I got in one of my — let’s complain about broadband usage cap — moods this weekend. The result is the piece (over the fold) in today’s Age.
[DDET Read the article]
ISPs should pay no mind to the cap
Joshua Gans, The Age, 25th August 2009.
ONE of the great anomalies of the Australian broadband industry is the existence of usage caps, which around the world are virtually non-existent.
In the US, some internet providers have talked of a 250 gigabytes-a-month limit. That has led to consumer outrage that forced those providers to desist lest they lose customers. This is despite the fact only 0.003 per cent of US broadband users exceed that level – just 0.21 per cent exceed 100GB.
To an outsider, the Australian system seems very strange. Telstra boasts a basic package on its BigPond Cable Extreme network that, for $39.95 a month, gives 200 megabytes in usage. At Telstra’s boasted 30MB a second speeds, that amounts to a minute of high-quality video downloads. After that you pay 15¢ a megabyte. It is hard to imagine that being an option for consumers.
But even its Liberty plan, which costs $69.95 and offers 12GB a month – after which the extreme speed is slowed to the speeds of last century – only allows you 20 hours of video watching a month, provided you do nothing else. That’s about 45 minutes a night.
No wonder so many people do their YouTube watching at work.
Had the US and rest of the world had similar practices, requiring users to carefully watch their megabytes, YouTube and similar services would never had been conceived, let alone put into practice. Perhaps the carriers would have hosted content, under the cap, but then we would be in a world where they decided what we saw rather than the demonstrably better one where that choice is truly free.
There are costs to bandwidth. But rather than being 15¢ a megabyte, they are in the order of 15¢ a gigabyte – or 1000 times less. So if you are using 500GB a month, you are costing your carrier $75 a month. It seems reasonable that you pay for it. But, in Australia, if you want to use 50GB a month, you’ll pay $2.60 a gigabyte to Telstra. Paying for bandwidth is fine. Getting gouged for it is another matter.
It is not just Telstra, although it has a special role. No internet provider in Australia offers a plan like they do in the US. The best ones are cheaper than Telstra but offer more by dividing between peak and off-peak use.
They have not tried to grab market share by going for it and freeing people from dreaded usage monitoring.
Why isn’t competition working here? It is difficult to say but consider what would happen if a smaller provider lifted its cap to 250GB and charged 15¢ beyond that. It would attract a disproportionate share of those who would use that much. That may represent a small part of the market but a large part of its customers. Add to that the potential congestion caused by such usage – if concentrated in the evenings – on the equipment installed in Telstra exchanges, and that 15¢ a gigabyte may be something much larger.
This is a problem that Telstra likely does not face. But it does face conflicts that might give it pause when lifting caps.
For instance, a higher cap moves video watching online and out of the living room where Foxtel boxes reside. That is a cost it faces that others do not. But it is a cost borne of choice, the choice to be integrated with Foxtel.
We are told that the new management of Telstra is more open and ready to meet the challenges brought about by the national broadband network. The NBN will have the capacity to break through usage caps. But why wait eight years?
There is an opportunity for Telstra to demonstrate its new responsiveness and get rid of this anachronism. It could lift its Liberty plan to 100GB and likely face few additional costs if it charged 15¢ a gigabyte. It would send a strong signal to markets.
For others, there is a similar route. Smaller providers need not offer high-cap plans widely, but, for example, as an employee deal with businesses they also serve.
Think about it. Employees would be offered plans that gave them incentives to watch YouTube at home rather than at work. Employers would be happy and there would be only a marginal increase in traffic for the service provider as usage moved from work to home.
There is a way out of tight usage caps that stifle appropriate internet use. These will not be costly given international experience, but will open up more services to broadband usage. The NBN will provide this, but Australians shouldn’t have to wait that long.
Joshua Gans is an economics professor at Melbourne Business School. He writes on these issues at economics.com.au