charge a single flat rate for every gigabyte transferred over the broadband connection. A more moderate approach is to follow the price model of the mobile phone operators and offer tiers of service that offer increasingly lower “per gigabyte” rates if you commit to more upfront. Perhaps Internet plans should include “rollover gigs”! Either way, the pricing policy shift takes access rates off the table. A service provider has the ability to open up the broadband pipes to their maximum capacity and let the consumer take advantage of lower packet latency. It will be hard for MSOs that are stuck in the groove of DOCSIS (maximum 160 Mbps) to answer the challenge thrown down by a service provider offering Gigabit Ethernet FTTP (maximum 1000 Mbps)!
The bottom line is that flat-rate all-you-can-eat Internet pricing encourages some people to exhibit gluttonous behavior. Average users inevitably pay for this gluttony. Some service providers used dubious network management techniques in order to throttle this behavior. The FCC created the Internet Policy Statement to protect the rights of all Internet users which, by the way, protects the rights of the gluttons too. Usage-based fees assign costs in proportion to consumption and innately discourage Internet gluttony. The result being that the average consumer experiences a better, less expensive Internet.
The question I want to ask is how much should a gigabyte of data transfer cost? Tell me your thoughts on how you would assign a dollar value.
Best wishes, Buck
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