Why are there data caps in New Zealand?

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freitasm

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#119321 28-May-2013 12:50

Looking at the Telecom Geekzone Crowdsource project the top most voted submission so far is a way to record usage by individual device/person in an account.

This got me thinking. It seems obvious that despite some high caps plans available (and even some unlimited ones) people still think data caps are a limiting factor for effective broadband usage in New Zealand.

For a variety of reasons (some unlimited plans may offer too slow a connection due to a diluted bandwidth pool, high cap plans exist but may be cost prohibitive) people seem to think cap-based plans are a big deal.

Of course one solution would be charge for actual usage, like other utilities - water, electricity. But that could get people complaining all over the place if the prices we set too high (bad planning, ISP marketing and networking guys not talking the same stuff, etc).

How come the energy industry managed to get people to pay for petrol and electricity but the information industry can't do it?

Let's go with a few models:

You buy a new car and part of the purchase is that you pay a set amount every month and can drive it as much as you want, with unlimited petrol flowing into the tank when needed (unlimited broadband)
You buy a new car and part of the purchase is that you pay a set amount every month and can drive the car for a limited distance and then it either stops, go very slowly or you have to start paying for the extra distance used (broadband caps)
You buy a new car and get no plan with it. This means you can drive it as far as you want but you have to pay for the petrol, sometimes paying more but sometimes paying less.

Both petrol and bandwidth are finite resources. Which one makes more sense for you? Why was option 3 adopted by the car and energy industry but Internet providers seem to adopt Option 2 in New Zealand?

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#826964 28-May-2013 13:01

I'm certain ISPs would rather use Model 3.

Dial up used to be (sort of) option 3 - you paid by the hour, not data, then that was quickly changed to unlimited time (and unlimited dial-up data) - probably for marketing reasons.

When Broadband came along, I don't think the market would have liked a PAYG scheme, especially if one ISP offered a prepay scheme (which is what options 1 and 2 are).

I'd take a bet that if a car manufacturer came out with a deal saying pay $x per month for a car and petrol is included, it'd be quite popular (especially for businesses).

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#826965 28-May-2013 13:02

I agree it would be great if internet usage was billed in the same way as power. It would add a lot more transparency to the prices and make it easier to compare providers. But then again would it solve the issue of people wanting to know how much bandwidth they are using? After all, with electricity the power companies still provide people with a meter interface so they can see for themselves how much they are using. If we adopted their model for internet access it makes sense to add some sort of interface somewhere for people to see how much data they are using. So we'd be back to square 1.

myfullflavour

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#826968 28-May-2013 13:04

If customers pay enough money they can buy "unlimited" transit at a specific speed. 10 meg, 20 meg, 50 meg - I don't care. They pay for the road (pipe) and can use it as much as they want.

(this mainly applies to business clients, we've got a handful that do this).

I'm yet to find a car dealer who'll sell me "unlimited" for a fixed amount per month...because they can't. Bandwidth suppliers can - but unlike the energy sector where the measurement is in units, bandwidth is sold as a speed.

ajobbins

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#826971 28-May-2013 13:06

Data caps work in the ISPs favour. They cost model assumes that you use every last byte, while in reality you don't.

If you pay for real usage, the ISP misses out on the opportunity for bill you for something you potentially haven't used.

Much like minutes and sms allocations in mobile plans.

Edit:

I'm sure the oil companies would love it if they sold 'fuel caps' instead of fuel by the litre. You buy 100L of fuel for $x dollars a month. If you only use 50L, you still pay for 100, but any extra over 100L is charged additionally (at a premium)

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ChillingSilence

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#826975 28-May-2013 13:07

Some ISP's are already doing it, but they charge like 79c per-GB.

It's *supposed* to be for bandwidth planning so they have enough, but we all know that's BS coz they just oversubscribe their international circuits even further.

Data is cheap, it's just lining the pockets of ISP's, coz they've gotta make up for the vast amount of support they have to offer, mostly coz of %@#$ routers, so hopefully this whole project will kill two birds with one stone ;)

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#826976 28-May-2013 13:09

A car is not a valid model:
You buy a car - any future use is tied directly to you
Your use of a car does not prevent anyone else from using another car

Compared with an internet connection:
You buy usage of a service - that service is shared among a customer pool
Your use of bandwidth effectively prevents someone else from using the same bandwidth

From an economic standpoint bandwidth caps make sense. You build your network to a fixed capacity and purchased fixed international and national capacity. You package that total capacity and onsell it to customers. If they want more, they pay more. Economically, this is fair and equitable.

Unlimited bandwidth caps are not viable, they will be abused by a small minority impacting on others who are paying for a level of service they are not receiving.

Personally, Telecom with 500GB on ADSL is fine for me right now, $130 a month or something like that. I can Netflix all I want (as can the teenager) along with Spotify, Steam and other downloads.

And on that note - what is a fair price? How do you figure that out? If is entirely possible to buy unmetered connections at 100Mbps international, but good luck affording them.

Sounds like the usual - I want everything but I don't want to pay for it.

Not like the $4.95 an HOUR for 28.8kbps is it?

kobiak

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#826979 28-May-2013 13:12

i think you're comparing apples and oranges as I see car/petrol as products and internet/bandwidth as service.

I can have unlimited service, but unlimited products? really?

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ChillingSilence

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#826981 28-May-2013 13:12

wasabi2k: Unlimited bandwidth caps are not viable, they will be abused by a small minority impacting on others who are paying for a level of service they are not receiving.

Personally, Telecom with 500GB on ADSL is fine for me right now, $130 a month or something like that. I can Netflix all I want (as can the teenager) along with Spotify, Steam and other downloads.

And on that note - what is a fair price? How do you figure that out?

