Economic Check List for Bandwidth Usage Enforcement


I just got off the phone with a good friend of mine that contracts out IT support for about 40 residential college housing apartment buildings. He was asking about the merits of building a quota tool to limit the amount of total consumption, per user, in his residential buildings. I ended up talking him out of building an elaborate quota-based billing system, and I thought it would be a good idea share some of the business logic of our discussion.

Some background on the revival of usage-based billing (and quotas)

Although they never went away completely, quotas have recently revived themselves as the tool of choice for deterring bandwidth usage and secondarily as cash generation tool for ISPs.  There was never any doubt that they were mechanically effective as a deterrent.  Historically, the hesitation of implementing quotas was that nobody wanted to tell a customer they had a limit on their bandwidth.  Previously, quotas existed only in fine print, as providers kept their bandwidth quota policy tight to their belt.  Prior to the wireless data craze, they only selectively and quietly enforced them in extreme cases.  Times have changed since we addressed the debate with our article, quota or not to quota, several years ago.

Combine the content wars of Netflix, Hulu, and YouTube, with the massive over-promising of 4G networks from providers such as Verizon, AT&T and Sprint, and it seems that quotas on data have followed right along where limitations used to reign supreme. Consumers seem to have accepted the idea of a quota on their data plan. This new acclimation of consumers to quotas may open the door for traditional fixed-line carriers to offer different quota plans as well.

That brings us to the question of how to implement a quota system, what is cost effective?

In cases where you have just a few hundred subscribers (as in my discussion with our customer above), it just does not make economic sense to build a full-blown usage-based billing and quota system.

For example, it is pretty easy to just eyeball a monthly usage report with a tool such as ntop, and see who is over their quota. A reasonable quota limit, perhaps 16 gigabytes a month, will likely have only a small percentage of users exceeding their limits. These users can be warned manually with an e-mail quite economically.

Referencing a recent discussion thread where the IT Administrator of University of Tennessee Chattanooga chimed in…

“We do nothing to the first 4Gb, allowing for some smoking “occasional” downloads/uploads, but then apply rate limits in a graduated fashion at 8/12/16Gb. Very few reach the last tier, a handful may reach the 2nd tier, and perhaps 100 pass the 4Gb marker. Netflix is a monster.”

I assume they, UTC, have thousands of users on their network, so if you translate this down to a smaller ISP with perhaps 400 users, it means only a handful are going to exceed their 16 GB quota. Most users will cut back on the first warning.

What you can do if you have 1000+ customers (you are a large ISP)

For a larger ISP, you’ll need an automated usage-based billing and quota system and with that comes a bit more overhead.  However, with the economy-of-scale of a larger ISP, the cost of a more automated usage-based billing and quota system should start to reach payback at 1000+ users. Here are some things to consider:

1) You’ll need to have a screen where users can login and see their remaining data limits for the billing period.

2) Have some way to mitigate getting them turned back on automatically if the quota system starts to restrict them.

3) Send out automated warning levels at 50 and 80 percent (or any predefined levels of your choice).

4) You may need a 24 hour call center to help them, as they won’t be happy when their service unknowingly comes to a halt on a Sunday night (yes, this happened to me once), and they have no idea why.

5) You will need automated billing and security on your systems, as well as record back-up and logging.

What you can do if you have < 1000 customers (you are a small ISP)

It’s not that this can’t be done, but the cost of such a set of features needs to be amortized over a large set of users. For the smaller ISP, there are simpler things you can try first.

I like to first look at what a customer is trying to accomplish with their quota tool, and then take the easiest path to accomplish their goal. Usually the goal is just to keep total bandwidth consumption down, secondarily the goal is to sell incremental plans and charge for the higher amounts of usage.

Send out a notice announcing a quota plan
The first thing I pointed out from experience is that if you simply threaten a quota limitation in your policy, with serious consequences, most of your users will modify their behavior, as nobody wants to get hit with a giant bill. In other words, the easiest way to get started is to send out an e-mail about some kind of vague quota plan and abusers will be scaled back. The nice part of this plan is it costs nothing to implement and may cut your bandwidth utilization overnight.

I have also noticed that once a notice is sent out you will get a 98 percent compliance rate. That is 8 notices needed per 400 customers. Your standard reporting tool (in our case ntop) can easily and quickly show you the overages over a time period and with a couple of e-mails you have your system – without creating a new software implementation. Obviously, this manual method is not practical for an ISP with 1 million subscribers; but for the small operator it is a great alternative.

