BellSouth and a few others telecos have recently started advocating a “pay-by-the-byte” type of pricing scheme. Under those proposals, consumers who access high-bandwidth applications, like file sharing or VoIP or online gaming would pay more than people who just web surfed or read email.
An example of the current justification for the proposed pay-by-the-byte pricing was given by BellSouth Chief Technology Officer, William Smith.
As reported in the Wall Street Journal, Smith, they said, “often laments the fact that his parents, who use the Internet for only low-capacity activities such as Web surfing and email, pay fees similar to those of heavy users who suck up capacity by downloading music or using BitTorrent, which is used by millions to download movies and other material off the Internet. Overall at BellSouth, 1% of broadband customers drive 40% of Internet traffic, he says. "People who drive cost in the network create additional charges in the network," Mr. Smith says. "If my elderly parents don't use a lot of traffic we ought to be able to create a service plan that meets their needs."”
Oh, my heart goes out to those poor people! What philanthropy! What humanitarians!
This development follows the recent proposals by the telecos to make Google and other high-bandwidth content providers pay extra in recognition of their popularity – and the extra bandwidth people consume accessing those sites.
The way the telecos envision the world, we’ll have a two-tiered structure for the internet where popular content providers pay them a surcharge so that consumers may access those sites in a speedy fashion, and all other (non-paying) sites have slower, perhaps unreliable access.
And then of course, the consumers will also be paying extra for that high-bandwidth content.
From the teleco’s point of view, the future’s looking awfully bright and rosy. Those profits are just gonna be rolling in!
Unfortunately, this same sort of business model would also very much tend to kill the internet as we know it and stifle and further development.
The driving force behind these proposals are equipment providers like Cisco System and Ellacoya Networks, who manufacture network management equipment that would be used to implement the new business models.
This marketing strategy does have somewhat of an established track record.
In England for example, British Internet service provider PlusNet PLC worked with Ellacoya to implement a pay-as-you-go plan that charged subscribers the equivalent of $27 a month for the first gigabyte of data transfer, then $1.80 for each additional gigabyte.
Now I’m not a real heavy user, but last month my kids and I burned up slightly over 30 GB of bandwidth. What that represents is mostly a whole lot of time playing online games, plus a few game demos we downloaded (a demo version of a good game can run between 100 and 500 MB) and maybe 10-20 hours of streaming music. There was probably a little music file sharing, but not much. And that was about it.
I have an 8 mb/s connection from Click! Networks – the fastest connection available around here, for which the price is $60 a month.
If Click were to implement the same pricing scheme as PlusNet PLC, I’d have had to pay $80 for that service. That’d be a 33% increase in my monthly cost – nothing that I’m even a little interested in paying. I really can’t imagine many consumers would be interested in a 33% price hike for their internet service.
But the real problem with this sort of pricing scheme is that it would stifle development of new internet technology.
Pretty much all of the most exciting new applications on the horizon are very bandwidth intensive: videophones, streaming video, downloadable movies and songs, as well as downloadable applications such as games and other software.
Right now, downloadable computer games are starting to become quite popular. Valve was one of the first major players to commit to this business model, with its release of Halflife 2. Then recently, Electronic Arts started their own EA Downloader service to deliver game content directly to consumers.
I bought two copies of Halflife 2 and downloaded them on the day it was released, and the whole thing came off without a hitch. I also recently bought and downloaded a copy of Battlefield 2 Special Forces. It was easy as pie.
I’m sold on buying games and other software online, and downloading them. It’s a whole lot more convenient to shop from the comfort of my home – it can be a real pain in the ass going to the mall. And being able to download stuff right now is attractive to the impulse buyer side of me.
But if I was paying by-the-byte for my internet, I would have had to pay about $32 extra – or about $10 extra, each – for those three games, and that’s just unacceptable.
If pay-by-the-byte pricing goes into effect it would effectively kill this sort of software delivery system – or maybe make it so only the rich could afford to use it. I can’t imagine too many people paying an extra $10 just so they could download a game at home.
And remember that what the telecos are proposing would have both the consumer and the content provider paying for the extra bandwidth, so in the end, the costs might well be more than an additional $10 per game.
