Study: Tiered Broadband Pricing Benefits Consumers

Published November 30, 2010

The financial benefits of tiered-pricing plans for residential and business customers may exceed unlimited plans by as much as 25 percent annually, according to a study by the Technology Policy Institute, Washington, DC.

“Residential and Business Broadband Prices, Part 1: An Empirical Analysis of Metering and Other Price Determinants,” by Scott Wallsten and James L. Riso, reveals broadband plans with contracts are cheaper than those without contracts; broadband plans with data caps are 15 to 25 percent cheaper than unlimited plans for most consumers; and the costs of business plans increase with the length of the contract.

Flat-rate pricing encourages system overuse at levels the networks were never designed for, according to Mike Jude, program manager for consumer communications services at Stratecast, a global marketing and strategy consulting company.

Jude says the study’s findings provide a fitting comparison with proposed network neutrality rules for the Internet. “There will always be people who over-consume,” Jude said. “If people pay for what they use, it makes it much more predictable for the networks to determine the resources they need.”

‘Clear Policy Implications’
The study, released n November, concludes residential standalone plans with bit caps cost on average $164 less per year than unlimited plans. Residential “triple-play” plans with bit caps are about $152 less per year than unlimited plans. Prices increase by $1.67 and $1.85 for standalone and triple-play plans, respectively, for each gigabyte added to the cap.  

Plans with contracts are on average $22 less over the course of a year for standalone broadband plans and $11 less for triple play plans. For residential standalone plans, each additional month of the contract brings a $5.64 decrease in the one-year price.

The study’s authors say the policy implications are clear. They write,”Policymakers should not immediately conclude that data caps and other pricing schemes that differ from traditional unlimited plans are necessarily bad.”

Bandwidth Crunch
Industry analysts quoted in the study predict video traffic will represent 66 percent of all mobile traffic by 2014, citing a 30-minute TV episode is about 200 to 600MB; a full-length movie is 1GB to 3GB; and a five-minute YouTube video is 10MB to 80MB.

“Over the past few months we’ve seen carriers—both residential and mobile broadband—in a variety of countries starting to cap plans,” said Beverly Wilks, senior marketing director of Vantrix, a Montreal, Quebec-based provider of mobile and broadband video. “We believe that more will follow suit as more consumers are accessing over-the-top video on their mobile devices and tablets, while carriers’ costs have increased dramatically. Depending on how consumers use their mobile phones, they can easily burn through their plans.”

Wilks added, “This underscores a bigger issue facing carriers, the bandwidth crunch. Data caps are one approach carriers can take to help alleviate this problem. However, with the current and projected mobile video and data usage, this alone is not enough to curb demand.

“One of the best ways to improve the mobile video experience is through video optimization. Optimizing the operators’ network alleviates the amount of data passing through, thus freeing up bandwidth and allowing more users to access more services,” she explained.

‘Self-Regulated Usage’
The study results shouldn’t come as a surprise, says Jude.

“These kinds of studies have been done since the days of long-distance billing with the old Bell system. Pricing models are based on a bell curve. The tail end at the front hardly uses the system at all, while the tail end at the back uses the system a lot. If people have the potential for additional charges, they will self-regulate their usage. It’s more psychological than dynamic.”

If networks have to provide maximum throughput to handle unlimited data needs for consumers, it will squelch innovation, said Jude. Networks and innovation will suffer if forced to provide the same throughput for all regardless of business sense, he said.

“The operators have to be able to manage the network in a rational way,” Jude said.

Phil Britt ([email protected]) writes from South Holland, Illinois.

On the Internet:
“Residential and Business Broadband Prices, Part 1: An Empirical Analysis of Metering and Other Price Determinants,” Scott Walsten and James L. Riso, Technology Policy Institute: