

Data Pricing Sanity Maybe? - locopati
http://www.tbray.org/ongoing/When/201x/2012/03/25/Mobile-data-pricing

======
mapgrep
"Fixed-price unlimited-volume data pricing is a totally, unfixably broken
idea." -Bray

This "unfixably broken idea" is how the internet spread to the general
population, 1995->present. That's 17 years. Seventeen years in which even very
limited carrier competition brought prices way down and speeds way up. Does
anyone remember how much a 128kbps ISDN used to run?

Seventeen years in which the typical consumer went from downloading mainly
text and gifs to downloading mainly (bandwidthwise) lengthy videos, many of
them high def. Despite the fact that, as Bray puts it, "once the network
operator has your monthly payment, they’re powerfully incented to keep you
from using the network."

Now any reasonable person can imagine how mobile might change things. But Bray
gives such ludicrously short shrift to the power of flat-rate pricing it is
hard to take anything else he writes in the essay seriously.

Of _course_ the idea of unlimited usage is an illusion. Consumers know this.
They have always known this in the deep and visceral way that only a flaky
modem/ISDN/DSL/cable/EDGE/GPRS/3G connection can convey. But they like the
trade offs: The ISP limits your bandwidth basically continuously such that
your connection might slow down or outright disappear and such that latency
might increase. In return, your bill is predictable.

ISPs have always worked this way. Always. You'd dial the modem bank and get a
busy signal. Or you'd connect -- perhaps even through newfangled DSL
technology, which in theory insulated you from your neighbors -- only to find
the provider's upstream internet link was saturated. Or you'd jump on a cable
connection and find it running at half speed because your neighbors were
awake.

What consumers liked about "unlimited" was what it meant for our pocketbooks:
Your use is unlimited as far as the _bill_ is concerned.

Metered pricing is an illusion, too. The illusion is that you pay for what you
use. But of course that's not true. No one is proposing dropping monthly
mobile fees, you notice. So 0 bytes != $0. Also, having a million dollars to
blow will not magically get you unlimited bandwidth. All the limits of network
contention with fellow users, and all the limits of the network itself, are
still there. Sure, other people might USE less data. But also, the telco might
BUILD less infrastructure as a result. So in a way metered is the worst of all
worlds: You still get the implicit limits and unreliability of a mass consumer
network, PLUS new explicit limits that allow the telco to wallet-rape you.

It is amazing to me that someone as smart as Bray looks at this tangled mess
of competing, differently- (but not-very-differently-) crippled versions of
paid network access and actually accepts the abstractions at face value and,
worse, writes off the arguably slightly less realistic abstraction as
unworkable when that very abstraction is the reason he draws a paycheck from a
company that sells web advertisements. I mean.

~~~
adestefan
You need to preface all of this with "in the US." Per minute POTS billing is
very common outside of the US.

------
yellowbkpk
This all sounds great up until I get to the "How?" part. All of his
suggestions are sane and sound reasonable, but I don't trust any of the
current data providers to implement any of them in a sane way.

> _Ruthless transparency from the telco as to how much you’ll pay for every
> MB._

When have any of the telcos even been translucent when it came to pricing?
They hide real prices in pages and pages of fine print and don't offer any
details on taxes or fees until they print them on the bill after you've signed
up.

> _A price-per-MB that, off the top, feels reasonable._

... like the rates we pay for text messages? Or existing wireless overages?

> _A price-per-MB that falls during the course of the month as you use more
> and more._

Again, I don't trust any of the existing data providers to lower prices ...
ever.

> _A lightweight API so that you can obsessively check how much you spent in
> the last week or hour or ten minutes. So that after a while you won’t need
> to._

I foresee SOAP or invalid XML/JSON or servers that mysteriously go down at the
end of the month due to "unexpected demand."

These are great ideas, but I think we need new competitors in the market
before any of them will get implemented in a mildly sane way.

~~~
gst
Telco companies in other countries are able to do this. Why shouldn't
companies in the US then be able to offer such a model?

E.g., see "Bob" in Austria: <http://www.bob.at/gigabob>

The table (for one of their plans) says:

Included volume per month: 9 GB

Cost per month: 8.80 Euro

Each additional GB: 4 Euro

Fee to activate the plan: 0 Euro

Max. speed: 4 Mbit/s

Commitment period: None

I'd say this is pretty transparent to the user and there aren't really any
"traps" in the plan (except that traffic gets a little bit more expensive once
you are past 9 GB in a given month).

~~~
jpadkins
> Why shouldn't companies in the US then be able to offer such a model?

They don't have to because they are in a government regulated cartel. Classic
case of regulatory capture. The only free market in the US is the wifi
sprectrum, which is providing the most value to US citizens.

