Posts Tagged ‘broadband’

Pay per drink pricing: an enterprise perspective

December 14, 2010
10,100,1000? Why?

10,100,1000? Why?

This weekend Joe Weinman posted a two part article on GigOM, as a follow up to his earlier Market for Melons paper, in which he claims that usage based charging for consumer broadband is inevitable. According to Joe this change to metered broadband will be driven not by operators, but by rational consumer behaviour:

Bottom line: it is not the proprietors driving this dynamic, but the customers themselves acting out of pure, rational self-interest—light users, by deciding not to subsidize the heavy ones, foster the vitality of the pay-per-use model.

Understandably this suggestion had many GigOM readers choking on their potato salad. Some “spirited debate” then ensued; he was preaching to the All You Can Eat crowd here after all, not the Weight Watchers.

What I found interesting was that this rational purchasing decision – the desire not to overpay – is actually something that I would attribute much more heavily to the business customers I speak to.

There is a certain amount of symbiosis between the consumer and enterprise wireline access market, especially from my viewpoint in the UK, given the wholesale market backdrop of the Openreach monopoly. However, the customer behaviour and attitude to cost is different. Whereas consumers have unpredictable binges on media content, enterprises have IT policies, with more tightly controlled, monitored and therefore predictable traffic patterns. So, in a tough economic climate, pay per drink should be attractive to the enterprise.

Here are my relevant observations from the field:

  • It is getting messy out there. Fierce price competition is not going away; enterprise customers have become extremely picky, sales cycles have become longer, and operators are desperately trying to reduce install and recurring costs to close deals.
  • Price sensitivity means there is much more activity at the point where “business” broadband (copper access) meet fiber access services. Less attention is being paid to the SLA and business-grade suitability of services.
  • There is clearly strong demand for more flexible pricing structures in enterprise services. The price gap between 10Mb and 100Mb fiber access is a major sticking point. Why must we pick from the set menu of 10/100/1000Mb fibre access?

It seems clear that any kind of pricing innovation in enterprise wireline would be very gladly received right now. I would say most IT Directors do not make the same irrational decisions that consumers might. This is a numbers game. Overpaying for a collection of underutilised 100Mb fiber access circuits at £2-3k install and up to £5-20k annually is a totally different matter to free install and £300 per year for home broadband.

I can’t say that metered fiber access is inevitable any time soon – too much is dependant on the wholesale pricing – but I’d say that the customer motivation to drive this is much stronger in the high bandwidth market.

Are any UK operators up to the challenge of being the first to offer usage based charging for enterprise, without waiting for Ofcom and Openreach to change the game?

Update:

Joe sent me a message to reinforce the point out that he was referring to wireline *and* wireless broadband, where tiered pricing is already taking hold. Point noted!

particularly at the point where business broadband and fiber access services intersect.
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