Is Usage-Based Internet Access Inevitable, or Only an Option?

Consumers tend to prefer “unlimited usage” plans for Internet access, in preference to “metered” usage. The implication might be that people actually want to use lots of bandwidth. In 98 percent of cases, that tends not to be the case.

Though “typical” consumption tends to grow over time, the typical user actually does not consume all that much data.

Why they have that preference is the issue. One might argue that, in many cases, people buy bigger usage plans than they need, because they are buying “cost certainty,” not necessarily “better prices” or “more data.”

To be sure, ISPs have their reasons for wanting to shift retail packaging and rating to somewhat “metered” mechanisms. But most of the reasons have to do with a demand environment they expect in the future, not necessarily a present need.

And, so far, ISPs that have tried to shift users to metered plans, from unlimited, have found mixed success.

Metered mobile Internet access plans have been more successful, perhaps because mobile ISPs have been able to make those changes at the same time they have added other attractive plan features.

It hasn’t been so easy in the fixed network business.

Speaking at the Deutsche Bank Media, Internet and Telecom Conference recently, Time Warner Cable Chairman and CEO Rob Marcus said very few broadband subscribers have opted for its access  plan that caps data use at 30 gigabytes per month.

In fact, the number of subscribers taking the usage-based service tier is running only "in the thousands" out of 11 million U.S. high speed access customers.

According to Marcus, the vast majority of customers prefer to avoid broadband caps, even when they are unlikely to go over the data threshold.

Marcus said a typical user might use  "high twenties" Gbytes in a month.

It isn’t yet clear how a shift to usage-based high speed Internet access billing will affect end user behavior or service provider preferences, though it seems fairly clear most consumers dislike the practice.

A 2011 survey by Cisco found more than 70 percent of U.S. and Canadian consumers found usage-based billing of Internet access “unfair,” in both fixed and mobile settings.

Roughly similar perceptions were held by consumers in Western Europe as well. In Canada, a market considered by some a test of consumer reaction to new usage-based rating policies, Cisco found that about 30 percent of survey respondents watched consumption and curtailed usage to avoid paying overage charges.

About 58 percent of surveyed consumers reported they never think about overages, or watch their consumption levels. About 10 percent reported paying overage fees.

Those findings might suggest there is some revenue upside from heavier users, but also significant potential risk of reduced application use.

The harder question is whether “value” was enhanced, unaffected or reduced, by the institution of usage-based billing.

Why do many ISPs meter usage, if consumers prefer unlimited access or at least predictable recurring rates for access?

Some would argue ISPs gain in several potential ways from usage-based pricing. For starters, some consumers--in particular the heaviest users--might reduce consumption. That could have advantages in alleviating some peak hour congestion.

Some users who also buy video entertainment services might rely more on such services, in comparison to watching the same content online. That would protect video service revenues.

Some users might upgrade to more-expensive packages to get a bigger consumption bucket or unlimited usage plans.

But most of those advantages will be realized only in the future, when most people stream video that otherwise would be watched on a linear TV service.

Still, there are other issues at work. Consumer expectations about products profoundly shape the terrain upon suppliers offer their products to buyers.

And, possibly for historical reasons, consumers have vastly-different expectations about “metered usage” of Internet access services and other recurring services, in some markets.

Nobody questions whether electricity, water, natural gas or heating oil “should” be priced according to volume purchased. Nor, for that matter, is retail charging generally unrelated to volume.

But consumer expectations for some services are volume insensitive. Nobody thinks there should be a price differential, based on the actual amount of either “free over the air TV” or “paid linear video subscription video” one watches.

In some markets, there also is an expectation of flat rate unlimited use of some other products as well. Local calling, text messaging, in-country calling and calling circle usage are some products that are expected to incur no incremental cost for usage, in some markets.

Unlimited usage remains an expectation for some Internet access services as well, both mobile and fixed, in some markets. Public Wi-Fi and at home Wi-Fi provide other examples of use cases where unlimited usage for no incremental cost is expected.

All of that could help explain why there is consumer resistance to metered pricing. The simplest explanation is the easiest, though. People prefer certainty about the cost of a recurring service. Metered pricing introduces uncertainty.

That might be why acceptance of "buckets of usage" is relatively high in some markets. Given enough experience, people have relatively good levels of certainty about the size of their monthly bills.

The value of "unlimited usage plans," in other words, is more about "pricing certainty" than usage.
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