Retail Internet Pricing - Without Slogans

All sides in the debate on "Usage Based Billing" are off base. The issue is quite complicated and not helped by the use of simplistic slogans which often either ask for the impossible or run counter to the interests of those tricked into reciting them.

I may not be typical but neither am I unique, and what I need in an internet connection is a line with high bandwidth that is reliably available whenever I need it. But I don't expect to be using it continuously, so I don't want to pay for continuous rental of a dedicated amount of bandwidth which would largely be wasted. In order to get a better price I expect the provider to share its lines between users just as I share the highway without expecting a dedicated lane for my own use. And so I would expect to pay less than someone who really did need to use that capacity all the time.

In fact when ISP's claim to be selling bandwidth they actually far oversell the capacity of their systems and have to admit that the data rates vary greatly and could even drop below the advertised minimum at times of peak load.  This might have been ok from the customers' point of view if there had been a clear and enforceable guarantee of what the actual service would provide, but there rarely is, and in any case, as usage increases there is a risk that even more people will find service at peak times to be less than advertised. In order to ameliorate this, the ISPs try to manage consumer behaviour by imposing a monthly cap on total data transfer. But rather than just cutting off or slowing down service when the cap is reached they impose a penalty charge for "overage" and this is the source of a number of problems.

Those who try to compare the penalty charges for "overage" to the actual cost of data transmission (which is an almost meaningless concept in any case[1]) are missing the point that the overage charge is not intended as cost recovery but as behaviour manipulation (and perhaps also as profiteering unless the revenues are put towards infrastructure improvement and/or to reducing the rates for less heavy users).

What is needed is a range of "fair" pricing options, with transparency as to where the revenues go, and which include for consumers the option of paying less if we use less - ie Usage Based Pricing - though perhaps not billing!(see below).  Those of us who consume less total volume still want what we get to come fast, but we do not want to be forced to subsidise those who consume more by buying "unlimited" service that we do not need. But we also don't want to be surprised by exhorbitant charges without warning! What is wrong with the current practice of consumer UBB (and has always been wrong in the telephone sector as well) is the practice of billing after the fact for usage that the customer was not made clearly aware of (as in the horrendous case of the $400000 phone bill). Providers of any metered service should be required to include in their contracts provision to cut off service at a point where the cost reaches a limit which has a low default and can be raised only by an explicit action in advance by the consumer.

But aside from that issue, consumers do need the option of having a high level of service which they only pay for the amount used. So the blanket condemnation of UBB is counter to our best interests.

On the other hand, as opposed to users like me, someone who is running an independent ISP would want to purchase a dedicated fraction of the system bandwidth and arrange to maximize their use of it by making appropriate deals with ordinary users like me - partly just by betting on the fact that our individual peak usages won't exactly overlap and partly perhaps by offering special deals to encourage us to distribute our usage to less popular times (ie "off-peak" times for the overall system). In such cases, where the purchaser is paying full cost of dedicated bandwidth, there is no excuse for attempting to impose a data cap other than that defined by full use of the purchased bandwidth. So in order to have effective competition it is essential that infrastructure owners be required to allow the purchase of dedicated bandwidth at realistic prices, and the CRTC was wrong to allow them to stop doing so (which is what the proposal to set data caps for independent ISPs would have done).

A fair pricing system would include some base amount (to cover the dedicated final leg of the infrastructure, some small share of the overall system cost corresponding to baseline usage, and account administration), and some amount dependent on service and usage. And ideally the latter should provide for independent variation of the minimum guaranteed available bandwidth and total actual data flow per month (or equivalently actual monthly average used bandwidth)

Properly designed, such a pricing system should interpolate continuously between low volume high bandwidth consumers through high volume steady flow consumers to include also the prices charged to independent ISPs who would be purchasing fully dedicated bandwidth.

This still leaves plenty of flexibility for the provider in terms of how the components of the service are priced
but at least until there are more than two competing nationwide last-mile infrastructure systems, these rates should be regulated by an independent agency which has total access to the financial records of the providers in order to ensure that the total revenue is not out of line with the total costs and investments

There are serious legitimate concerns about the way internet charges are assessed, but foolish slogans such as "Stop Usage Based Billing" or "turn off the meter" while generating scads of supporters also reduce the credibility of those who recite them.

Michael Geist - What to do About Retail Usage Based Billing: A Modest Proposal.

[1] This is partly because of the question of how to amortize and assign the costs of existing and future infrastructure. But also, the lines cost money even if not used so there is a kind of discontinuity - when there is excess capacity the cost of transmission is actually essentially zero but when extra capacity is needed it is very expensive to add (and until it is added  the degradation of overall service is costly to all), so the cost of transmission of the "extra" is at that point very high.

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