Usage-Based Pricing Actually is Better for End Users

The most economically consumer friendly retail payment model for end users might actually be "usage based" billing, even though people rather instinctively prefer "unlimited" or flat fee models. 

And many consumer advocates think usage based billing inherently is unfair to end users.

To be sure, there are advantages to flat rate pricing. Flat fee means users know what to expect, which helps with budgeting. 

And flat rates mean no danger of bill shock, as could happen, and does happen, when users are roaming, or using streaming video.

But flat rates are not the same as "unlimited usage" plans. These days, pricing is moving to "banded" ranges, or "buckets of usage" that have usage and pricing roughly correlated within some ranges. 

So some modified way of rating usage, using "buckets" rather than actual per-byte usage, arguably is better for buyers than unlimited flat rate pricing.

There are issues, even from a service provider perspective. There always is a tension between operational simplicity and sophistication in retail customer packaging and network management. Simple approaches often are cheaper, but at the cost of forfeiting creation of more-nuanced subscriber plans.

Likewise, policy management tools that can prioritize and shape bandwidth consumption can help service providers alleviate congestion and provide higher end user experience, where regulators allow such tools to be used. But there appear to be lots of trade offs.

Most executives would agree that flat-rate billing for unlimited use is a difficult and likely unsustainable retail packaging model for broadband access, especially in the mobile services realm. But what should be the replacement? That seems to be a tougher question.

As a corollary, executives must weigh “pricing by value,” or “pricing by application,” which means more complexity for consumers, or some simpler “pricing by consumption” approach.

Likewise, methods for managing mobile networks to avoid peak-hour congestion arguably can be viewed with circumspection. And the issue there similarly seems to be a mix of concerns about imposing more overhead on operations, irritating customers and adding complexity to the marketing and billing process.

Mobile service provider executives say they prefer to charge subscribers for data based on tiered usage plans, rather than by application, an on-line survey of some 300 mobile service provider respondents suggests, according to Connected Business Research.

For example, a large number of operators were considering changes to billing plans in 2012, but a substantial number of executives also are concerned that market perception and competitive considerations might prevent them from adopting their preferred billing schemes.

Retail billing preferences have to be balanced against market realities, in other words.