Time-Warner is considering restructuring how it provides Internet service, focusing on use rather than a flat, monthly fee.
Company spokesman Alex Dudley said the trial was aimed at improving the network performance by making it more costly for heavy users of large downloads. Dudley said that a small group of super-heavy users of downloads, around 5 percent of the customer base, can account for up to 50 percent of network capacity.
I’m the king of that 5%. They do this and I’m hosed.
My feelings about it are somewhat mixed.
On one hand, I am likely costing the company more money than I am paying. At the very least I am paying considerably less for my use than are most users. As such, it hardly seems unfair that I should be expected to pay more.
This is also preferable to one of the alternatives currently in place. Advertise for “unlimited downloads” and then start placing limits on certain kinds of downloads. File-sharing services such as BitTorrent (which has legitimate uses in addition to illegitimate ones) are frequently targetted. Or advertise “unlimited downloads” and then dump users that are actually taking advantage of that offer. I know some people that have had their contracts terminated for that reason.
At least this way I can simply pay for what I use. I don’t have to live in fear that they will decide that I must be a business to be using what I am or simply to note that they are losing money on me and disconnect me. Having above-the-board policies for aggressive users in that sense allows users to choose to be aggressive and pay for it or scale back.
There are at least three hesitations, though. First is that I strongly doubt that light users will be paying much less than they are paying now. I’d imagine the lowest tier would be comparable to current rates. So this would be less an attempt to have a fairer price structure and more an attempt to raise prices on some users and make some extra dough while leaving the rest alone or giving them a relatively insignificant break.
The second hesitation is that this provides a way to really screw some customers over. Presumably if someone buys X-megabytes of downloading, anything over X will come with some nasty charge per meg. The goal will be to get people to sign up for more than they need if only to avoid fear that they will go over. This is what cell phone companies do. They don’t charge by the minute, they get people to buy minutes that they won’t need and then when they have a burst of usage they take them to the cleaners. It’s not a pleasant thought. They could circumvent this problem simply by putting them in the tier of what they used, but they won’t.
The third hesitation is that I’m not sure how smart a decision it is from a business perspective. In the current model, most people don’t have to worry about how much they use it or don’t use it and that’s a good thing. Once they start feeling that they need to limit their usage it becomes less fun and they decide that since they’re doing less they don’t even need it to be that fast at all. I personally adjust pretty quickly when I’m in a situation where high speed Internet isn’t available. Part of the recent success of broadband is that they’ve convinced people that they need it. Attaching a charge to its use might undercut this success.
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9 Responses to The Digital Devil’s Due
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It is somewhat backwards: they advertise certain connection speeds. They oversell what they have available, but your contract with them says they will provide the service.
The other part of the equation is that applications are taking up more and more bandwidth. I know a few people who metered themselves for one of the wireless broadband setups, and they realized that at the “limited” tier they could hit the limit in 2 days just by running AIM and ICQ simultaneously.
As for the “pricing scheme” model, I think that’s more likely. In every test run, including the cell phone wi-fi offerings, they’re downright abusive. Verizon’s currently being sued because they offered a supposedly ‘unlimited’ plan with a hidden clause that said “oh it’s unlimited but if you go over a certain download limit in one month we’ll terminate you.”
Another friend ran into an even worse trick by her cell company: she called to inquire whether her “unlimited long distance” covered calls to her Canadian boyfriend, and a rep told her that as long as it was a 10-digit number and didn’t require and international code she was fine.
Then she got her cell bill the next month… up from $50 to over $1000.
Frankly… this is one area where I think more government intervention would be a very good thing.
Thus far my provider hasn’t limited much of anything. I thought that they might be for a while when my speeds were going down and my connection kept getting interrupted, but that was a technical problem that they’ve since fixed.
The question is what is costing them money. My assumption is that it’s primarily bandwidth. If people using AIM and ICQ 24/7 costs the supplier money, passing it on to the customer makes a good deal of sense so that people can limit their use accordingly (or AIM/ICQ/etc can come up with lighter applications).
