Social Machinery

How many megabytes occupies the last movie you downloaded? What about the last email you sent? While most people know how many minutes they spend on phone calls, most of us don’t have any idea or notion on how many megabytes are needed to send a particular email, download photos, browse the Internet or update your profile on Facebook. And precisely that is the basis of metered broadband models, or Internet access traffic based on volume rather than flat fee rates.

The idea, pushed by several internet service providers as a way to keep their broadband business sustainability come as a response to the exponential growth of internet traffic in the past years. This idea, obviously not very popular among users has been already trial by several internet service providers in the US Time Warner, Verizon and Comcast.

In mobile broadband space, most operators already limit the data traffic volume to a certain number of Gigabytes per month. After this limit user’s access is throttled or they need to pay additional charges.  Nevertheless, Mobile data plans have started to evolve as several mobile operators, under pressure from exploding traffic volume in their networks and dealing with network congestion. A senior executive of the U.S. Verizon Wireless recently said in an interview in The Washington Post that with the arrival of LTE payment for consumed data traffic and not flat fee rates could be the norm.

This situation is becoming quite dramatic if we analyze Smartphone and laptops mobile internet consumption. For instance iPhone users are using in average more 500 MB per month or ten times more than a normal mobile phone user. With the introduction of new smartphones including Android-based devices and the higher number of applications, mobile data is rapidly becoming a mainstream consumer service. The traffic generated by these devices is also quickly catching up with that from iPhones. In several countries, mobile operators see over 1 GB per month data traffic from subscribers using their HTC smartphone. For laptops, this figure is a staggering 13 GB per month. A large–and rapidly growing–portion of this traffic is video. And this is the tipping point  for chaging data plans for most wireless service providers. With email and browsing, the traffic growth was limited but with video content it takes little effort for any subscriber to enter in the levels of GB/month.

For operators, the challenge is to find the right balance between prices and traffic: If they raise prices too high they run they risk of losing subscribers, if traffic is too high, congestion will come and the need for costly upgrades threatens their profitability. The consulting firm Senza Fili has made an approximation of revenue and delivery cost per MB for different traffic level. 

On the fixed broadband space, the idea of metered broadband has been extremely controversial. Last year, key industry players have already raise the issue during the annual European Organization for Telecom Operators (ETNO) summit. Their main concept about internet is that it should be paid per volume as we already do with gas, water or electricity; essentially the more you consume the more you pay. 

A priori, the only ones affected by this measure would be the heavy users of bandwidth: according to mobile operators, around 3-5% of data subscribers consume 40%-60% of all bandwidth. Nevertheless, this could also change the way average consumer use internet services. 

According to IDC consulting, the current average consumption is around 7.27 GB per month, but it is estimated that by 2013 this figure will increase to 12.5 GB per month. Cisco calculated in 11.4 GB the average monthly traffic on the internet. Interestingly, the volume of data has multiplied a hundredfold in the last three years.

In that sense, social networking and video streaming services are becoming the real engines of internet data traffic growth. Besides, we cannot forget the change on Internet user behavior:  a recent study from Sandvine concluded that P2P traffic felt 26%, browsing through websites decreased 14%, mail is down 46% and real-time communications went down in 52%. Conversely, real time entertainment such as video/audio streaming and online games increased by 96%.

In the US, there’s been an ongoing battle between several internet service providers who want to implement metered broadband as a way to increase revenue.. But one thing that has become pretty clear is that consumers absolutely hate metered broadband — not just because it can increase fees, but because it changes the way they use the internet. Rather than being free to just use it and experiment, suddenly you need to keep track of all that usage .This introduces amazingly complexity to the transaction costs that lead people to just not want to use the internet as much — decreasing the value of the connection, even as the price is increasing.