14 September 2007

Metered Broadband?

There have been a couple of articles about metering broadband (see this article at TLF and this response at Techdirt), which resulted in this debate. My $0.02?

  • It is clear to me that metering makes sense from a microeconomic standpoint, but only during episodes of congestion. If there is no congestion, the marginal cost of a packet is exceedingly small, so it may well cost more to collect and bill for traffic than the revenue it produces.
  • As a consumer of broadband services, I prefer to pay flat rate prices. My wireless provider gives me the option of different service levels, and I have chosen to pay more for the "unlimited" tier because I would rather not accept the risk of usage charges should I exceed my monthly allotment (I realize that "unlimited" may not actually mean "unlimited" ...)
  • As commenters on the previous posts have pointed out, telcos are profit maximizers, so metering is a way for them to price discriminate more finely than they now do with service tiers.

Since carriers have considerable freedom in setting prices, they have obviously determined that usage tiers make more sense for them than pure metered prices. Don't you think that they have calculated the costs and benefits of different pricing structures? Why are we having this debate in the first place, since consumers and carriers have clearly settled on a set of pricing and consumption structures independently?

1 comment:

Kuang Chiu said...

From this report, 4% Internet heavy users (2.5 GB/per day) in Japan accounts for 75% inbound traffic and 60% outbound traffic. Even US broadband market in 2007 is different from Japan market in 2005; these figures can shed some light for the rationale of broadband metering pricing. However, flat rate pricing has been applied to DSL and Cable Modem access for a few years. Although metering rate can charge broadband access fee by usage, it also cause confusion for subscribers and bring risks from competitors. Followings are my 2 cents opinions for flat rate and metering pricing and prediction for possible future broadband access pricing.

1. Low demand elasticity has been applied to broadband access price. Flat rate pricing is the result. On the one hand, BISPs receive more revenue from flat rate pricing. One the other hand, the portion of traffic increased by flat rates is less than the portion increased revenue. In addition, the mindset of broadband subscribers might prefer fixed broadband access payment without bothering by fluctuations of monthly broadband access bill.

2. The broadband market structure of most areas is duopoly (maybe oligopoly) not monopoly. Therefore, metering broadband pricing needs to consider competitor’s response. The questions are: Is there first mover advantage to justify a forerunner in metering pricing? Can price discrimination be realized without collusion? How to evaluate the reaction of metering pricing from normal and light Internet users? In addition, if metering pricing can be successful, this pricing strategy is not so difficult to copy by other BISPs.

Integrating both points, BISPs should not apply metering pricing for light and normal users. But, if the cost of operation from heavy users is increasing continuously, new pricing (tier pricing instead of metering pricing) for heavy users is necessary.