The whole “if you use our service too much, we’ll discontinue your account” thing is what tiered pricing would hopefully avoid. They can either contain costs by cutting off users that are costing them money or they can charge users different amounts by how much they use. It’s not realistic to expect them to do neither or to complain when they do one or the other if you consider both unacceptable. When the 5% are using the capacity are being charged the same as the 95% that are using the other 50%, something likely needs to be done about that. Of course, I win under the current arrangement since my supplier hasn’t cut me off, but I could see how it wouldn’t be sustainable.
What way could they contain costs that you would approve of?
In any which case, the goal should be to charge those of us that use more of their service than we’re paying for and charge less to those that use less. On the other hand, as I mentioned, you don’t want your customers having to think hard about using your service. The advantage to unlimited plans is that they make people more dependent on the service that you provide. The cell phone market exploded when plans started including more minutes than 95% of people were going to use. Back when every phone call hurt, people were less inclined to hold on to it and refrained from becoming dependent on it.
What Verizon did to your friend wasn’t just a trick, it was an outright lie. I got a raw deal from my provider (Cingular/AT&T) for one contract term, but by and large I haven’t had nearly the problems that Verizon and Sprint users have reported.
The whole “if you use our service too much, we’ll discontinue your account” thing is what tiered pricing would hopefully avoid.
Rephrase: “If you actually use the service we advertise, we’ll cut you off.” Because that’s what they are actually doing.
When the 5% are using the capacity are being charged the same as the 95% that are using the other 50%, something likely needs to be done about that.
Why, precisely? There are weeks I use a whole lot of bandwidth and may show up in that 5%. Then there are weeks my computer is barely on. There may be people who purchase something completely over their needs (grandparents who just want to check email come to mind), or there are people who push the very limit of what they have purchased. And worse for the consumer, it is nigh impossible to know unless you’re exceptionally tech-savvy how much bandwidth the various widgets – instant messaging, desktop weather, etc – are actually taking up. Worse still, normal desktop usage uses more and more bandwidth every year – you can use a fair amount just getting bored and watching Youtube videos for a few hours.
And then there’s the tech-unsavvy who use a bunch of bandwidth merely because they spend 10 hours a day on World of Warcraft or some other online gaming.
This is precisely the same behavior as airlines who oversell seats on the airplane. The airlines are obliged, by both federal and state laws, to make good on the flights and compensate customers for their mistake. If the companies are overselling their capacity, then they ought to be held liable in the same fashion. If they advertise one thing and then expect customers to use less and try to penalize them for doing so (which is what is being talked about), then that is false advertising and they should be penalized to the full extent of the law for it.
Saying “hey, it costs us money to provide the service we contracted to provide, so we get to change the rules after the fact” is breach of contract and 100% fertilizer-grade bull shit.
What way could they contain costs that you would approve of?
Any way that doesn’t involve them breaching their contracts or lying to their customers. Frankly, I’m not convinced they need to “contain costs”, because no major provider’s made any noticeable upgrades to their networks in a decade and they’re obviously trying to just sit raking in the cash without performing even basic maintenance in a timely fashion.
In any which case, the goal should be to charge those of us that use more of their service than we’re paying for and charge less to those that use less. […] The cell phone market exploded when plans started including more minutes than 95% of people were going to use. Back when every phone call hurt, people were less inclined to hold on to it and refrained from becoming dependent on it.
Back in the dial-up days, instant messaging was far less used because you could see it slowing down your connection. On cable/dsl, instant messaging runs more or less in the background, so people leave it on 24/7. Trying even to browse the web on dialup today is an exercise in futility, because conservation of bandwidth is no longer a design consideration: flashy lights and motion menus are all the rage instead.
The goal from my consumer’s perspective is simple: to see the companies uphold their end of the contract. I paid for a connection of X megabits/second, so did everyone else, and it’s the company’s obligation to provide that. If they can’t, it’s their legal obligation to upgrade their network, and anything less is false advertising on their part.