NetEqualizer User-Quota API (NUQ-API)

If we have not convinced you, and you feel that you MUST have a quota plan in place, we do offer a set of APIs with the NetEqualizer to help you build your own customized quota system. Warning: these APIs are truly for tech geeks to play with. If that is not you, you will need to hire a consultant to write your code for you. Learn more about our NUQ-API (NetEqualizer User-Quota API).

Have you tried something else that was cost-effective? Do you see other alternatives for small ISPs? Let us know your thoughts!

The Pros And Cons of Metered Internet Bandwidth And Quotas


Editor’s Note:Looks like the metered bandwidth is back in the news. We first addressed this subject back in June 2008. Below you’ll find our original commentary followed by a few articles on the topic.

Here is our original commentary on the subject:

The recent announcement that Time Warner Cable Internet plans to experiment with a quota-based bandwidth system has sparked lively debates throughout cyberspace. Although the metering will only be done in a limited market for now, it stands as an indication of the direction ISPs may be heading in the future. Bell Canada is also doing a metered bandwidth approach, in Canada much of the last mile for Bell is handled by resellers and they are not happy with this approach.

Over the past several years, we have seen firsthand the pros and cons of bandwidth metering. Ultimately, invoking a quota-based system does achieve the desired effect of getting customers to back off on their usage — especially the aggressive Internet users who take up a large amount of the bandwidth on a network.

However, this outcome doesn’t always develop smoothly as downsides exist for both the ISP and the consumer. From the Internet provider perspective, a quota-based system can put an ISP at a competitive disadvantage when marketing against the competition. Consumers will obviously choose unlimited bandwidth if given a choice at the same price. As the Time Warner article states, most providers already monitor your bandwidth utilization and will secretly kick you offline when some magic level of bandwidth usage has been reached.

To date, it has not been a good idea to flaunt this policy and many ISPs do their best to keep it under the radar. In addition, enforcing and demonstrating a quota-based system to customers will add overhead costs and also create more customer calls and complaints. It will require more sophistication in billing and the ability for customers to view their accounts in real time. Some consumers will demand this, and rightly so.

Therefore, a quota-based system is not simply a quick fix in response to increased bandwidth usage. Considering these negative repercussions, you may wonder what motivates ISPs to put such a system in place. As you may have guessed, it ultimately comes down to the bottom line.

ISPs are often getting charged or incurring cost overruns on total amount of bytes transferred. They are many times resellers of bandwidth themselves and may be getting charged by the byte and, by metering and a quota-based system, are just passing this cost along to the customers. In this case, on face value, quotas allow a provider to adopt a model where they don’t have to worry about cost overruns based on their total usage. They essentially hand this problem to their subscribers.

A second common motivation is that ISPs are simply trying to keep their own peak utilization down and avoid purchasing extra bandwidth to meet the sporadic increases in demand. This is much like power companies that don’t want to incur the expense of new power plants to just meet the demands during peak usage times.

Quotas in this case do have the desired effect of lowering peak usage, but there are other ways to solve the problem without passing the burden of byte counting on to the consumer. For example, behavior-based and fairness reallocation has proven to solve this issue without the downsides of quotas.

A final motivation for the provider is that a quota system will take some of the heat off of their backs from the FCC. According to other articles we have seen, ISPs have discreetly, if not secretly, been toying with bandwidth, redirecting it based on type and such. So, now, just coming clean and charging for what consumers use may be a step in the right direction – at least where policy disclosure is concerned.

For the consumer, this increased candor from ISPs is the only real advantage of a quota-based system. Rather than being misled and having providers play all sorts of bandwidth tricks, quotas at least put customers in the know. Although, the complexity and hassle of monitoring one’s own bandwidth usage on a monthly basis, similar to cell phone minutes, is something most consumers most likely don’t want to deal with.

Personally, I’m on the fence in regard to this issue. Just like believing in Santa Claus, I liked the illusion of unlimited bandwidth, but now, as quota-based systems emerge, I may be faced with reality. It will be interesting to see how the Time Warner experiment pans out.

Related Resource: Blog dedicated to stamping out usage-based billing in Canada.

Additional Recent Articles

Time Bomb Ticking on Netflix Streaming Strategy (Wall Street Journal)

How much casual driving would the average American do if gasoline cost $6 a gallon? A similar question may confront Web companies pushing bandwidth-guzzling services one day.