~~~
narag
If the industry is heavily regulated, the government should also regulate what
the comment above points. The price should be clearly stated. Fine print
should be forbidden.

~~~
quandrum
The hallmark of "regulatory capture" is that the regulated party is driving
the relationship, and not the regulators.

So while we see occasional push back when public outcry gets too loud, most
law and regulation is written by telco's, and hence telco friendly.

------
jpadkins
This guy doesn't get consumer pricing psychology. It has been shown over and
over again that consumers prefer fixed price, even if they have to pay more to
get it. They don't want to be on a meter, they want a predictable budget. The
telcoms don't set the dominant pricing model, the consumer does. There have
been plenty of iterations of $/min and $/MB telcom plans already tried in the
marketplace.

And telcoms would probably prefer a variable pricing model, makes their
business model sane. Want to see a telcom exec head explode? Ask him if he
wants more traffic on his network or not.

~~~
jerf
And the way to do that is: Fixed price for the first X GB, generous enough to
cover ~90% of the users, variable pricing thereafter, and the aforementioned
transparency about the status of your account. (In particular, text message
alerts warning you when you've hit 90% of the limit, or some other _active_
notification that you're going over, not just some abstract page that you
could, theoretically, hit.)

~~~
billybob
This pricing model sounds to me like "the user is always punished."

You bought XGB this month. You didn't use it all? Ooops, you overpaid.
Punished.

You used more? Ooops, you pay a higher rate for the overage. Punished.

How about we treat this like any other commodity and I get exactly what I pay
for?

~~~
jerf
jpadkins: "It has been shown over and over again that consumers prefer fixed
price, even if they have to pay more to get it."

It is pretty well established. Where your model deviates from reality is in
not accounting for the mental costs associated with having to (/wanting to)
track how much bandwidth you've used on a minute-by-minute basis... how much
is that Netflix movie costing me? How much is this Youtube video costing me?
etc etc

You can argue about how irrational this is. You can even be objectively
correct. And it won't matter very much.

Even objectively, you do need to worry about some fixed costs too. A package
deal for the first X GBs might now be as irrational as you initially think.

------
dkokelley
There are a number of things wrong with they way our current cellular network
industry works in the US. The biggest issue IMO is subsidizing phones. When we
pay phone bills, we're also paying for the cost of the phone. When we buy more
expensive smart phones (which make excellent use of a data connection) we pay
more via data plans. These data plans also have the cost of the phones built
in.

From the carrier's perspective, grandfathered unlimited data plans are
acceptable because the cost of the subsidies have already been recovered. More
expensive newer phones require higher subsidies to be palatable to consumers,
so data pricing is adjusting accordingly.

I would be happy to pay by the GB for my data if it were charged at the market
rate, but it isn't. Cellular bandwidth is charged at the market rate + the
subsidy recovery.

~~~
huxley
Not so:

[http://www.mondaynote.com/2012/03/11/carriers-whine-we-
wuz-r...](http://www.mondaynote.com/2012/03/11/carriers-whine-we-wuz-robbed/)

"The average ARPU for smartphones on AT&T's network is 1.9 times that of the
company’s non-smartphone devices."

For an iPhone, the subsidy comes to less than $20/month in exchange for
significantly more revenue per user. The carriers are making out like bandits
and then claiming they are the victims.

From a carrier's perspective, grandfathered "unlimited" data plans are
acceptable because it costs virtually nothing to keep the customer at their
usurious rates.

~~~
telcodud
_"The average ARPU for smartphones on AT &T's network is 1.9 times that of the
company’s non-smartphone devices."_

 _For an iPhone, the subsidy comes to less than $20/month in exchange for
significantly more revenue per user. The carriers are making out like bandits
and then claiming they are the victims._

I dislike[1] the US carriers and their absurd data plans as much as the next
guy, but the above logic has always baffled me.

Everyone seems to confuse revenues and earnings when talking about smartphone
subsidies.

The subsidy of $20/mo (as quoted above) is paid out of carrier earnings, while
the phone ARPU gets added to their revenues. Assuming a generous profit margin
of 40%, unless the _additional_ ARPU, compared to non-smartphone devices, is
greater than $50/mo (2.5x the subsidy), the carriers are not exactly making
out. This is the case more so for iPhones, where I understand the subsidies
are higher than other smartphones, but the ARPUs are equivalent.

