What Kind of Alternate Business Models Could ISPs Use?

esocid writes "After reading multiple stories over the past few months about the practices of ISPs within and outside of the US I have started to actually contemplate the benefits of the pay-per-use broadband service. Monopolistic practices have strangled broadband to the throttled money-draining cesspool that it is today. Would a pay-per-use option, or some other strategy, be better than the flat fee offered by companies today? When you think about it you are paying for an XMbps connection, when in actuality you get an 65-85%XMbps connection that you may or may not use all of the time. In addition to that, speaking as a Comcast customer, you get a throttled connection that limits your usage of certain protocols. Essentially you pay about $60-70 for a connection that you only squeeze maybe $35-45 worth of usage out of it. If a pay-per-usage option were implemented, how do you think the best way to charge for it would be? Is there some other scheme that would deliver customers the kind of QOS and value they seek?"

Comments

Split Solution

[CheeseburgerBrown]

I think that even in a pay-as-you-go type solution, a certain base threshold of traffic would have to be free, and the customer would pay on top of that. Otherwise, the user is penalized for visiting a site that rams heavy multimedia ads down their throats or for downloading spam to be filtered.

Another idea may be a price ramp: if I usually only use 5% of my connection, the cost for a spike in my usage should be low. Similarly, if I'm a heavy user than my spikes (higher, more frequent) would carry a heftier price tag. In other words, occasional spikes should be discounted while habitually heavy users would have to pay more to accommodate their persistent digital lifestyles.

Finally, I would only consider such a scheme if my account were discounted for every second of downtime during each billing cycle, whether it affected me directly or not. If have to pay for what I use, they have to pay for what they don't deliver.

Re:Split Solution

[Spy Hunter]

The problem with most charge for usage schemes is that people might get stuck with huge overage fees and not understand why, because people have no idea how much bandwidth different things take. Or, your computer could get infected with a trojan and use terabytes of bandwidth to send spam and you'd get stuck with the bill.

However, charging for usage *is* a better solution, for many reasons. The most important is that it aligns the ISP's interests with those of its customers. Right now an ISP's best customer is one who doesn't use the product at all; heavy users are their least profitable customers. This is the root cause of all the problems people have with their ISPs (port blocking, BitTorrent blocking, not upgrading infrastructure, cooperating with RIAA subpoenas, terrible customer service, outspoken opposition to bandwidth-using services like online video); it all stems from the fact that ISPs have a huge incentive to *discourage* use of their product! Under a charge-for-usage scheme, that's all *reversed*. ISPs would make the most money from the heavy users, and so would encourage usage by eliminating all blocking and filtering, upgrading infrastructure, telling the RIAA to get lost, improving customer service, and encouraging bandwidth-using services like online video.

In addition to making ISPs the friends of their customers, charge-for-usage would also solve some of the Internet's big problems. Suddenly people with trojaned Windows zombie machines would be charged for all the crap they spew, giving them an incentive to secure their machines. P2P users, instead of being subsidized by the majority who use less bandwidth, would see the real costs of their traffic in their bill. If there's any truth to the "bandwidth crisis" the ISPs keep whining about, charging for usage would solve it.

So charging for usage is desirable, but how can we do it without huge overage fees? It's easy. Instead of paying for bits transferred directly, we should pay for the *speed* of transfer, almost like we do now, but with one addition: each bit transferred lowers your speed cap slightly. This cap is explicit with a big speed gauge and graphs showing your usage (it is important that this graph be very user friendly so people can figure out what is using their bandwidth). Here's the key: at any time (not necessarily monthly) you can press a "speed boost" button that charges your account and raises the cap, but it's not automatic. Under this scenario there are no explicit tiers and not even a fixed monthly payment. You pay exactly the amount you want, when you want, and get service commensurate with your payment; blazing fast or just enough for email, it's up to you. There are never overage fees; instead your service just becomes slow. If your computer gets trojaned your service will slow to a crawl, you'll look at your graph and see a giant spike of traffic from the computer in question, and you'll know to fix it *before* you press the "speed boost" button.

I hope someday ISPs and ISP customers alike will come around and see that some method of charging for usage is the only sensible way to do things. With this scheme we get all the advantages of charging for usage, but none of the drawbacks. No overage fees and no hard caps.

Plenty of case studies...

[JustinOpinion]

This question is not nearly as theoretical as the question suggests: there are many countries where various forms of metered or tiered access are the norm. You just have to look at what these countries offer (and how consumers react) to get an idea of what works and what doesn't.

Here's an example: Videotron cable internet (Montreal, Canada)*. They have packages that run from $30/month to $80/month, depending what you want. They all have usage limits (2 GB/month to 100 GB/month), and charge a fee per additional GB beyond this basic usage.**

Does it "work"? Of course. Customers buy the package they want. If they are routinely going over their monthly limit, they either cut back on usage or upgrade their package. Yes, it is slightly more complicated for the customer than just having a single "unlimited!" package, but then again it's also more honest. In fact the unlimited packages have hidden terms and limits, which makes them more complicated... or at least more annoying.

