[9255] in Commercialization & Privatization of the Internet
Metered vs Flat Rates (was: an Internet buying coop?)
daemon@ATHENA.MIT.EDU (Einar Stefferud)
Sun Dec 26 20:30:38 1993
To: com-priv@psi.com
In-Reply-To: Your message of "Sun, 26 Dec 1993 16:00:24 CST."
Reply-To: Stef=com@nma.com
From: Einar Stefferud <Stef=com@nma.com>
Date: Sun, 26 Dec 1993 16:50:10 -0800
All this discussion -- and the main point of difference between flat
and metered rates is no where in sight. Tsk, tsk,tsk.,..
So, here it is -- the differential issue is:
Who carries the risk of underutilization?
Someone must take the profit gamble that revenue (collected or paid)
will be more/less/equal to the actual (fixed + variable) costs of
delivery. This gamble can be bought and sold.
With METERED SERVICE, the service provider carries the risk of
underutilization for the required service delivery facilities.
With FLAT RATE service, the customer carries underutilization risk.
It should be obvious that the party that carries this risk carries the
cost of this risk, so there is a real decrease in the cost of service
provision if the service provider can sell this risk to the customer,
while the customer now has an additional cost factor which offsets
lower prices.
Average per unit metered use charges must exceed actual costs to
obtain profits.
Average flat rate charges per unit delivered can thus be lower than
for metered rates and still generate the same profits. Also, the
costs of metering, billing, and, bill adjustments are decreased.
Leased lines are cheaper than dialup service, if and only if, the
customer uses the leased line enough to justify its cost, as compared
to dialup. Flat rate is only cheaper than metered if the customer
uses more service than the fee paid would have provided if metered.
This can be computed for periods of any length, and full analysis
should include the costs on both sides for switching billing modes at
crossover points.
The fact that the regulated (monopoly) local phone company can include
all costs for metering, billing, and customer bill adjustment service
in its rate-base, which the PUC uses as justification for profits
allowed, only means that the phone companies are in a good position to
profit from arranging for you to pay for all that metering and billing
service. More costs for provision mean higher PUC allowed prices for
service. So, you as a customer must pay for the metering and billing
service, in addition to paying for the communication service.
It is interesting to ask whether or not the phone companies subsidize
metered service with leased line revenues? That is, are metering and
billing costs included in the rate base for leased line pricing?
Of course, this PUC game is not available to unregulated service
providers, which may be one reason the unregulated (non-monopoly)
providers find it attractive to sell flat rate services.
Have a Great New Year!...\Stef
