European ISPs Meter Broadband -- Should We?
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By Ed Finn
As broadband competition heats up, the European broadband market offers some important lessons for U.S. providers thinking about data volume limitations, according to a new research report.
Jupiter Research (which shares a parent company with this site) studied broadband service providers in both maturing and emerging European markets, and concluded that "veteran" Internet users are more likely to object to data capacity limits than those who have been online for less than three years.
According to Jupiter's consumer surveys, fewer than 5 percent of Internet newcomers would change broadband providers over data capacity limits, whereas at least 11 percent of users with three or more years online experience would look for a new provider.
European broadband providers have taken advantage of this stance to provide low-cost broadband service to new customers who are unconcerned about data volume limitations.
Norway's Telenor and Telekom Austria offer services with identical speeds but with pricing based on data volume included, with packages ranging from about $38 to $60. T-Online in Germany offers high-tier speed at about $29 a month, with a one Gigabyte monthly data limit and a 2 cent per MB charge for additional usage.
Many European providers also maintain reduced upload speeds to reduce file sharing. The slower speed discourages file sharers from gaining the priority access Kazaa and eDonkey offer to users who upload files on a large scale. Providers such as Germany's T-Online and Telekom Austria offer download speeds of 768 kbps, but uploads limited to 128 kbps.
"Though European and U.S. services are pretty similar, file sharing imposes a slightly smaller cost on U.S. providers," said Jupiter Research Senior Analyst Joe Laszlo.
"When someone in Europe requests a file, oftentimes that file originates in the U.S., so European providers are more likely to pay an international bandwidth fee." On the other hand, Laszlo noted, "the RIAA has been far more active here than outside the United States, so for U.S. providers it's a question of legal and administrative costs."
The Jupiter report also outlines some important lessons for U.S. BSPs considering tiered pricing. Because users with longer online tenure are more likely to decry data capacity limits, Jupiter suggests these providers "exercise caution if considering introducing caps retroactively to existing broadband tiers that consist of users with high online tenure."
Instead, Jupiter suggests U.S. BSPs could roll out data limits as part of new broadband services targeted to budget consumers. These tiers would be priced below existing, unmetered tiers, allowing BSPs to attract new users without lowering prices on existing services with unlimited data transfer.
"We'll see more and more tiered offerings over time," Laszlo predicted. "DSL providers have already begun offering tiered service, the Bells being the best example. Cable providers are more mixed in their feelings about tiering -- they still see enough demand in single-tiered offerings."
U.S. providers could also adopt the European model of multiple tiers offering the same speed but different data capacity levels. This would appeal to newer users looking for a low-commitment way to experiment with broadband, as well as those "frequent waders" who use broadband frequently, but only for brief sessions. By keeping at least one unlimited data tier in place, BSPs would keep a higher value product available for new users to upgrade to, and the service would remain attractive to Net veterans.
Taking a page from Telenor and others, BSPs could introduce bandwidth penalties instead of additional charges for users who exceed their monthly data capacity limits. Instead of finding additional charges on their monthly bill, users would instead find their service speed reduced to dial-up levels for the remainder of the billing cycle.
However, it's unlikely that data volume constraints will become part of U.S. standard and premium broadband tiers anytime soon. Those services will remain nominally unlimited, Laszlo argues, because the risk of churn is too great for U.S. providers to antagonize their customers.
But as he points out, "there's a de facto tier structure in the States anyway -- cable providers have ramped up the speed of their offerings, and DSL have lowered their prices."