Usage-Based Billing Seen Being Introduced by U.S. Wireline ISPs

FTC Chairman Jon Leibowitz brought renewed attention to the issue when, speaking to the Cable Show last week, he called for more U.S. wireline broadband providers to charge for consumption (CD June 16 p7). He said he’s puzzled that more ISPs don’t charge based on consumption now, and doing so would give the companies money to help pay to expand deployment to those who can’t now buy fast Internet service. A CEO of a company that sells gear to ISPs so they can charge for usage, and executives representing small cable operators and companies whose products use broadband networks, agreed that consumers would accept consumption pricing.

Consumers probably will accept the pricing if it’s rolled out over time, if they have adequate notice about it and if ISPs’ policies are clear, easily accessible and don’t favor content affiliated with the broadband provider over other traffic, the executives said. More U.S. wireline ISPs haven’t started usage-based pricing, or tested it in field trials, partly because of concern over irritating consumers, some of the executives said. There will be a certain amount of communication ISPs must do with consumers before widely introducing such pricing plans, they said. At the show, sponsored by the NCTA, Leibowitz said adequate notice by ISPs of consumers is important. A spokesman for the association had no comment on usage-based pricing, nor did spokespeople for various cable operators.

Pricing based on consumption “seems to only make sense” from a business standpoint, said American Cable Association President Matt Polka, who heard Leibowitz’s remarks at the show in Chicago. “Where else do we not buy things on consumption, other than broadband” where the use of the service takes up more capacity, he asked. Polka predicted that, “with time,” more ACA members will “work toward that usage-based model.” Charging consumers that way in theory would give ISPs more broadband revenue, which they could use to invest in networks, Polka said. “There needs to be some transition” for consumers, and “I don’t think any company that we work with would just flash-cut” to only a usage-based model, he said. “With proper notice, the implementation of usage-based billing may not be so disruptive or so much of [a] consumer concern as some might think."

"If you're paying for what you use, it’s certainly something that resonates with consumers,” said Marty Lafferty, CEO of the Distributed Computing Industry Association. Members include Alcatel-Lucent, Amazon Web Services, AT&T, BitTorrent, Cisco, Verizon and VeriSign. “But the devil is always in the details: What is in the prices? Is it equitable?” and “Transparency -- is it clear what you're getting and what you're paying for?” The goal is to keep separate the issue of what type of Internet content a broadband subscriber uses, versus the amount of capacity used, Lafferty said. “People are ready for it,” he said of being charged for usage: “They can adjust to it,” with wireless carriers “somewhat ahead of landline."

For ISPs, billing for usage isn’t “about a short-term financial boost, it’s about future-proofing the business model” for the long haul, said analyst Craig Moffett of Sanford Bernstein. “Customers have been trained to think of broadband as unlimited ever since the early days of AOL. Operators are going to have to offer some carrot as well as stick, with lower introductory rates to make it palatable.” There could be some initial confusion, Moffett said.

Broadband usage caps, employed by some U.S. wireline telecom providers including cable operators, represent a step toward billing for consumption, said Lafferty, Polka and CEO Dave Caputo of Sandvine, which sells broadband monitoring gear to ISPs. “The leap from there to more of a usage-based platform is not that far,” Polka said. “It’s kind of a middle step among providers to true usage-based billing.” Cable operators, though not a majority, have caps on the amount of bandwidth a customer can use, before the customer either gets a warning that the limit has been exceeded, is charged a fee or must buy a tier with a higher cap, Polka and other executives said.

Indicating the increasing use of charging for consumption, about half of the requests for information and requests for pricing that Sandvine sees are for some sort of related system, Caputo said. Latin American wireless service providers increasingly charge subscribers for what type of applications they use, and in both the U.S. and internationally some carriers already use some form of usage-based billing, he said. Caps and tiers of service based on speed are “just another form of usage-based billing,” Caputo said. The model makes sense because of the “massive investments that service providers have to make to improve their networks” and “the value that users get out of it,” he said.

"Something’s got to give,” and when it does more ISPs will start introducing usage-based plans, Caputo predicted. “I think ultimately service providers feel that unless they handle the launch of it properly, that they might have an increase in churn.” There will be, among wireline ISPs, “a progression of caps being imposed, and them going from soft caps to hard caps, to the place where it only captures the heaviest users” and so forth, he said. Caputo said that Time Warner Cable’s tests of usage-based billing, which the company put on hold in 2009 after congressional and public outcry, were ahead of their time in some ways.