An Attempt at Economically Rational Pricing: Time Warner Trial

Fri Jan 18 20:53:02 UTC 2008

On Jan 18, 2008, at 3:06 PM, Tomas L. Byrnes wrote:

> I always find it interesting that people with a telco background keep
> trying to go back to the ma bell days and ways, even as the telcos
> themselves are abandoning those models for phone service.

I am not at all certain that is what is happening.

> One of the things about usage based pricing in the Internet is that  
> the
> system doesn't have the facilities to do that built into it by design,
> so you have to add a lot of equipment and software to do it. This  
> tends
> to cost more than the incremental revenue, especially when you  
> consider
> the additional customer service costs and churn (there's always a
> competitor who pops up offering flat-rate pricing).
>
> The problem in the ISP industry isn't lack of usage based pricing.  
> It's
> that the going rate for basic connectivity was driven below that which
> is economically sustainable by the ILECs when they engaged in  
> predatory
> pricing to drive the CLECs out of business in the late 90s. Now that
> they own the market, they find that, having driven the prices down,  
> they
> can't raise them, so they are engaging in various subterfuges that are
> designed to cover up the basic thing they are doing: trying to charge
> more for the exact same service.

I disagree.

Pick a number.  Any number.  Offer broadband flatrate service at that  
number.  I will show you at least 5% of your customer base who is  
either paying an order of magnitude too much, or getting an order of  
magnitude more than they paid for.  And usually a lot more than 5%.

The problem is "flat rate" doesn't work when the thing being offered  
is a shared resource _and_ a single or a few users can use all the  
resources.  On phone networks, flat rate kinda works because a single  
phone call is a very tiny fraction of the shared resource.  No small  
set of users can harm the rest of the users.  (It is still possible  
for a medium set of users to harm the rest, but the danger is low.)   
That is not true for Internet access, unless you plan to go back to  
Kbps speeds.  I think that would be less well received than usage- 
based billing.

IOW: Usage-based billing makes sense commercially, whether you are a  
propeller-head or a bell-head.

And since Internet providers tend to be for-profit businesses, doing  
what "makes sense commercially" is kinda required.

Then again, I Am Not An Isp, so what do I know?  If you think things  
are out of whack, sounds like a business opportunity to me!  You  
should be able to take your superior knowledge and make a killing  
implementing a proper network.

-- 
TTFN,
patrick