The Answer to the Metered Data Question Is Consumer Education

When it comes to household broadband, the commonly held belief is that consumers are universally opposed to metered services. While this is certainly the dominant opinion voiced on advocacy sites and in online chats, it is a reasonable assumption that most of the consumers posting on such sites are, by virtue of the fact that they are on those sites, heavy users.  While consumers themselves may not realize it, for the majority of broadband customers, metering would actually be beneficial; carriers need to assuage consumer fears of unforeseen overage charges. 

Competition in the consumer broadband market has driven prices down over the past few years, while the explosion of high-bandwidth sites, online video, and the steadily increasing hours spent online, have driven average per-user consumption up dramatically. The result has been eroding margins for carriers, and those carriers need a means of curbing an unsustainable trend. Unfortunately, consumers have been conditioned to view a broadband connection as an unlimited resource, and are terrified of the possibility of surprise charges for going over their bandwidth limits.  However, the simple truth is that most customers don’t really use that much bandwidth. A small minority of heavy users drive up total usage, forcing carriers to take action. 

Consumer preference for unlimited plans, even when they don't need them, is understandable. Years of experience have taught them to fear overage charges from communications companies. Originally it was surprisingly high long-distance bills, followed by years of shockingly expensive cell phone overage charges.  These experiences have caused massive demand for unlimited plans as a means of taking out insurance against skyrocketing bills in those rare times when the customer need to use a little more of our industry's products.  This is particularly true of data services, since the majority of consumers have little or no concept of how much data they actually consume, or how many megabits a given video, or song download, or even browsing session may involve. As carriers take steps toward metered data, it is the responsibility of the carriers to make the average consumer comfortable with the idea, which means consumer education.  

Explaining to customers that metered data would benefit them should, in theory, not be exceedingly difficult, because the vast majority of broadband users do not consume large quantities of data.  A recent bandwidth usage study by Time Warner Cable found that the top 25 percent of its customers consumed 100 times more data that the bottom 25 percent of users. A 2009 Cisco study of global broadband consumption found that, worldwide, 10 percent of consumers were responsible for 60 percent of total bandwidth consumption, and that the top 1 percent of consumers were responsible for a staggering 20 percent of total consumption. Clearly, on the flat-rate plans currently in place, the overwhelming majority of users are subsidizing a small minority of bandwidth hogs.

Nonetheless, a number of carriers have been trialing metered offerings and none has achieved lasting success. AT&T recently ended a trial of metered broadband DSL in Beaufort, Texas, and Reno, Nev., likely in part because of critical feedback from customers. Other carriers, including Time Warner Cable, have executed metering trials with limited success. Comcast simply capped data usage at 250GB per month back in 2008, but it also manages usage by dramatically choking down speeds on lower-end data packages. However, it seems that, either due to the cost of doing so, or the customer uproar that results, carriers have not found an effective way to hold customers accountable for the data they use. 

Carriers need to figure out how to convince the extreme majority of customers that, on metered plans, they will pay the same or less than they are paying now.  The first step is to help customers understand what they currently consume. On the wireless side, where most data plans are capped at 5GB, the carriers have done a good job of helping customers understand this number by explaining, for example, that a customer can download almost 2 million 3kb text e-mails before reaching the plan limit.  Since the limits on wired broadband will be much higher, it should be easy to show customers numbers that will reassure them they won’t blow through their limits with basic usage — this many movies, that many song downloads, etc. The second step is to reassure customers that they won’t have surprise charges. Some carriers have addressed this by sending customers e-mails when they near their limits, but since these e-mails are free (and presumably automated), it might be more comforting to notify customers when they are even half way to their limits, and also allow them to cap their overage charges.

In addition, customers will need an incentive to move to metered data.  Many carriers now offer wired data plans based on the speed of the connection, on the valid expectation that a slower connection will discourage users from higher bandwidth services like streaming video or large downloads because the speed of the connection makes for a poor user experience. Perhaps carriers should approach these users, and offer them faster speeds, at the same price they pay now, but with per-gigabyte charges if they go over a certain level of usage. The enhanced user experience could take a low-level user and make them a heavier user, and in turn drive more revenue, and if the overage charges are reasonable and well managed. The carrier would have a happier customer, and more revenue.  

Ultimately, carriers will have to address this issue to stabilize their own margins and to benefit the average user whose monthly charges and network speeds are being dictated by a very small group of heavy users. However, carriers also have to be careful to avoid harming their own revenue numbers by charging only for usage, which would reduce average ARPU. Also, carriers have to be sensitive to the fact that bandwidth consumption will continue to grow, and thus the price-per-unit is a moving target, but it is safe to expect that competition will keep price points competitive. The simple truth is, for providers of retail bandwidth, the path to sustainability, as with so many technology products, is to be found through consumer education. 

Fedor Smith is president of ATLANTIC-ACM, a provider of strategy research, consulting and benchmarking services to telecommunications and information industry companies. An expert in niche- and channel-based marketing and operations management, Smith specializes in customer satisfaction and benchmarking projects for ATLANTIC-ACM, where he oversees proprietary projects as well as the firm's Carrier Report Card series, which serves as the telecommunications industry's principle source of benchmarking tools.