North American Network Operators Group

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Re: An Attempt at Economically Rational Pricing: Time Warner Trial

  • From: Simon Leinen
  • Date: Sun Jan 20 05:41:22 2008

Frank Bulk writes:
> Except if the cable companies want to get rid of the 5% of heavy
> users, they can't raise the prices for that 5% and recover their
> costs.  The MSOs want it win-win: they'll bring prices for metered
> access slightly lower than "unlimited" access, making it attractive
> for a large segment of the user base (say, 80%), and slowly raise
> the unlimited pricing for the 15 to 20% that want that service, such
> that at the end of the day, the costs are less AND the revenue is
> greater.

While I think this is basically a sound approach, I'm skeptical that
*slightly* lowering prices will be sufficient to convert 80% of the
user base from flat to unmetered pricing.  Don't underestimate the
value that people put on not having to think about their consumption.

So I think it is important to design the metered scheme so that it is
perceived as minimally intrusive, and users feel in control.  For
example, a simple metered rate where every Megabyte has a fixed price
is difficult, because the customer has to think about usage vs. cost
all the time.  95%ile is a little better, because the customer only
has to think about longer-term usage (42 hours of peak usage per month
are free).  A flat rate with a usage cap and a lowered rate after the
cap is exceeded is easier to swallow than a variable rate, especially
when the lowered rate is still perceived as useful.  And there are
bound to be other creative ways of charging that might be even more
acceptable.  But in any case customers tend to be willing to pay a
premium for a flat rate.