Pay-As-You-Use High-Speed Internet?

Mikael Abrahamsson swmike at
Mon May 17 23:08:36 UTC 2004

On Mon, 17 May 2004, Stephen Sprunk wrote:

> One can take an important lesson from the telcos...  When the incremental
> cost of usage was high compared to their fixed costs, usage-based billing
> made sense.  However, today incremental costs are negligible but fixed costs
> are high, so logically the telcos are migrating to extracting a fixed income
> (to cover their fixed costs) and little if any usage charges for the typical
> consumer.  I'm curious where others think we are on that progression, or if
> it even applies to ISPs.

What should be used is a fairly high fixed cost and then a low per-usage 
cost on top of that. Preferably a quite sizable chunk of usage should be 
included in the initial fee.

What you want to accomplish is to make 80-90% of your users only pay the
flat fee, then the 10% that uses 70% of your traffic (usually ends up to
that 10% of the users use 50-90% of the traffic) you either want to pay
more or scare away. Ideal is to make this a token system so that you
include a certain amount of traffic and if the customer goes above this,
you lower the access speed. You then offer the customer to pay a certain
price to get another chunk of traffic at the high speed, or stay at the 
low speed and continue downloading.

With the above model you can offer a very high access speed to everybody, 
and only penalise the people who actually take advantage of the access 
speed, rather than to penalise everybody with low access speed. This gives 
the low-usage people a quick and nice service at a low price. One might 
also incur a spatial component in this, to make it free to download during 
the low-usage nighttime, and incur a higher fee during peak hours.

For instance, with ADSL there is no benefit to limit people to 512k, the
technical cost at the same actual usage is the same for 512k access speed
and for full auto 8M speed. The only difference with 8M is when people 
actually take advantage of it and download more than your business model 
was calculated for.

People want to be able to control their cost, limiting speed when hitting 
the high-water mark and then making the customer pay a token puts the 
customer in complete control of the costs.

Mikael Abrahamsson    email: swmike at

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