Expert Witness – Broadband – Capacity Based Charging

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Expert Witness – Broadband – Capacity Based Charging

Adrian Sunderland, CTO Griffin Internet

In the days when the choice of broadband speed was 256k or 512k, pricing up a broadband line was easy. Usage did not vary very much between end-users and Acceptable Use Policies catered for what you used a broadband line for not how much you used it. Nowadays with speeds up to 8Mbit/s on IPStream an end-user on an unlimited broadband line can cost a Tier 1 ISP up to £1400 per month in bandwidth. Traffic management is a pre requisite of staying in business and with such a variety of end-user types it has become increasingly difficult for ISPs selling into the channel to set a standard average price for a broadband circuit. Consequently a new model is emerging where the ISP mirrors the way it is charged by the underlying network supplier (BT or/and LLU operator) to the reseller. The dynamics of risk and control are changed and this month’s Expert Witness cuts through some of the Facts and Myths surrounding capacity-based charging, payment of ADSL services based on monthly tail costs plus overall bandwidth usage.

Moving to capacity-based charging is more expensive.

Myth – Research shows that most resellers save money when switching to capacity-based pricing models, as their monthly tail cost is reduced and monthly usage is lower than average with the majority of business customers.

 

By moving to capacity-based charging I am at risk from prolonged periods of heavy usage.

Fact – The onus is on the reseller to manage heavy users on the network. Most ISPs will allow for sudden spikes in usage, discarding the top 5% of bandwidth samples. This is known as charging at the 95th percentile. However make sure that your ISP gives you some way of monitoring and managing usage or you could get a nasty shock when the bill turns up at the end of the month.

 

I need to purchase expensive network equipment to be able to offer capacitybased products to my customer base.

Myth – Some managed broadband ISPs offer a facility called Virtual LNS which allows you to build capacity-based products to suit the requirements of your customer base without the need to purchase expensive equipment. Choose a supplier that integrates this service into their core network and you will benefit from all the redundancy and resiliency features of a Tier 1 ISP.

 

Capacity-based charging allows me to tailor-make products to suit the needs of my customers.

Fact – The days of ‘one product fits all’ for broadband are long gone. For example retail customers running secure payment systems over IP would be happy to share their broadband line with hundreds of other users on a business-only network as their bandwidth usage is low, as long as the price reflected this. Customers running VoIP solutions require much lower contended bandwidth to ensure voice quality. They are also prepared to pay more to ensure this quality service. Capacity-based charging allows resellers to partition bandwidth for specific groups of users.

 

Conclusion

In our industry differentiation is everything. The consumer communications market has been through a period of price war and is now trying to differentiate products using brand image and bundles. The business communications market is often confused by the consumer communications market and doesn’t really understand how broadband can be that different. Capacity-based pricing is the first step in enabling resellers to create broadband products with different characteristics and prices that better suit the needs of their business customers.