“If you actually use the service we advertise, we’ll cut you off.” Because that’s what they are actually doing.
I’m not defending their current behavior. I am saying, though, that choosing your customer base (cutting out people that are costing you money) is the most rational alternative to charging people for their usage. It’s like Netflix… they offer unlimited DVDs but punish you if you use the service too much. The alternative to that is to charge people on a per-DVD basis or limit how many times they can swap out their CDs. Both would be preferable in my mind, but you seem to be advocating the best of both worlds wherein they can’t choose their customers and can’t charge for resource usage. That’s potentially a recipe for higher rates for everyone.
The question remains: what model is the best way for them to collect their money?
The correct answer is not “They are bastards and don’t deserve money”. Even if they are bastards, someone has to provide the service. Seems likely that whoever does will be a bastard to one extent or another because they will contain costs and try to make their money just as surely as we will try to pay them as little as we can for as much as we can get.
Frankly, I’m not convinced they need to “contain costs”,
It’s easy to be cavalier about containing costs when it’s not your money, just as it’s easy to tell businesses what risks they should take when it’s not your career on the line.
I’m not as convinced about their infrastructure stasis as you are. DSL in particular seems to have made great strides in the past 5 years. What used to be a service only offered in comparatively few areas is now offered in a whole bunch of places. Cable internet has taken on a whole lot more users and existing users are using a whole lot more of their capacity than they used to as more high-bandwidth material becomes available. Without increased capacity, broadband would be slowed down to the point of a trickle.
Back in the dial-up days, instant messaging was far less used because you could see it slowing down your connection. On cable/dsl, instant messaging runs more or less in the background, so people leave it on 24/7. Trying even to browse the web on dialup today is an exercise in futility, because conservation of bandwidth is no longer a design consideration: flashy lights and motion menus are all the rage instead.
It would become a design consideration if people were being charged for the bandwidth. That’s what I meant by AOL and ICQ changing their programs. In the current model, we’re treating bandwidth like it’s free because as consumers we’re insulated from the costs. De-insulating us from the costs would have benefits (though, as mentioned, I’m not convinced that it’s a good idea).
The goal from my consumer’s perspective is simple: to see the companies uphold their end of the contract. I paid for a connection of X megabits/second, so did everyone else, and it’s the company’s obligation to provide that. If they can’t, it’s their legal obligation to upgrade their network, and anything less is false advertising on their part.
If they did the tiered pricing, they’d be changing the contract to something that they can live up to. It would be more like cell phone companies. We pay a monthly fee, get a certain amount of usage at no additional cost, and then get charged for usage beyond that. Yes, some cell phone companies might lie about calls to Canada, but by and large that model works. People who use it more pay more (either for going over or for getting a higher-tiered plan) and people that use it less pay for it less.
And worse for the consumer, it is nigh impossible to know unless you’re exceptionally tech-savvy how much bandwidth the various widgets – instant messaging, desktop weather, etc – are actually taking up.
That’s a really good point. There’d need to be some sort of meter that the user can read and even that could be unduly complicated. This is the best argument so far against a tiered system. This sort of thing is much harder to track than cell phone usage.
So again… what to do? Stopping the false advertising would be good, but that doesn’t solve the problem of cost containment as more and more people start utilizing their high speed Internet. They can raise everyone’s rates since the average user will be using more capacity than before. They can charge the high-end users more than others. They can be more frank about cutting users off if they use too much. The false advertising is problematic, but it only masks the real problem of distributing cost. To the extent that we thrust truthful advertising upon them (and I think we should), they’ll get rid of the advertising before they’ll actually offer what they currently claim to be offering (for the price that they currently offer it).
Thinking it over, there are five separate questions (or series of questions) that we are exploring:
1) Is the advertising for “unlimited downloads at X-rate” fair and accurate? We both agree that it is not. I don’t believe it to be pertinent to the all-important Question #5, though. If we force them to be more honest with their advertising, they’ll likely change the advertising before they change the services. If we forced them to be honest, what would be the best pricing structure for them to use? If we allow them to be dishonest, does that make the answer different? Either way, there are better ways and worse ways for them to get paid.
