Will Tiered Internet Pricing Lead to "Friends and Family of the 'Net" Deals?

A few weeks ago, Broadband Reports intercepted an internal Time Warner Cable memo about a tiered Internet pricing trial in Texas, which the company hoped would be effective in preventing bandwidth gluttons from eating more than their fair share of the Internet capacity on Time Warner's network. 

To recap earlier posts, cable networks are trying to deal with two problems:

1. Less than 5% of their users eat up something like 80% of the bandwidth on their networks, so in order to keep the other 95% of the customers happy, the cable companies need to either restrain the bandwidth hogs or add enough capacity to handle all of the traffic in the peak busy hour. 
2. The cable networks were designed with only one application in mind: web browsing.  This highly asymmetrical application has just a little data flowing in the upstream direction (requests for web pages and other content), and tons of data flowing in the downstream direction (rich media web pages, audio files, and video files).  The problem is that the Internet supports lots of other applications that don't conform to the asymmetrical expectations of the cable companies, including the hated peer-to-peer file sharing applications used by most of bandwidth hogs (see #1).

So, short of adding capacity or re-designing their networks, the cable companies are trying different things to combat these problems. 

• Comcast has engaged in stealth "traffic shaping" to delay traffic of certain peer-to-peer applications, to the horror of net neutrality purists, and it has provoked an FCC investigation.
• Seeing Comcast's travails, Time Warner is trying a more straightforward approach:  if you want to use more bandwidth then you have to pay more for the service.

Brough Turner has an interesting post, suggesting that Time Warner take it a step further and borrow old marketing ideas from the phone network: 

• Charge less for on-net to on-net traffic (to help avoid Internet Transit costs)
• Give discounts for usage outside of the peak usage periods

The essence of all of these ideas is similar:  if ISPs aligned their retail offers more closely with their wholesale costs, then economic theory would work its magic and everybody should end up happy, except for the freeloaders who wanted other subscribers to subsidize their massive Internet usage.

My first choice would be for the cable companies to add a lot more bandwidth and correct the asymmetric assumptions in their network design.  I'm not holding my breath for that, though!  Short of a network fix, I'm in favor of tiered pricing, if it helps reduce the congestion on my Comcast Internet connection in the evenings.  And, while I think that Comcast should have a right to manage its network within the parameters of its terms of use agreements, I think the tiered pricing approach is a lot cleaner and arouses less suspicion.

Comments

[Investintechnology]

I think the pareto rule will always be present - a small minority consuming the majority of bandwidth. I would like to see ISPs have clauses in their agreements that allowed them to offer a higher rate ($ and bits) package to select customers or cancel that customer's agreement. This accomplishes the same thing without most people needing to calculate or worry about bandwidth consumption. The ISPs are compensated for high bw consumption, and perhaps they can lower pricing (LOL) to attract more customers.