[9256] in Commercialization & Privatization of the Internet
Re: Metered vs Flat Rates (was: an Internet buying coop?)
daemon@ATHENA.MIT.EDU (Ed Tully)
Sun Dec 26 21:00:14 1993
From: tully@cscns.com (Ed Tully)
To: com-priv@psi.com
Date: Sun, 26 Dec 93 18:56:15 MST
Cc: com-priv@psi.comstef@nma.com
In-Reply-To: <27664.756953410@odin.nma.com>; from "Einar Stefferud" at Dec 26, 93 4:50 pm
Stef,
what is the source of your statements? normal business sense? I have ben
associated with the industry a long time - underutilization went away a
long time ago. the telco has sufficient history to charge for metered
service and not transfer the risk.
I would appreciate your reply to the question of the backup of your
statements. And this is not a flame. Just want some moreinfo.
Ed Tully
>
> 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
>
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