[101795] in North American Network Operators' Group
Re: An Attempt at Economically Rational Pricing: Time Warner Trial
daemon@ATHENA.MIT.EDU (Patrick W. Gilmore)
Fri Jan 18 16:22:14 2008
Cc: "Patrick W. Gilmore" <patrick@ianai.net>
From: "Patrick W. Gilmore" <patrick@ianai.net>
To: =?WINDOWS-1252?Q?=93NANOG=93?= <nanog@merit.edu>
In-Reply-To: <70D072392E56884193E3D2DE09C097A9EDF7@pascal.zaphodb.org>
Date: Fri, 18 Jan 2008 15:53:02 -0500
Errors-To: owner-nanog@merit.edu
On Jan 18, 2008, at 3:06 PM, Tomas L. Byrnes wrote:
> I always find it interesting that people with a telco background keep
> trying to go back to the ma bell days and ways, even as the telcos
> themselves are abandoning those models for phone service.
I am not at all certain that is what is happening.
> One of the things about usage based pricing in the Internet is that
> the
> system doesn't have the facilities to do that built into it by design,
> so you have to add a lot of equipment and software to do it. This
> tends
> to cost more than the incremental revenue, especially when you
> consider
> the additional customer service costs and churn (there's always a
> competitor who pops up offering flat-rate pricing).
>
> The problem in the ISP industry isn't lack of usage based pricing.
> It's
> that the going rate for basic connectivity was driven below that which
> is economically sustainable by the ILECs when they engaged in
> predatory
> pricing to drive the CLECs out of business in the late 90s. Now that
> they own the market, they find that, having driven the prices down,
> they
> can't raise them, so they are engaging in various subterfuges that are
> designed to cover up the basic thing they are doing: trying to charge
> more for the exact same service.
I disagree.
Pick a number. Any number. Offer broadband flatrate service at that
number. I will show you at least 5% of your customer base who is
either paying an order of magnitude too much, or getting an order of
magnitude more than they paid for. And usually a lot more than 5%.
The problem is "flat rate" doesn't work when the thing being offered
is a shared resource _and_ a single or a few users can use all the
resources. On phone networks, flat rate kinda works because a single
phone call is a very tiny fraction of the shared resource. No small
set of users can harm the rest of the users. (It is still possible
for a medium set of users to harm the rest, but the danger is low.)
That is not true for Internet access, unless you plan to go back to
Kbps speeds. I think that would be less well received than usage-
based billing.
IOW: Usage-based billing makes sense commercially, whether you are a
propeller-head or a bell-head.
And since Internet providers tend to be for-profit businesses, doing
what "makes sense commercially" is kinda required.
Then again, I Am Not An Isp, so what do I know? If you think things
are out of whack, sounds like a business opportunity to me! You
should be able to take your superior knowledge and make a killing
implementing a proper network.
--
TTFN,
patrick
