IT IS UNLIKELY THAT WE will see the elimination of usage sensitive pricing for the aggregated wholesale services that many internet services providers use to reach their customers (as I mentioned yesterday afternoon)
Usage is an efficient and fair cost allocation system for shared resources, as suggested in the National Post.
However, the currently mandated approach of applying charges on a per-user basis may need to give way to some form of aggregation in order to provide ISPs with sufficient flexibility to offer consumer increased choice among price plans.
A number of times, I have referred to the all-you-can-eat buffet metaphor. The local restaurant tolerates the football team because there are enough other customers that don’t eat quite as much. The challenge, however, is that the current user-based pricing mechanism charges excess fees to the heavy eaters, even if there are lighter users who don’t consume their maximum.
So under the current regime, we could have a situation where an ISP has two customers, one who uses 30 GB in a month and another who uses 5 GB. Under the current plan, the ISP will pay excess usage for the customer who exceeded the 25 GB threshold. Another ISP may have two customers who each use 20 GB, putting a total load of 40 GB on the wholesale access network, but there are no excess usage charges.
If UBB is supposed to help manage traffic loads, it is difficult to reconcile this anomaly.
This is where we could see a directive from the government that allows a resolution to the problem, but continues to preserve the economic efficiency of usage based cost allocation. My long time colleague, lawyer and friend, Ed Antecol, who heads up regulatory affairs at Globalive, believes the key to resolving this could be found in the third paragraph of the dissent to CRTC Decision 2010-255 by commissioner Molnar:
“I would note that I am not convinced that the Bell companies’ proposal to apply UBB charges based upon end-customer usage is the most effective Internet traffic management practice (ITMP) approach. Nor am I persuaded at this time that an aggregated usage model, if properly structured, would nullify the potential effectiveness of UBB as a means of managing network usage. Certainly, an aggregated usage model would have provided ISPs that subscribe to the Bell companies’ GAS (GAS ISPs) with greater flexibility to manage end-user pricing/service solutions.”
Usage based billing across an ISP’s entire base of customers makes sense. The non-facilities based ISPs will be able to offer flexible service plans, including unlimited service, by balancing their customer base with innovative pricing models and services.
Along these lines, an aggregated model will help drive the alternate ISPs to possibly develop innovative solutions to attract people who are not yet internet users, because such users may start with lighter loads to help balance the overall traffic levels. This will contribute to increasing broadband adoption rates, and dovetails nicely with my drive to increase digital connectivity among lower income earners.
An aggregated usage regime enables the smaller ISPs to continue to be a source of competition, driving the entire industry to provide creative products and improved service, while preserving the incentives for continued capital investments by all industry participants.
It is a solution worth careful examination by the Industry Minister.
The above column is a re-post (with permission) of a February 2, 2011 blog entry by industry consultant Mark Goldberg, who has more than 30 years of international experience in strategic planning, managing, designing and implementing telecommunications carrier networks. Visit his excellent “Telecom Trends” blog here.
