Usage Based Billing: Dilemma in Canada

[#1]

For the past few years, some in our industry have predicted the arrival of usage based billing as a potential way to monetize broadband connections. I’ve been in that camp and continue to believe it’s a viable option for many in the US broadband market. However, simply because it's now a serious discussion point in the U.S., doesn’t mean that US operators are breaking new ground in the pursuit of creative ways to capitalize on the ever increasing appetite for more bandwidth.

In fact, all it takes is a look to our north. In Canada, usage based billing has been embraced, and may now even be considered a pervasive business practice.  In fact, the practice is just as pervasive at the wholesale level as it is at the retail level.

Wholesale Usage Based Billing
We often think about usage based billing in terms of the rates we pay for consumption in the broadband access segment of the network.  But a recent ruling by the Canadian Radio-television and Telecommunications Commission (CRTC)—the equivalent of the US FCC—shines a light on the wholesale practice of charging ISPs based on traffic consumption rather than flat rate fees. 
The ruling by the CRTC allows operators to charge ISPs based on one of two methods. The first method, usage based billing, effectively charges ISPs by the bit. It’s the natural continuation of the model used by most Canadian operators that bill retail customers for the amount of broadband traffic delivered to a home. 

The second method is based on flat fees that are pre-determined based on the capacity of the connection between the operator and the ISP. It’s this second method that promises to benefit small ISPs that leverage high capacity links while they grow. The belief is that with a small number of subscribers, middle mile connections won’t be as congested and will therefore enable independent operators to sell ‘unlimited’ consumption options. 

Finding a Balance
According to this article, only 5% of Canadian retail subscribers are served by independent providers. Therefore, the effect of this ruling will probably have a negligible effect on the market.  But the ruling points to the other side of the proverbial coin. In a broadband market that’s effectively based on usage based billing, there are market forces that are pushing for a more US like ‘unlimited traffic’ model. 

It’s somewhat ironic that there are many US operators that continue to push in the direction where our northern neighbors have been for a number of years. Yet this ruling shows that no model is perfect. Perhaps there’s a lesson we can learn from this dilemma.  Free markets should decide what does or doesn’t work. At least in Canada, regulators are forcing operators to offer multiple broadband consumption choices. Time will tell if Canada evolves closer to a US broadband market model of if we continue to evolve to the model currently employed in Canada.

Anyone care to spend of a few of their data kilobytes to post an opinion on this matter?

[#2]

This past September I was visiting my sister who lives just outside of Hamilton, Ontario, and she shared her telecom bill with me -- over $40 in overage charges!  She did not really understand what it was all about.  

Once we visited Bell's website to look at the marketing material and logged onto her account I learned she was in the "Lite" package that had a cap of 2GB/month.  She streams TV shows from time to time and was exceeding cap that by many GB per month.  We had to call into Bell to find out what her overage per month was (it's not printed on the paper or electronic bill -- very poor on Bell's part).  We then changed to a new plan that has a cap and I signed her up to get email notifications as she approaches her maximum.  Now she's paying less and doesn't need to worry about overages.

[#3]

Great example Frank! I know that I would rather have the flexibility to change my plan based on usage instead of running in to a situation like this.  That said, there are a number of practices that some operators in Canada employ to accommodate situations like your sisters.  First, many offer email notices of usage warning when caps are about to be exceeded.  Second, on a month to month basis, consumers are sometimes offered ‘insurance’ for say $5 per unit of measure (could be multiple GBs) that allows users to go above their presubscribed limits.  Bottom line is consumers need to be educated on what historical consumption looks like before signing  up and operators need to keep consumers aware of traffic statistics.  It’s a brave new world!

[#4]

Our state telecom coop had a presentation on usage-based billing a few months ago, and one of the key takeaways is that service providers need to educate their customers many biling cycles in advance of biling.  Start with putting their actual usage on their bill, customer portal, and educate customers about this number.  Create real-world examples of how applications use certain volumes of bandwidth (i.e. one SD movie on Netfilx is ~1 GB).  Next, analyze several months of numbers to identify how and where to set the thresholds.  Then communicate those thresholds, but don't charge for them initially.  Assist customers with setting up notifications  that are based on percentages.  Only after customers know their actual usage and where that fits in the different usage tiers, then apply the billing.  This process make take 12 to 18 months, but results in a smaller surprise.