Several Web companies, including Amazon.com, Google and Netflix, are promoting services like music and video streaming that encourage consumers to gobble up bandwidth. Indeed, Netflix’s new pricing plans, eliminating the combined DVD-streaming offering, may push more people into streaming. These efforts come as broadband providers are discussing, or actually implementing, pricing plans that eventually could make those services pricey to use.

Most obviously this is an issue for the mobile Web, still a small portion of consumer Internet traffic in North America. Verizon Communications‘ majority-owned wireless service last week introduced tiered data pricing, about a year after AT&T made a similar move. But potentially much more disruptive is consumption-based pricing for “fixed broadband,” landlines that provide Internet access for consumers in their homes, either via a cable or a home Wi-Fi network. Long offered on an effectively unlimited basis, American consumers aren’t used to thinking about the bytes they consume online at home.

To keep reading, click here.

The Party’s Over: The End of the Bandwidth Buffet (CedMagazine.com)

As the consumption of video on broadband accelerates, moving to consumption billing is the only option.

Arguments over consumption billing and network neutrality flared up again this summer. The associative connector of the two issues is their technical underpinning: Consumption billing is based on the ability to measure, meter and/or monitor bits as they flow by. The problem is that those abilities are what worry some advocates of one version of network neutrality.

The summer season began with AT&T stirring things up with an announcement that it was moving toward adopting consumption billing for wireless broadband.

To keep reading, click here.

Internet Providers Want to Meter Usage: Customers Who Like To Stream Movies, TV Shows May Get Hit With Extra Fees (MSNBC)

If Internet service providers’ current experiments succeed, subscribers may end up paying for high-speed Internet based on how much material they download. Trials with such metered access, rather than the traditional monthly flat fee for unlimited connection time, offer enough bandwidth that they won’t affect many consumers — yet…

To keep reading, click here.

Related article:  Metered broadband is coming

http://www.businessphonenews.com/2012/10/metered-broadband-is-coming-how-much-broadband-per-month-does-your-business-use.html

Editor’s final note: We are also seeing renewed interest in quota-based systems. We completely revamped our NetEqualizer quota interface this spring to meet rising demand.

Created by APconnections, the NetEqualizer is a plug-and-play bandwidth control and WAN/Internet optimization appliance that is flexible and scalable. When the network is congested, NetEqualizer’s unique “behavior shaping” technology dynamically and automatically gives priority to latency sensitive applications, such as VoIP and email. Click here for a full price list.

Commentary: Verizon Moves to Usage-Based Billing Plans in July 2011


Verizon’s Plans

According to a report published in ChannelPartnersOnline on June 20th, 2011, Verizon is officially moving to a usage-based billing model for new smartphone subscribers as of July.

ChannelPartners reports that Verizon Wireless plans to move to tiered pricing next month on its data plans for new smartphone customers.  On smartphones, including Apple’s iPhone, Verizon Wireless offers an unlimited email and data plan for $29.99 per month. Tiered pricing is very common internationally, but U.S. mobile operators have been slow to move away from all-you-can-eat data plans.

To read the full article, click here.

Commentary: Our Take on This

We were not asked to comment, but if we were, we would agree that usage-based billing more accurately applies charges for services to those using the services. In fact, since April 2010, Internet Providers (ISPs, WISPs, etc.) that want to charge their customers by usage can implement NetEqualizer’s Quota API to track usage over a specified time period.

In addition, if an Internet provider wants to enforce usage levels, the NetEqualizer also supports the use of “rate limits” through its Hard Limits feature. Internet Providers can set inbound and outbound Hard Limits by individual IP, for a whole Class B or Class C subnet, or any legal subnet value 1-32.

We believe that usage-based billing, when broadly adopted, will level the playing field throughout the Internet service space, enabling smaller Internet providers to compete more effectively with larger carriers. Many Internet providers have to charge for usage levels, in order to keep their contention ratios manageable and to remain profitable. In the past, this has been disadvantageous in markets where larger providers have come in and charged flat fees to consumers. With the advent of usage-based billing in the cellular space, consumers will be more apt to expect to pay for usage for all their Internet services.

We will keep watching the developments in this area, and reporting our thoughts here. If you are a small Internet provider, what is your take on usage-based billing? Let us know in the comments section below.

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