I'm a heavy internet user (as most Slashdotters probably are). I don't mind paying a premium to get the speeds and usage limits I need: as long as that service level is actually delivered! This isn't rocket science: just provide a variety of packages and let the customers pick. Importantly, price the packages so that you won't go out of business if a sizeable percent of your customers actually use the service you sold them.

[*] Note that I was a Videotron customer when I lived in Montreal. I'm not endorsing their service; merely using them as an example.
[**] Note also that if you really want unlimited usage, you can upgrade to business class service. Again, you pay a premium if you want that level of service, which is fine.

What makes you think you're only getting $35 worth

[Overzeetop]

The issue is primarily one of convenience and plant cost. To get you 10Mb/s is mostly capital costs, so you pay a fixed rate. Overselling is done because average users don't saturate their channels. Businesses, otoh, do and they pay for the luxury. Pay per bit service would be difficult to structure without a fixed cost. Once you cover billing, tech support, and plant, you're up to nearly what everyone is already paying. Adding per-bit charges will only make it more expensive. Sure, you can pay more for a guarantee but the value of that guarantee is far less to the consumer than to the operator. And if you put your guaranteeds on the same line as your basic oversold, you're going to have to actively sort them out.

BTW - how much data does $35 buy you? Maybe you're getting $100 worth of data for the $70 you pay Comcast, and you just don't realize it. I would venture to guess that if you divided the entire data stream by the revenue, most slashdotters are getting more bits per dollar than the overall system average. Even if you just camp on the throttled ports, you may still be getting more bits than a dollar of Comcast plant depreciation.

Alternate business model:

[NeutronCowboy]

Here's a truly alternate business model: screw the incumbent telecom carriers. Nationalize the grid that was built out with the help of public funds, and where the public has seen close to no returns. Turn everyone into a CLEC. Everyone plugs into an existing grid that is officially tax-payer funded with zero restrictions on what passes through. All the intelligence - traffic shaping, filtering, content - will be at the edges. Carriers compete based on service, what kind of pipe they can put into the home/condo/dorm and how much traffic they can exchange with the national grid.

Far-fetched? Not really. It's similar to what's going on with the electric grid already. Considering how much the economy is impacted if/when major trunks or local exchange points go down, the internet is also a similarly critical infrastructure. I don't see why lessons learned from the electric grid can't be applied to solving the mess that is the telecom industry.

Re:But that would mean...

[zappepcs]

I was going to ask what the hell they were thinking to ask that question. Flat rate is the only way to make the Internet usable. If you go back to the $2/min charging scheme, the use of the Internet will drop to nothing again. The things that makes the Internet useful are:

1 - cheap pc hardware
2 - flat rate ISP charging
3 - net neutrality

If you change the balance of any of these, usage will drop followed shortly by usefulness of the Internet. If say you want to try tiered pricing, ok, take today's bandwidth usage for heavy users, call that standard rate. Add usage weighted tiers to that. Reasoning is this: ISPs are NOT going to downgrade or upgrade infrastructure just to add pricing games. The tier would have to be based on aggregate usage, so you pay current rates up to a standard max. throughput cap, after which you are charged a per/GByte tax. If the tier kicks in too quickly, people will stop using it. Metering must be verifiable, and in the end, no matter what you do it will turn out to be the same mess for billing and sales that wireless phones are now.

If you want to throttle people down on bandwidth and charge them less, go ahead. Some won't care, and will take it quickly. If you want to charge more for bandwidth that you have already sold at a given price... well, good luck with that.

Re:first post

[cayenne8]

Heck...it is easy. Just get a business connection and be done with it. I get one from Cox cable, I get static IP, I can run any servers I want to, no blocked ports, no caps, no limits...only about $70/mo. Heck, I even have a low level SLA with them. I only had to do it once, and I called the number, left a message, and in like 3 min, they called me back and started working the issue, and it was fixed in minutes.

Why screw around with all the 'consumer' level stuff and the headaches that go with it?

Re:first post

[yuna49]

Parent speaketh the truth here.

I pay Verizon $99/month for a 20/5 MBit FiOS business connection with essentially no limits. Sure it's about double what I might pay for a residential account with limits and dynamic addressing, but it's still an incredibly good deal compared to other business ISP services. I have a client with a T1 from AT&T; it costs about four times what Verizon's charging me and has about one-fourth the upstream bandwidth.

Re:first post

[electrictroy]

Since Comcast is finding it necessary to throttle connections, that indicates they are running out of bandwidth. i.e. They need to lay more cables but lack the money to do so. Therefore:

Rather than throttle P2P, youtube.com, or itunes.com, Comcast should identify their customers who download tons of information, impose a limit on those people, and then tell them, "If you go over 100 gigabytes, you will need to pay $100 a month to gain unlimited downloads." i.e. a Tier system:

$15 == 20 gig
$30 == 50 gig
$45 == 100 gig
$100 == unlimted

The more you desire to download, the more you will have to pay. Vice-versa, the less you download (me), the less you have to pay. That is entirely fair to charge customers based upon actual usage.