This article originally appeared in the July 2011 issue of NGN.
Internet access providers face real economic issues, but solutions thus far have been less than stellar.
The first mistake was throttling or blocking specific applications, like peer-to-peer file sharing. This violates a key Internet advantage – its option value. The Internet is an open, flexible platform supporting almost any communications application including those that haven’t been invented, yet. The justifiable response to application-specific throttling was a call for network neutrality.
A second mistake was the introduction of caps with overage charges to a service that had been flat rate and unlimited. People prefer certainty and will pay extra for a flat rate service and it’s true the cellular industry successfully offers tiered plans (for minutes) with caps and overage charges, but the cellular industry started with high per minute prices and came down, repeatedly. The Internet access market started with speed tiers and is now trying to add data caps. That’s difficult to swallow, plus data caps are completely alien. What is 10 GBytes, and how long does it last?
ISPs can do better, but it requires some understanding of network economics and human nature. Networks have excess capacity most of the time. They are built for a peak capacity that only occurs an hour or two per day. The rest of the time the network is underutilized. During off times (the majority of the time), the cost of handling incremental traffic is effectively zero, and it remains zero until traffic levels approach congestion. That’s why cellular companies offer free nights and weekends – their incremental cost is literally zero and free sounds great!
So how does an access ISP proceed? First, sell what people understand. Sell tiered speed bundles, but complicate the bundle just a little. Each bundle should include two speeds – one for interactive traffic (web browsing, gaming and VoIP) and non-interactive (everything else, including video streaming). The interactive speed is large, for marketing purposes and to make speed tests look good. The non-interactive speed can be tiered to support one video stream, or two, etc., with a surprisingly small impact on network utilization (Netflix SD movies require less than 700kbps). With this approach, no application is being blocked or throttled, and the technology that formerly throttled specific applications can be used to accelerate the interactive applications, although the needed prioritization can frequently be done in existing routers without specialized bandwidth management appliances.
Finally, take advantage of off-peak capacity to offer free speedups for non-interactive applications (like backup, file sharing and bulk transfers) during non-peak times.
The secret is to sell what people understand (speed), offer bandwidth management as a benefit, and market unused bandwidth as a freebee.
Edited by Stefania Viscusi