A few weeks ago we asked you to throw your questions our direction, and we'd try to get the most popular questions answered by ISP representatives. We recently spoke to AT&T concerning U-Verse IPTV service deployment in BellSouth territory; Speakeasy on why the company has changed its focus from residential customers to small businesses; and Comcast about why 16Mbps is only available in select areas.

Another big question was whether providers would be shifting from the industry's current flat-rate tiered pricing model to a system where consumers could be billed-by-the-byte. We spoke with a handful of ISPs and analysts about whether providers plan to make this migration any time soon.


The over-subscription model the broadband industry is built on doesn't take kindly to the power user, who makes up a small percentage of an ISP's user base but consumes the majority of its bandwidth. Like gluttons at an all you can eat buffet, these users flock to the advertised promise of unlimited bandwidth, stuffing their hungry maws with porn, DVD rips and all the ABBA discographies they can consume.

ISPs, who have increasingly struggled with these users, first stopped advertising their services as unlimited (if they were smart). They then began implementing increasingly more sophisticated traffic shaping measures that range from the use of often murky caps, to hardware that sends forged RST packets in order to slow BitTorrent transfers.

Comcast, when they admit these systems exist at all, insists their invisible caps only affect a minuscule portion of their userbase. Satellite provider HughesNet also insists that their FAP ("Fair Access Policy") only has an impact on a "small percentage of subscribers." Cable operator Insight says they only take action in "exceptional cases of sustained usage at very high rates for long periods of time."

But what happens when video services turn everyone into a bandwidth hog? In addition to a flood of legitimate and pirated content for download, there looms services like DirecTV's upcoming broadband VOD system that allows users to hook their broadband connection up to their DVR to download high-definition content.

Some industry bean counters would like to see the pricing model change before these services take off, so they can grab additional profit from the growth in high-consumption customers. Mark Daniels, a VP at the CTIA (a wireless carrier trade group) recently proclaimed that flat-rate pricing was a broadband industry menace, quickly solved by the migration to a bill-by-the-byte system:But is the industry really planning such a change? Will consumers tolerate it?


"I think there's a couple of problems with the straight out bill-by-the-byte model," Jupiter Research analyst Doug Williams tells us. The first being that customers, who are used to flat-rate pricing in many sectors, just don't want it. The second, he suggests, is the trouble of providing consumers with an effective tool to track their usage.

That's already been a problem for customers of companies with caps, who complain they aren't properly warned when they get close to their consumption ceiling. There's also the fact that such a system could be confusing for consumers used to a flat-rate pricing system -- particularly if they can't tell a megabyte from a troglodyte.

"I don't think that it's common knowledge for most Internet users as to how many bytes are associated with various activities that they're doing online," says Williams. "Because they don't understand that they're probably going to be very hesitant to sign up for a service that bills them in that manner."

Williams doesn't think it's an awful idea for ISPs to at least offer it as an option. "You can only think that having more options available is beneficial for consumers," he says. The primary beneficiaries of such a model would obviously be those who don't use their connection for much other than browsing or e-mail. Of course they're already likely on an inexpensive DSL or "lite" cable tier.

I really think they're going to have a hard time trying to get people to migrate away from the idea of unlimited usage for a flat fee. -Jupiter Research analyst Doug Williams

All of that said, Williams doesn't see the bill-by-the-byte model happening anytime soon. "I really think they're going to have a hard time trying to get people to migrate away from the idea of unlimited usage for a flat fee."

Which ISP wants to be the first to announce they'll be billing customers based on usage? It's a marketing minefield, and it's the fear of customer retaliation that's keeping ISPs from taking the plunge. Traffic shaping and caps are, for now, letting ISPs manage these power users on the down low, since soccer moms could care less about such tactics as long as YouTube videos work.


Of the half-dozen ISPs that responded to our inquiry over the past few weeks, none of them admitted to any plans to switch from the flat-rate pricing model. That's not to say they haven't examined the idea. A few weeks ago, a Comcast insider claimed to the Consumerist that the company had already tested such a system, but was afraid of customer backlash:We asked Comcast to comment on billing-by-the-byte, but received only an insistence that the company was "focused on the value war." Cablevision also wasn't particularly keen on offering an official position for us. Neither company wanted to go into specifics about future plans, which to us indicates they aren't willing to rule it out.

The baby bells were a little more willing to go on the record to state that at least for now, there's no plan to change their pricing models. AT&T tells us their current pricing model "accommodates today's broadband needs with convenience, simplicity and value," and that there's no plan to switch to metered use.

Qwest told us a similar story, saying that "right now, Qwest plans to continue with our current pricing -- a flat, per-month rate." "We've seen great success with our Price for Life Guarantee," says the company, "and right now, plan to continue to offer that type of pricing structure."

Smaller providers, as you might expect, were even more forthcoming, saying that they've examined the idea, but decided that it just wasn't what consumers wanted.

"Speakeasy uses flat-rate pricing today and we do not currently have any plans to adopt a different billing methodology," Speakeasy CEO Bruce Chatterley tells us. The ISP boss says that "our customers, especially small businesses, have told us that they are really sick of getting "nickel and dimed" in communications products," so they're not shifting their pricing.

"We surveyed a couple folks we know who understand the Australian market, where they do this, and the general response was that Australians don't like it at all." -Sonic.net CEO Dane Jasper

Meanwhile, Sonic.net CEO Dane Jasper admits that the company had some internal discussions about metered use when they first launched their new ADSL2+ speeds. Jasper notes that the product's faster speeds "[raised] concerns for us about what happens if someone with a 24Mbps connection uses it a lot - the trouble is that the costs can be huge."

"I asked my team what they thought about having a single flat cost, with usage tacked on," says Jasper. "We surveyed a couple folks we know who understand the Australian market, where they do this, and the general response was that Australians don't like it at all."

"Our conclusion was that we'd continue with a speed/tier/price model as we launch this product," the CEO says.

To soothe the minds of worried industry number crunchers who think the shift is necessary, we might remind them that the industry's largest providers are doing just fine financially. They've also clearly found plenty of additional revenue streams, including advertising via webmail, BVAS, selling your clickstream data, fiddling with DNS functionality or charging to get around spam filters -- all while finding new and innovative ways to deliver less bandwidth through traffic shaping.

It's pretty clear that while ISPs have examined the possibility, billing-by-the-byte isn't going mainstream without U.S. consumers signing off on it. So far, the idea remains a pipe dream among investors and executives. If it does hit the American broadband scene, expect it to take the form of overage fees first, accompanied by a massive PR push lamenting a looming bandwidth apocalypse. Until then, bon appetit.