Tuesday, December 18, 2012

Few Consumers Like Data Caps; But They Dislike "Usage-Based" Pricing Even Less

Some observers argue that data caps, especially on wireline networks, are hardly a necessity. "Rather, they are motivated by a desire to further increase revenues from existing subscribers and protect legacy services such as cable television from competing Internet services," argues NewAmerica.net.

Although traffic on U.S. broadband networks is increasing at a steady rate, the costs to provide broadband service are also declining, including the cost of Internet connectivity or IP transit as well as equipment and other operational costs.

Whether one agrees with that point of view or not, most might also agree that charging users strictly on the basis of consumption (cents per megabyte, for example), on a fully metered basis, is even less palatable.

That has been the industry consensus since America Online shifted from a usage-based charging model to a flat fee model, back in the days of dial-up access. 

That 1996 pricing lead to an explosion of usage of the Internet. The other leading dial-up access providers also had announced a move to flat rate pricing. 

Whether causal or merely correlated, many observers would suggest that flat rate pricing lead to dramatically higher use of the Internet. Of course, ISPs legitimately worry about the business case for flat rate charging as bandwidth-consumptive video has grown to represent most Internet bandwidth demand. Internet video is now 40 percent of consumer Internet traffic, and will reach 62 percent by the end of 2015, according to Cisco's Visual Networking Indexing Forecast. 

But use of usage caps, or buckets of usage, are a compromise, connecting usage of the network and retail pricing, without reverting to actual metered usage that consumers are not fond of, as a charging mechanism, and prefer predictable flat rates.  

Nor is communications the only service or product consumers generally prefer to buy on a flat fee  basis. 

Mobile internet users across the United Kingdom and United States prefer flat-rate pricing, a new survey by YouGovhas found. That finding should surprise nobody in the U.S. market, given the development of the whole Internet access business since AOL dropped metered billing and went to flat rate packaging.

Unsurprisingly, respondents said they would use the mobile Web more if flat rate access is available. That does not necessarily suggest consumers would reject flat-rate plans that are tiered for usage, even if any rational consumer would say they prefer a low flat rate for unlimited usage.

Smartphone users might be used to low rate, unlimited access, but users of mobile PC dongles and cards are well accustomed to the idea that usage and price are related for "buckets" of usage.

Some 4,324 consumers,18 or older, were polled as part of the study.

In the United Kingdom, 33 percent of respondents  reported that they don't use the Internet despite having access on their phone, while 25 percent of U.S. respondents with an Internet-ready phone say they do not use that feature.

The point is that usage caps are not necessarily a plot by service providers to protect their revenues. At least in part, caps are a way to correlate usage and pricing in a way consumers are more willing to accept. 

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