Indeed, and those who *actually* want those higher caps and are prepared to pay for them, will get the "premium" service, as opposed to those who jump onboard with Slingshot and Orcon on their flat-rate plans, where they'll get a very sub-par service, specifically at peak times.

NZ has all the options out there, the customer has choice, I don't really see a problem personally.

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#826982 28-May-2013 13:13

Well, ideally it'd be like A), where you pay depending on how fast you want to go. (And to where!)

Now, you might not be going that fast all the time, but when you drive outside of town, you want to go the max! (That you can afford to buy, etc)

freitasm

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#826984 28-May-2013 13:18

myfullflavour: ... unlike the energy sector where the measurement is in units, bandwidth is sold as a speed.

Here's the thing: ISPs buy gigabits per second (speed) but sell gigbytes (quantities)...

nickb800

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#826987 28-May-2013 13:19

I'd suggest that the difference with cars is to do with marginal cost - each additional kilometer has a significant marginal cost in terms of fuel. Internet & power much less so, they both have a relatively lower marginal cost, and most of what you pay goes towards paying off existing infrastructure investments (transmission lines, power stations, fibre optic runs, routers) and funding new infrastructure (NB: I am not criticising this paradigm). This infrastructure cost is ultimately determined by levels of usage, but downloading one .ISO doesn't in and of itself cost the ISP any extra.

Electricity used to be unmetered afaik (you paid per light bulb or by the size of your hot water cylinder) in the beginning when most power came from hydro stations. As it shifted towards gas and coal, the marginal cost of electricity increased - if you turn on the heater, huntly has to burn an additional lump of coal which is a very real cost.

I think broadband is moving towards where dialup ended up - arbitrarily large plans that the majority of customers will never go near the cap. I relate Telecoms 500gig plan with the 250hour dialup plans - both are strictly speaking capped, but most customers feel they can treat the resource as unlimited. Truly uncapped plans failed due to extreme users (the multiple TB a month customers) - so having arbitrarily large data caps insures ISPs against that whilst giving consumers comfort they they are unlikely to go over. Of course I would prefer fully functional unlimited for $100 a month, but considering the practialities, a 500gig plan is pretty awesome.

I think its funny to contrast electricity and internet - one is striving for efficiency, by using less (EECA campaigns); the other is promoting inefficiency, by using more for (storing data in the cloud and downloading/streaming it everytime you need it rather than storing locally). I understand the reasons, and I know that it makes sense when you factor in infrastructure costs, but just think its funny that the two industries have opposite approaches.

freitasm

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#826994 28-May-2013 13:21

kobiak: i think you're comparing apples and oranges as I see car/petrol as products and internet/bandwidth as service.

I can have unlimited service, but unlimited products? really?

I am trying to get to the minimum factor here: energy/bits.

The car in itself is a product (as you rightly claim) but so is the computer you use to access the Internet.

The roads (car) are infrastructure as public networks are infrastructure.

Cars need petrol, the computer need bits access.

The "service" in a car is transportation. The "service" in a computer network is access.

So, yes at some point one is a product, the other is a service, but try to get to individual parts. Which one part is a product needed to access it?

ChillingSilence

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#826997 28-May-2013 13:23

freitasm:
myfullflavour: ... unlike the energy sector where the measurement is in units, bandwidth is sold as a speed.

Here's the thing: ISPs buy gigabits per second (speed) but sell gigbytes (quantities)...

NBR worked out it costs (ballpark) 6c per-GB internationally?

Yet it's being sold either per-GB for 79c (HD for example) or overage charges at $5 for 2GB (Maxnet).

There's other ISPs though that will happily give you a larger data cap, so the question is: Do customers *actually* care enough to switch ISP's to one that gives them more data at a cheaper price and a better service, simply because they have lower overheads to cover?

Apparently the answer is no...

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#827003 28-May-2013 13:28

the cost element is one part, but it's also about selling a product that customers can understand and do not fear

unlimited would obviously be the easiest tounderstand and gets complete price certainty, but assumefor a minute the cost of providing unlimited is prohibitive, then option 2 is better than option 3. you get a set amount each month with option for overage or throttling. this gives the customer price certianty to a point. if they use less than their cap they always pay the same.

another useful analogy is a restaurant.

some restaurants give you an all you can eat buffet. you can consume as much as you like, but the quality of food is typically not that great. they also have to work under economics of what the average person eats. if the consumption fo the average person skyrockets, then the economics might get wrecked.

most restaurants offer you a price for a dish - it doesn'tmatter how much of that dish you eat, you still pay for the whole thing. if you only eat one bite, you still pay for the whole thing. when you finish your dish you can order another one if you want, but you dont have to. you know ahead of time exactly how much the different dishes cost so can plan your expenditure easily

I can't think of any restaurants that offer a 'pay per bite' model, where you are charged for the xact amount of food you eat, no more no less. Can you imagine how rubbish your restaurant experience would be if this was the case? every time you put your fork in your mouth that is an extra 50c. it would be hard to enjoy such a meal I think.

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#827005 28-May-2013 13:29

Perhaps an alternative comparison would be to include road user charges.

The "roads" are so congested in places that cities throughout the world have had to introduce both toll roads and congestion charging (premium broadband) to limit the number of people using a particular road at the most congested times.

This presumably is the only way NZ ISPs can keep the "roads" open for everyone to use. What were the outcomes from TelstraClear's free weekend? Certainly not all you can eat internet.

I would still like to see domestic content served zero rated or at least very cheap somehow - TV on demand, internet radio/music and cloud based applications would become the norm. People who want to get their content overseas can still pay.

to me it sounds more like electricity with day and night modes (where day = overseas and night = domestic) giving something like 500GB domestic and 20GB overseas.

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