This article originally appeared in the June 2012 issue of INTERNET TELEPHONY

The growing popularity of real-time entertainment applications has significantly increased consumer Internet data consumption, leaving broadband and mobile Internet service providers to face higher operating costs. As a result, the evolution of billing for Internet services seems to be moving away from the traditional all-you-can-eat business model.  These plans are simply not sustainable because a small number of users (5 percent) consume 90 percent of bandwidth, and thereby, the vast majority of users are, in effect, subsidizing those heavy users. 

As expected, heavy users appear resistant to metered plans based on consumption. Compounding this issue is the fact that the majority of users have no idea how much bandwidth each of their applications, websites or appliances use. As a result, ISPs need to find different ways to bill for data services in a manner that helps them recoup capital investments, while keeping customers satisfied with the service.

One way in which Sandvine (News - Alert) assists ISPs in tackling this challenge is by providing network policy control solutions that enable tiered, application-based service plan offerings that aren’t based simply on quota usage. These plans zero-rate low bandwidth applications, such as e-mail and social networking, and offer unlimited access to those applications at a reduced, fixed rate, thus providing the consumer with cost certainty. Such plans are sustainable and profitable for the ISP because, despite the unlimited use of the associated applications, they do not consume much network capacity. This trend has started to become very popular in Latin America, and there are many benefits for both ISPs and subscribers around the world.

ISPs benefit in a number of ways by rolling out plans such as these, based on application usage.  In the example above, the ISP noticed its subscriber base grew significantly because cost-conscience users liked these entry-level, fixed-price categories. They also noticed some of their existing customers readily opted into the higher-priced plans to gain increased functionality to meet their needs. More importantly, this ISP actually gained more ARPU because subscribers were more comfortable with paying a flat fee, despite the fact that the fixed fee was often higher than what they would have paid under a variable-price consumption-based model. As another side benefit, the ISP was better able to plan expansion of network capacity to accommodate these plans, because the associated low-bandwidth applications did not consume much network capacity.

These plans also benefit subscribers and have become popular for their cost certainty – the consumer does not need to worry about exceeding monthly caps and incurring additional costs.  The plans are also straightforward and easy to understand with no need for subscribers to calculate bytes consumed. In addition, these plans are appealing to consumers since they appreciate the choices they are offered by the ISP.  Subscribers can easily identify their own usage preferences in the plans and sign up for the one that best matches their needs, even if that entails graduating to a higher price bracket.

The application-based pricing strategy is a win-win scenario because the subscribers receive the services they want, and the ISP earns subscriber trust and loyalty through increased satisfaction and overall quality of experience. Expect to see more of these sorts of pricing plans to emerge in other pockets of the world, as a means for ISPs to prosper and foster positive relationships with their subscribers.