A New ISP Business Model

Argo recently asked,

(Why shouldn't) a cable company offer a platform to other media outfits and charge them for maintenance and overhead rather pass that cost to customers."

Great question! 

Let's look at one example of a new business model. 

Netflix recently announced a set-top box to deliver movies directly to a set-top box via the Inernet. It's a very exciting idea that adds great value to their service and they will save a ton of money in postage, a good thing for them. 

Their plan will use an enormous amount of Internet bandwidth which can cause additional congestion along the way.  To prevent this from happening, ISP's and Internet backbone suppliers provision for increases in usage. 

But most ISP's currently charge consumers a flat monthly rate. ISP's not only pay their backbone providers for their customers' increased usage, they also have to provision their own networks to deliver these new products.  This is a fatal flaw in the residential ISP pricing model that someday, surely will break.

How would Agro's new model work in this case?

What if ISP's built an "express lane" from Netflix to their customers?  Higher bandwidth-consuming products, like in this case movies, would be delivered smoothly and rapidly.  The ISP's and the movie rental company would have an economic relationship to pay for the expressway.

The movie rental companies could use part of their postage savings to ensure the efficient and rapid delivery of their products via these express lanes.  For a small premium charge, they even could offer a premium level of service, guaranteeing even greater stability and speed.   

This model seems eminently fair to the ISP, the content provider and, most importantly, to consumers.  The alternative is for ISP's to charge for heavy usage, or metering, where consumers don't get the additional value of express delivery but still have to pay for the provisioning needed to deliver the movies.

So what's holding us back?

Simple.  The threat of regulation.

As fair as this model seems, there are some who are trying to convince policymakers that it would disadvantage content providers (in this example, some movie rental companies) who do not have expressways to consumers.  So, even if the ISP makes this arrangement available to others, they ask why it wouldn't it disadvantage the movie rental companies who don't take them up on it.

It would. 

But that's their choice.  Some movie rental companies could have a premium service level available to consumers while others do not.  If you prefer Blockbuster who may choose not to offer an express connection, you can still deal with your chosen provider with a standard connection.  Or you could check out other ISP's to see if they have a deal with Blockbuster.  That's the beauty of competition at multiple levels.

This shouldn't look very strange to consumers.  After all, every time you do a Google search, you find preferred (or paid) results at the top of the page.  And by the way, unlike bandwidth provisioning, it doesn't cost one penny more to put that result at the top.

Argo's question is precisely the right one to ask.  A multitude of new products and services are being aggressively developed for Internet delivery.  That will create the need to add vast amounts of bandwidth throughout the Internet. 

The underlying issue is this -- Do we want consumers solely to foot the bill for the necessary new infrastructure by being charged for usage or do we want to spread the costs by unleashing the forces of competition and innovation?  Let's encourage companies to explore innovative business relationships that deliver additional value to consumers by removing the threat of unnecessary regulation of the future of the Internet.

Comments

[ARGO]

"The bottom line"

The customer (cable subscribers) value goes up! Increasing sales revenue = "more profit" for cable company's and that's more funds for network upgrades and new technology.

For the customer/subscriber ultimately lowered cost.

That's money in the bank win-win. ;)

[dualsub2006]

So if the fear of regulation holds you back what is the alternative? Metered usage for the user?

If 5% of users use so much bandwidth then charge them for it. If that means that there is a per GB cap over 250 to 300GB a month then so be it.

Any thoughts of a 40GB cap in Insight land will NOT go over very well.

[Michael Turk]

Michael -

I'm struck by dualsub2006's comment about a 40GB cap not going over well. Does your company have any statistics on how many Internet customers actually go over 40GB of bandwidth in a given month?

I would suspect that a lot of people arguing that 40GB cap per month is too low might be surprised at how large that actually is.

I recently converted my entire CD collection to MP3s and put them on a storage server. We're talking about hundreds of CDs, yet the combined total of literally thousands of songs was around 30GB. I could move them all through my broadband pipe and still not bust the cap.

Even an iTunes movie is only about 1-1.5 GB, and they're notroiously fat files. It would take a lot of video/audio to break even a 40GB cap.

If dualsub2006 is consuming 300GB, it seems he is exactly the customer the higher charges would apply to.

[Nathan]

The problem with say a 40gb bandwidth cap is one thing, High Definition. Many video providers like iTunes are starting to provide HD video downloads which will take approximately 3GB of space for 1 movie. And they also have video rental service like netflix does. So if I'm renting say 13 HD movies from iTunes per month then I'm already going over that cap. I realize that bandwidth isn't free, but 40GB is somewhat unreasonable for a limitation. I would say that if someone goes over say 250GB in a month, then perhaps this is an issue . I mean that's 83 HD movies in a month. I doubt too many people watch 83 High Def movies in a one month period. I could be wrong, but I would say that's the case. I could probably do more than 13 HD movies in a month. You may think 40GB is quite a bit, but with High Definition media it really isn't.

The problem I see with putting these caps on an internet connection is that it's false advertising. You advertise unlimited internet, but in reality you don't give it. If you are going to put a cap on your connections then you need to say that there is a 40GB cap. You can't just make up some number and then complain when people are using more than this amount. I understand the fact that you need to put a stop to bandwidth comsumption problems, but you need to be realistic.

[Michael Turk]

BendBroadband was doing metered pricing for a while and found that 91% of their Internet customers were doing less than 10Gb per month. 99.5% were consuming less than 100GB.

They moved to a model that puts a single 100GB cap on their Internet package.

[dualsub2006]

@Michael Turk

I never one time said that I was consuming that much bandwidth. I am not using anywhere near 300GB of bandwidth and given that the blog owner has my IP address from my posts here that can easily be verified. I would be willing to bet that aside from Ubuntu release months I could live very comfortably in the 40GB range and end the month with GBs left over.

My concerns aren't for today, they are for the future when more HD content can be rented or purchased from iTunes (my store of choice). At a couple of GB's each for an HD movie anything less than 100GB could be a real problem for people that are doing totally legal downloading.

We all know that caps are coming. Ideally I would like to see something more like what Comcast has suggested; 250GB. If Insight does this I hope their caps line up more with Comcast's proposed idea than with Warner's.

Is my position clearer for you Michael Turk?