[1] I'd prefer the model where the customer brings in an un-subsidized
(smart)phone and pays lower on monthly plans.

~~~
huxley
When it comes to accounting for it, subsidies like all other expenses by
definition come out of revenue, not earnings.

According to JL Gassee, the ARPU for most cellphones is $46.09, for iPhones it
is approaching $120 (inclusive of the subsidy).

He quotes: "AT&T CEO Randall Stephenson pronounced himself happy with the
'over $100' ARPU from iPhone subscribers."

There is a very healthy amount there to absorb the subsidy plus cost of
providing voice + data.

------
phren0logy
The best thing in this article is the linked Jean-Louis Gassée piece:

[http://www.mondaynote.com/2012/03/11/carriers-whine-we-
wuz-r...](http://www.mondaynote.com/2012/03/11/carriers-whine-we-wuz-robbed/)

It has a breakdown of how much carriers are getting per smartphone customer.
In summary, they don't have much reason to complain.

------
mindslight
Erm, why are we talking about price per _MB_ ? The per-MB rate is so
intangible (1 cent? that sounds cheap!), it's a recipe for disaster. Current
mobile usage/caps/etc are all in terms of GB, and that's what usage pricing
should be specified in terms of.

------
Lagged2Death
_A price-per-MB that falls during the course of the month as you use more and
more._

Isn't this exactly the opposite of the way other metered services work? With
residential electricity, for example, isn't it usual for the price per
additional KWH to rise as one's monthly usage crosses the pricing tiers?

Isn't that exactly what you would want to encourage people to moderate their
use of a supposedly scarce resource (like energy or bandwidth)?

------
mrtron
You really want price-per-MB?

Here is the current conditions for Rogers:

-Usage exceeding the data allotment provided is charged in $10 increments. Additional usage exceeding the data allotment provided is charged at $0.02/MB. U.S. data roaming is $0.006/kB and International data roaming is $0.03/kB.

Summary: local: $20/gb, US: $6000/gb, international: $30,000/gb (prices in
Canadian dollars, basically on par with USD)

Oh, but the good news is they offer 'unlimited social networking'. If you use
the right app on the right phone (I believe it is currently some horrible WAP
applications), you get:

Unlimited browsing on select social networking sites (Facebook, Twitter,
MySpace, Bebo, Flickr, Photobucket and LinkedIn)

This will crush mobile startups. How can you compete with services that don't
cost the user money?

~~~
jarek
Second bullet point:

"A price-per-MB that, off the top, feels reasonable."

~~~
mrtron
When there is an oligopoly of telecoms, you don't determine that. The existing
market prices are what telecoms deem reasonable.

------
schneitj
I was always a fan of a fixed cost to go towards the infrastructure and a
variable cost based on network congestion.

On a phone, similar to seeing signal strength, you could see the current cost
per min calculated by your location and current time.

People should be able to download stuff in off hours in what ever quantities
they can. If there is a huge event that would normally overload the local
towers, this would be a way of properly allocating network access to people
who really need it.

It might take some time for people to get used to it, but a comparison to gas
prices might be helpful.

------
saurik
This article has a self contradiction: it is correct in stating that unlimited
bandwidth deals put all the players in a position of poor incentives, but then
fails to realize that "developers pay for bandwidth used by their users" is
the only way to make that model (which is pretty much what we have) work.

On day -1, the price of unlimited (or "very large cap that no one notices")
bandwidth is based on average usage cost (which is really small, as there is
nothing to do). On day 0, Netflix is released, and now there is something fun
for a large number of users to do with an obscene amount I bandwidth. This
violates the pricing model set by day -1.

So, on day 1, either: 1) the price of bandwidth for /everyone/ needs be
drastically increased, 2) the people using "excessive bandwidth" (and who are
now likely in "negative profit" category) need to be separated and shunned
(poor incentive), or 3) Netflix needs to include the bandwidth their service
is driving in their price and send it to the carrier.

Of course, we could 4) bill people for what they actually use (specifically,
not over-billing some and under billing others, all the while hoping the
numbers work out), which is exactly what the article is asking for, but it is
important to realize that that isn't what we do now, so it should only be
surprising if carriers did /not/ ask developers to chip in for bandwidth.

------
malandrew
First off, if we do go with variable pricing, the last thing we want is values
to be denominated per MB. There is too much cognitive load on humans to think
in terms of MB quantities.

Second, variable pricing makes sense if those who use very little data get a
discount off the amount this currently use.

~~~
adestefan
But yet we price water and gasoline per gallon __, natural gas per cubic foot
__, and electricity per kilowatt hour.