2) Would the current “unlimited downloading” be sustainable if more people start really taking advantage of it and ISPs could not choose their customers? I think it could be, but likely not at current pricing. You seem to believe that it is sustainable at its current pricing, or you don’t care if it’s not, or you would be see raising rates for everyone as preferable to having a different pricing structure. From a theoretical standpoint this could render Question #5 moot.
3) Are the ISPs charging too much? You believe so, I don’t know one way or the other. I mentioned in the original post that it’s quite possible that they’d use tiered pricing as an excuse to raise rates. That’s a downside. It’s not important to Question #5 from a theoretical standpoint, though. Assuming that they seek to make as much money as they can, what is the most efficient way for them and the fairest way for us that they can get their money? We can regulate profit margins and force them to lower rates somehow and it doesn’t answer Q5.
4) Are the ISPs good people or bad people? Bad people, you believe. I’m not taking a position on this. Also not important to Question #5 from a theoretical standpoint. Whether we have good or bad ISPs, they’re going to have to charge us in one form or another.
5) Assuming that the ISPs are going to have constraints so that they can make their money, what is the fairest and most efficient way to charge customers? A flat monthly fee wherein they choose low-end users? A tiered structure? A per-gig-of-transfer charge? Which system allows the ISPs to maximize greater profit at our expense? Which system is fairest to the most customers?
Re: #1 – we seem to agree. However, I am 100% opposed to allowing false advertising. We prohibit that for a reason.
Re: #2 – this is due to a fundamental misunderstanding of what bandwidth means. Technically it is “data over time”, but pricing schemes like X gigabytes per month are somewhat silly: the available bandwidth of a given device is an instantaneous thing, usually measured either in milliseconds or seconds for the sake of convenience.
Water companies can charge for water in “price per gallon” because water is a physical and limited substance. Likewise for electricity; it is either generated or stored. Bandwidth, gone unused, simply vanishes – you can’t store it up in a tank or battery for later. You can’t hedge the times when a router is only using half its transmission capacity against times when there is a greater transmission request than it can handle. Therefore, it shouldn’t be priced like water or electricity.
As for sustainability, your earlier experience with overloaded DSL (when your connection would cut out continually during the “peak time” evenings back in Midlerth Apartments) shows you what can happen when people DO use the service “too much” – but as I point out, you and everyone else who was there had paid for a certain service, and you probably would have been well justified filing a complaint against the providing company for breach of contract then too regarding their failure to supply adequate infrastructure.
Re: #3 and #4: much of this has to do with the fact that, in most areas, the ISPs are monopolies. Except for large cities like Colosse, it is a rarity to find a location where both DSL and Cable are offered (heck, Colosse is pretty spotty on its own; last estimate I saw had 60% of the city locked to one or the other).
Much of the current pricing structure is therefore based on “we’re it, so people will have to pay it” rather than actual competition. The shoddy customer service and lack of maintenance is part of the same phenomenon. I suggest, based on the pricing wars of dial-up and other services, that if equal access rules were implemented for cable and DSL (forcing companies to allow infrastructure access to competitors and allowing people to shop for the best rate), we’d see prices drop significantly.
This is also confirmed by my previous experiences with cable TV service. In my old home town, cable prices were really low for a couple years when Warner and a local cable brand were duking it out; eventually, Warner won, bought them out, and all of a sudden rates were jacked up by 50% overnight. Rates there are still exorbitant. When I was looking at apartment complexes, the apartment complexes that forbade satellite dishes (on the grounds they were “ugly”) inevitably turned out to have an exclusive provision contract with a company called TVMax, who charged (average of the places I checked out) $85/month or more for a basic cable package with less than half the channels the satellite companies will give you for $30/month. TVMax gets away with this because for the people in those apartments, it’s either that or rabbit ears. It’s my contention that Cox, Time Warner, Comcast, and even the DSL companies get away with their pricing in the same way for most of their covered areas.
