Tuesday, April 21, 2009

A New Pricing Scheme Suggestion


A response to "Brian Boyko’s Alternative Plan for “Top-Up” billing" by Brion Swanson

@BrionS on Twitter

There are several good ideas brought up in this alternative, but as a user I'm left with a feeling of the Internet becoming one of those steel national park binoculars that require me to keep pumping coins into it to keep the shutter open.

While Brian's proposal is much more equitable than Time Warner's proposals thus far, it still falls short because it's addressing the symptom of a problem not the cause of it.

The problem in this case is that Time Warner's business is involved both in access to the Internet and in providing products and services that use the Internet. Those two sides of their business are at odds with one another.

If Time Warner Cable were a wholly separate company in every sense from Time Warner and its subsidiary Time Warner Entertainment such that Time Warner Cable's only business was selling access to the Internet, then this would be a much different discussion.

Time Warner Entertainment and the media services side of the company would be competing on equal footing with Netflix, Hulu, AppleTV, and others.

Given the above backdrop we are still left with the problem of how can Time Warner the media services and Internet access company make money in a manner acceptable to their customers?

I propose another alternative approach to pricing Internet access as primarily a speed based approach with incentives at every level to use less data. It goes something like this:

• Internet access is provided in multiple tiers based solely on speed of access (50 Mpbs, 30 Mbps, 15 Mbps, 10 Mpbs, 5 Mbps, 1 Mbps -- for example)

• Pricing is set appropriately to each speed level to help offset Time Warner's build-out costs. Perhaps the top tier is $150/mo for 50 Mbps.

• Each tier provides an incremental discount for amounts of bandwidth below a specific threshold. (50 Mpbs tier has a 150GB usage threshold below which incentive discounts apply to your monthly bill.) This may be a one-time incentive to get below a specific threshold or a graduated set of incentive levels - lower usage offering more credit.

In this way, the pricing model is very simple: higher speeds cost more money, low usage can reduce customer costs further.

This plan shares many of the same benefits as Brian's plan and have a few additional:

• Customers are not surprised with overage charges...ever. At best they will receive a credit on their next month's bill.

• Heavy users are much more likely to be the ones who want the faster speeds and will pay more to get it without any data caps. This is true for upstream speeds as well - maybe especially.

• Each user's network connection is speed limited so they will never use more bandwidth than they've paid for during peak usage times. That is, a user paying for the 1 Mbps tier will never be able to download at 5 Mbps during peak hours (when there is excess bandwidth available this is not necessarily true) thus limiting the bandwidth they can use at any time, but not the data.

• No need to keep track of anything from the customer end: no gas gauges or "roll overs", just use the Internet when you want and pay for your connection speed.

As an added benefit, these new billing practices could go into effect almost immediately without having to wait for the DOCSIS 3.0 upgrades. When those are available customers can be notified of the new pricing options.

In this plan Time Warner reaps the benefits of customers paying monthly rates for the peak bandwidth usage that they will want on the infrequent occasions they actually use their full bandwidth.

This plan also takes a lot of the guesswork out of how much capacity will be demanded of the network at any given time since a user cannot go over their chosen bandwidth. In calculations of peak network usage customers can be assumed to be using no more than their subscribed amount.

Right now everyone uses the same (fluctuating) access speeds, but one person may be checking email while another is streaming a movie.

With fixed speeds, Time Warner knows that one person cannot use more than x Mbps while it's possible they're using even less bandwidth than they pay for.

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