* in the US, others feel free to convert to your local units.

~~~
malandrew
Gallons makes sense. I could wrap my head around the 15 gallons I used to put
in my car's tank. What I wouldn't want to wrap my head around is thinking
about putting ~56,781 cubic centimeters of gas in my tank.

If you require someone to perform multiplication beyond 10^1 scale to estimate
costs, it becomes easier for telcos to overcharge users. You and I probably
have no issues with multiplication in our head on the order of 10^2 up to
10^6, but for most users, that scale is mentally taxing.

Compare:

0.02 cents per sms message $20 per 1000 sms messages

Plus, prices are "stickier" at 0.02/message than 20.00/1000 messages, since
it's easier for two telcos to start discounting their price relative to one
another with the latter, like $15/1000 vs $20/1000. The equivalent to such a
discount under the per message pricing schema is to charge fractions of a
cent. i.e. 0.015/message vs. 0.020/message. The only place in society where we
really see fractional cent pricing in daily life is with gallons of gas, and
even there the burden for the end-user is high enough that the gas stations
all get away with leaving that fractional amount at nine tenths of a penny
almost all the time.

------
phamilton
I use TruConnect for mobile broadband. They use a per MB pricing model with no
monthly contracts. It's a little pricey for power users, at 3.9 cents/MB, but
great for my once or twice a week usage. My monthly bill is around $10.

One thing the article mentions is a lightweight API to check how much data you
used in the last ten minutes. Truconnect has an app,
<http://www.truconnect.com/manage-my-mifi/> , that let's you track that.

It works with any MiFi, but prices are tuned to Truconnect.

DISCLAIMER: I have a business relationship with Truconnect, as the author of
the above app. I do however, eat my own dog food and find it to be a good
service and a useful app.

------
koalaman
Metered internet would be devastating to the current primary publishing
monetization platform. I.e. people will be far more likely to block ads if
they're paying for them by the KB. We'd have to come up with a way to have
publisher paid bandwidth for selective content.

------
dubya
I'd love to see this tied to opening up the last-mile infrastructure to
competition. It seems like variable pricing would require regulatory approval,
so it might be a good time to renegotiate.

------
dfrey
> A price-per-MB that falls during the course of the month as you use more and
> more.

I sort of disagree with his pricing model. I think this is the best model for
both data and voice:

Charge me an account fee (say $10 per month for a phone with every feature
enabled. Caller id, voicemail, data, text messaging etc, etc) and then charge
me per minute of call time, per text sent and per MB of data. Here's the
important part: Charge a reasonable amount for each one of these.

~~~
michaelbuckbee
From a technical perspective it's all just bytes. The fact that we (myself
included) think of calls, texts and data as three separate things just shows
how far off the rails things have gone. It's like if my home internet bill was
divided into Skype Minutes, Emails Sent and Web Data.

~~~
TylerE
Well, they're just bytes OVER THE NETWORK. But once those bytes hit the telco
at the other end, and go out over the POTS network, that's not free to the
originating carrier.

------
omgsean
>“Nope, I gotta have flat-rate data”, they’re thinking, “because otherwise the
telephone company will rape me.”

There's got to be a better way to say this.

------
zanny
The problem is we have a telecom monopoly, or at least a mafia effect. There
is no competition to drive the cost of bandwidth down because spectrum is
fixed.

Until you can introduce competition to the system, any bandwidth plan will be
grossly oversold at huge markup profits to the telecoms, who will be
complaining they have to build any towers at all while taking home huge
profits off phone rates.

------
CookWithMe
I vote for a pre-paid per-MB pricing. And fair pricing, but yeah.

I think it is comparable to a gas station: You drive more, you pay more. You
drive less, you pay less. There are many reasons to feel raped by the oil
companies, but that there is no gas flatrate is not one of them (I dont want
to share a flatrate with people who use way more gas/data than me).

~~~
JumpCrisscross
Why would you prefer pre-paid over being billed at the end of the month? The
former is lending your carrier money at zero interest on a monthly basis.

~~~
jamii
Because prepaid limits risk. You never end up at the end of the month with a
bill for 100s or 1000s of dollars and at the first sign of trouble you can
switch provider.

~~~
JumpCrisscross
You could just not pay the disputed bill until the matter has been resolved
and switch providers in the interim.

~~~
wmf
With today's prices, you can rack up huge bills with legitimate usage;
disputing such a bill is basically stealing. Pre-paid would prevent such
problems.

------
adestefan
Another problem is that current network applications assume an unlimited data
model. We would need an equivalent to the big yellow EngeryGuide label for
data applications. The last thing I would want is some applications that just
keeps sucking a MB here and a MB there in the background without my knowledge.

------
nestlequ1k
Current 4g pricing is unbelievably busted. At $10/gb, it costs me more to
download a movie than it does to buy it on DVD.

------
zokier
The major problem with usage based billing is that I'd need to evaluate the
value of every bit I'm transferring. Was that cat picture really worth X
cents? What about this blog post? And do I trust this app not to make a huge
bill? Oh, I can't afford to download these updates now, surely nobody will try
to exploit remote code execution holes on _my_ box. My home web server got
just slashdotted (hn'd?), how much will that cost?