Re: #5 – The fairest and best way to charge customers, given the difficulty of working out how much bandwidth a given application takes, how much you’ve used, and given the foolishness of “X gigabytes per month” sorts of plans thereby, is a flat monthly fee for a connection of X bits per second whether you’re using them at a particular moment or not. I don’t mind offering different priced tiers at different speeds as an option, but if you are maxing out your connection at the X bits/second you are paying for, they should not be allowed to penalize you for doing so.
Almost forgot – the reason I find “X gigabytes/month” or similar plans absurd is that they definitively screw the consumer. Much like cell customers complained about the “vanishing minutes” phenomenon before a couple companies decided to allow you to hold over unused minutes from month to month, the “X Gig/month” pricing threatens customers to stay way under using what they are actually paying for under fear of going over.
It’d be much like having a subscription for gasoline, with the company giving you X gallons of gas in a big tank at your house per month, but only topping you off (and still charging you as if they’d filled a completely empty tank) rather than crediting you what you didn’t use.
It used to be the case that only one or the other was available to you, but that’s not the case anymore. I have lived in towns with tens of thousands to cities with millions and every last one of them had both options available to most people. So it’s more of a duopoly, with the exception of apartments. Two is better than one.
As far as DSL not being available in most of the city… well, I don’t know. It used to be the case that being in a place that you could get DSL was a huge deal, but I think that might have changed because there was only one place that Clancy and I looked at where we live now where the phone company didn’t offer either DSL or some other high-speed option. It was also nearly omni-present in Deseret. I’d be interested to know what the most recent statistic is. I could be wrong, but I think that they’ve improved the technology for greater availability.
As far as the connection in Midlerth, what you’re talking about is the least of the problems we had. When we first moved into the apartment it took them six weeks to get us up and running and they offered no discount.
That the system will not be as good in peak times is all part of the deal. In the small print I believe that most of the advertising says “up to Xkb/s”. At least I think it does. But whereas slow peak times is expected, having it as badly as we did at Midlerth is very problematic. Having a system wherein everybody could be logged in at once without any adverse effect could be prohibitively expensive and would be largely unnecessary most hours of the day. On the other hand, having a system as frequently down as it was there is unacceptable.
Not sure where in between to draw the line. I’m quite grateful that where we currently live I had to ask the customer support guy when the peak times were because I didn’t notice.
Almost forgot – the reason I find “X gigabytes/month” or similar plans absurd is that they definitively screw the consumer. Much like cell customers complained about the “vanishing minutes” phenomenon before a couple companies decided to allow you to hold over unused minutes from month to month, the “X Gig/month” pricing threatens customers to stay way under using what they are actually paying for under fear of going over.
Yeah, that’s definitely a downside. Although with the current model, you’re still paying for an amount that you’ll never use. It’s just no longer limited. By this standard the only fair way to do it is have a meter running every time you use it. That is far and away my least favorite way to go about billing. It all depends on how you look at it. I have “vanishing minutes” now on my cell phone. If I’m paying $45 for 3200 night-and-weekend minutes and 500 workhour minutes… how is it better for me to have to pay $80 for unlimited usage if I’m not going to use it as much? Or take my landline… I’d love for a tiered service because that way I could pay a lighter bill since I don’t talk on the landline all that much.
Whether or not one is getting screwed with a pricing scheme depends on how one wants to use it. As a high-volume net user, naturally I’d prefer a flat rate. As a low-volume phone user, I don’t want flat rates.
It’d be much like having a subscription for gasoline, with the company giving you X gallons of gas in a big tank at your house per month, but only topping you off (and still charging you as if they’d filled a completely empty tank) rather than crediting you what you didn’t use.
To use the gasoline metaphor, the current model would be like paying a flat rate for a month’s worth of gas regardless of how much gas you use.