Flat Rate Pricing is the Foundation of ISP Access Capex

“All you can eat” retail pricing policies (flat rates for unlimited usage) are a major reason connectivity provider business models are so challenged. On the other hand, wholesale transit prices--which are metered--also keep dropping, on a cost per bit basis. 

That is a major pricing model change from the economics of the voice era, when most usage was on a metered basis: use more, pay more. 

Internet service providers might complain that they “cannot” charge by usage, for any number of reasons. Still, that is a business choice that brings with it the perpetual need to upgrade facilities while retail revenue remains relatively flat. 

So, in a real sense, internet access providers are faced with capital investment choices partly of their own making; partly imposed by competitive market conditions and partly driven by a major shift of entertainment video preferences by consumers. 

By 2020, web and file sharing accounted for only about 14 percent of global IP traffic, for example. Some 82 percent of total traffic was entertainment video traffic. 

source: Cisco, Vox, Recode 

It might be largely uncontrollable that video entertainment has moved from “broadcast” (“multicast”) and “packaged media” delivery to unicast and network delivery. But that alone has huge capital investment and pricing implications.

Unicast and two-way networks cost more than multicast or broadcast networks. The reason is the ability to deliver one copy of something to millions of consumers all at the same time. Uncast now essentially means delivering millions of copies at different times. 

If one copy of an item requires X bandwidth, then a multicast delivery requires X bandwidth. Unicast delivery of that same object to one million viewers requires one million X bandwidth. 

So the shift of video consumption to unicast drives huge changes in network investment. Perhaps nobody envisioned that the largely character-based early internet would evolve into the multimedia platform it now has become, with former multicast traffic increasingly being delivered in unicast formats. 

That alone would require ever-increasing access bandwidth as unicast video consumption (streaming and downloading) increases. 

In other words, flat rate pricing for virtually unlimited usage does not match the requirements of delivering entertainment video. 

It might be quite difficult for any single ISP to use pricing that matches consumption with cost. But flat rate pricing for virtually unlimited usage  is the primary driver of ever-growing access provider capital investment.