North American Network Operators Group

Date Prev | Date Next | Date Index | Thread Index | Author Index | Historical

Re: An Attempt at Economically Rational Pricing: Time Warner Trial

  • From: Patrick W. Gilmore
  • Date: Fri Jan 18 16:23:34 2008


On Jan 18, 2008, at 3:06 PM, Tomas L. Byrnes wrote:


I always find it interesting that people with a telco background keep
trying to go back to the ma bell days and ways, even as the telcos
themselves are abandoning those models for phone service.

I am not at all certain that is what is happening.



One of the things about usage based pricing in the Internet is that the
system doesn't have the facilities to do that built into it by design,
so you have to add a lot of equipment and software to do it. This tends
to cost more than the incremental revenue, especially when you consider
the additional customer service costs and churn (there's always a
competitor who pops up offering flat-rate pricing).


The problem in the ISP industry isn't lack of usage based pricing. It's
that the going rate for basic connectivity was driven below that which
is economically sustainable by the ILECs when they engaged in predatory
pricing to drive the CLECs out of business in the late 90s. Now that
they own the market, they find that, having driven the prices down, they
can't raise them, so they are engaging in various subterfuges that are
designed to cover up the basic thing they are doing: trying to charge
more for the exact same service.

I disagree.


Pick a number. Any number. Offer broadband flatrate service at that number. I will show you at least 5% of your customer base who is either paying an order of magnitude too much, or getting an order of magnitude more than they paid for. And usually a lot more than 5%.

The problem is "flat rate" doesn't work when the thing being offered is a shared resource _and_ a single or a few users can use all the resources. On phone networks, flat rate kinda works because a single phone call is a very tiny fraction of the shared resource. No small set of users can harm the rest of the users. (It is still possible for a medium set of users to harm the rest, but the danger is low.) That is not true for Internet access, unless you plan to go back to Kbps speeds. I think that would be less well received than usage- based billing.

IOW: Usage-based billing makes sense commercially, whether you are a propeller-head or a bell-head.

And since Internet providers tend to be for-profit businesses, doing what "makes sense commercially" is kinda required.

Then again, I Am Not An Isp, so what do I know? If you think things are out of whack, sounds like a business opportunity to me! You should be able to take your superior knowledge and make a killing implementing a proper network.

--
TTFN,
patrick