Charging by the gigabyte and end of the free bandwidth lunch


This Sunday an article in the NYT takes up the question of bandwidth pricing, joining earlier speculation on this blog about the twilight of flat fee subscription models. The article with the self-explanatory title “To curb Internet traffic, access provider are beginning to charge by the gigabyte” cites an experiment Time Warner is running in Beaumont where customers can choose between 5GB, 20GB or 40GB capped monthly plans. In case you have never heard of Beaumont: the article states that it is a city in Texas with around 100K population– exactly the type of place to run such an experiment without attracting a lot of attention or generating resentment from a cosmopolitan audience spoiled on the comforts of streaming YouTube videos all day long. It is a good, balanced piece aside from the author’s confusion between BitTorrent the protocol verses BitTorrent the company when recounting the Comcast debacle

These magic 5/20/40GB numbers also raise the question of exactly what the average bandwidth usage is. There seems to be few academic papers in this area. One TTime-Warner exedcutive quoted in the article says:

“Average customers are way below the caps… These caps give them years’ worth of growth before they’d ever pay any surcharges.”

The only figure cited in the article is that 95% of customers use under 40GB of traffic each month. (It is not clear if this is downstream, upstream or combined.) Chances are Time-Warner has sliced and diced the bandwidth usage data very carefully before choosing these numbers and associated prices that range from $30 to $50, and the $1 per GB overage fees for exceeding the caps. One problem is there is no single average Internet user, as the author of the NYT piece argues very convincingly. The novice checking email and movie times could be happy with the 5GB cap but an addict streaming videos or watching TV shows on Hulu.com is likely to run over even the more generous limits. One Netflix download is a couple of GB. Watching a handful of movies every month may not break the bank in this model but at the surcharge rates of 1$/GB, suddenly a movie ticket or rental from the local store is competitive with what used to be “free, unlimited” instant viewing. More importantly there is a network version of Parkinson’s law which states that content expands to saturate the bandwidth available. As the capacity of networks increase, more bandwidth-hungry application are introduced.

So far it is an experiment but if this model goes mainstream, it would threaten the revenue stream for media companies. Netflix and Hulu are dependent on consumers being able to stream their content. Until now subscribers did not have to dutifully count their bytes the way cell-phone users count their minutes. An iTunes download is not competing for scarce bandwidth quoates with a high-definition movie from XBox Live Marketplace. Even if the bandwidth is not capped but throttled in the interest of fairness, it will create a mindset of scarcity and zero-sum choices between different options. On the bright side, broadband users may become more discerning and not forward that inane lolcatz video around one more time.

The alternative is for the content providers to compensate the ISPs. In this model Netflix would pay Comcast directly and those downloads would not count towards the monthly quota. In effect this is a type of revenue sharing or extortion depending on which side of the deal one is focusing on. It also creates a troubling situation for network neutrality. When some content is “free” and others require payment in scarce bandwidth allocation, speakers that are not able to pay ISPs to absorb access costs are in effect disadvantaged. Critics might content the same situation applies today, in that companies with large data centers and fat egress pipes are better able to push their content to an audience. Yet those correspond to capital invesments in the endpoints, fully under control of the speaker. An ISP metering bandwidth is situated between the content provider’s data center and the target audience, able to manipulate economic incentives for accessing that content regardless of how state-of-the-art the data center originating the content may have been. This is a case where artificially created bandwidth scarcity may have the effect of picking winners and losers between business models, as well as content providers.

cemp

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