Another coming attraction is the videophone.
Videophones are just on the verge of becoming widely available. Say you want to talk with your favorite aunt. What’s better? Using a clunky old sound-only phone, or would you rather see your aunt as you talk? Obviously as soon as prices come down and the bugs are worked out, people will jump on the videophone bandwagon in droves.
Motorola is currently selling their Ojo Videophone. Skype offers video over VoIP. So do several other companies. This is an application that could be extremely popular – maybe even a necessity. But it’s also an application that also demands high bandwidth if you want full motion video in a screen sized large enough to see without a magnifying glass.
Bandwidth by-the-byte would effectively kill this new technology – or once again, make it so only the rich could afford it.
Movie downloads are also right on the horizon. This is an app that requires a great amount of bandwidth – an average HD (DVD quality) movie runs about 5-6 GB in size.
What’s more convenient? Sitting in your living room and picking a movie from thousands of titles, then downloading it and burning it onto a DVD that will self destruct after three views? Or would you rather have to get up and fight traffic on the way to the local Blockbuster store, then stand in line for five minutes waiting to pay for your selection, and then finally drive home?
If costs were equal, most people would prefer to stay home and shop. But it has to be convenient and easy, and priced about the same as in-person rentals.
At around 6 GB for your average HD quality movie, with an 8 Mb/s connection, it would take 102 minutes to download that movie. At 25 Mb/s, the download would take just 32 minutes. At 50 mb/s the download takes 16 minutes. And at 100 Mb/s, it would take just 8 minutes.
I personally think very few people are patient enough to wait an hour and a half for a download. But when it starts to take a half hour or under, then it will begin to become very popular. And when 100 Mb/s connection become commonplace, downloadable movies will begin to supplant brick and mortar video stores – which will eventually all mostly close (so don’t buy stock in Blockbuster!).
iTunes is currently offering downloadable re-runs of your favorite TV shows for $1.99 an episode, as well as music videos and other stuff. But it’s all small-format stuff suitable for watching on a computer or iPod – not on a widescreen or HD TV.
There are a few other companies offering movie downloads right now, but with the piddley connections most people have, I can’t imagine the companies are doing much business. You won’t see any real players emerge here until the connection speeds average 15-25 Mb/s nationally.
But again, if pay-by-the-byte and two-tiered internet pricing schemes were implemented, this is another technology that will likely be killed.
If you watched six movies in one month, those downloads (totaling about 36 GB) would cost an additional $65, which obviously no one – except maybe the rich – would ever be willing to pay. Convenience just isn’t worth that much.
Streaming video is another potential killer app that’s right on the horizon – which also consumes enormous bandwidth. One HD video stream takes 10-20 Mb/s of bandwidth.
In Korea, where 100 Mb/s connections are commonplace, streaming soap operas – soap operas produced exclusively for the web – are the big killer app right now. You can select from hundreds of different shows, and stream them in full-motion video – all for a nominal price.
We’re starting to see a little of that now in the US. There are a fair bit of news broadcasts available currently – Meet The Press, for example, is available for streaming broadcasts.
But if pay-by-the-byte pricing and a two-tiered internet structure were implemented, this of course would all fade into oblivion.
Pay-by-the-byte pricing and a two-tiered internet cannot be allowed to come to pass.
The internet has a tremendous potential to enrich our lives and broaden our horizons, and make life easier for us, generally. What we’re seeing now is just the internet’s infancy – it hasn’t even reached a fraction of its ultimate potential. The internet must be allowed to continue to evolve freely, as it has in the past, without the money-grubbing telecos ruining it by draining off every little last bit of cash like the blood-sucking vampires they apparently aspire to be.
My suggestion would be that if Mr. Smith from BellSouth truly wants to help elderly consumers, they should offer a new service level especially for seniors – something along the same lines as Verizon’s $14.95 per month 768 kb/s service. For fixed-income seniors above age 65, they could offer a 1 Mb/s service for $10 a month (and even doing so, BellSouth would still make money on it).
I’m hoping that the telecos wake up and smell the roses before they kill the goose that laid the golden egg.