May 01, 2007

Pricing Internet Access

Andy wrote about a new pricing model Vodafone announced for their data service. The plan is close to the preferred pricing model – cost based pricing. According to this article in The Register, they will a charge a penny per 5 KB of data (download, I presume) for the first 0.5 MB. The next 14.5 MB of use on the same day is free. This is an interesting charging structure in many ways. First to note is the following claim in the news story: “Most users should fall somewhere in below the 15MB limit, and the current rate is £2.35 a MB, so everyone should be better off.” It is not clear to me how to interpret this. The old rate translates to 1.18 pence per 5 KB. So if the current use level is of the order of 0.5 MB, then the loss of revenue is not much; but on the other hand this price structure may induce people to use more often.

Along with this revised price plan, they also indicate that VoIP and P2P traffic (defined to be “not web traffic”) will have different pricing plan: there is a session cost of 5 pence and 2 MB of use will cost £2. I am not concerned how they are planning to identify a session to be VoIP or P2P. What is interesting for me is that they are putting VoIP and P2P in the same bucket. I would think most of P2P applications will be half-duplex while VoIP is more likely to be full-duplex. So my question is how they are going to measure 2 MB of VoIP traffic – 2 MB of download (implying roughly 4 MB of total bandwidth transfer) or 2 MB of total bandwidth transfer. For me, this is the most puzzling aspect of the revised plan. They seem to be focused only on download bandwidth. But radio resource is utilized for both download and upload and there is bandwidth cost for upload even in wireline access. For example Amazon S3 charges for both download and upload. Hence I would think that any pricing plan should include both download and upload.

But overall this price plan is close to what I would like to see – cost based tariff without paying attention to the application.

Posted by aswath at May 1, 2007 08:22 PM
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By cost-based pricing, I'm assuming you're referring to the operators costs? IMO, this is far from ideal and Vodafone's price plan is simply another variation of volume-based pricing that consumers simply don't understand and can't be expected to.

There are so many catches for the consumer with this plan that I don't see it as an improvement at all. IM & VoIP traffic charged at a higher rate spell protectionism loud and clear and the 15MB daily limit is all too easy to exceed even with browsing..

Posted by: sim at May 2, 2007 01:40 AM


Ignoring the free 14.5 MB per day, the price for web access is the same as that for VoIP/P2P traffic. Indeed, if the 2 MB that they are counting is only download bandwidth consumption, then the rate becomes half of the web access charge. I am attributing the free 14.5 MB of web traffic is their way of encouraging web access by mobile users.

I used a wrong phrase when I said "cost based pricing". I should have said that their data pricing plan is independent of application, even though it seem to be that way. Again, I can say that because I am ignoring the 14.5 MB download they are giving it away for free.

Just for the record, I compute the charge for one minute voice call to be 12 pence (or 24 pence, if upload bandwidth is measured as well) per minute if one uses data tariff. (8 kbps codec will use 60 KB per minute).

Posted by: Aswath at May 3, 2007 08:12 AM

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