The New
Internet Paradigm
Will We Soon Start Paying for
Everything?
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Tiny strands of fiber
optic cable offer what was once a seemingly limitless
capacity to carry internet data. But the corresponding
growth in data carried is now straining the underlying
internet backbone.
Part 2 of a two part article - see also part 1, 'Warning
- The End of the Internet as We Know It'. |
The spread of fast reliable
internet into every part of our lives has brought about many
benefits to everything we do these days.
But what would happen if we
now needed to start paying for services and data we've come to
rely upon as being available without limit, and without cost?
In the first part of this two
part series, we looked at how the internet has grown
extraordinarily over the last 15 years or so, with the
development of applications mirroring the enhanced and improved
access we all have to the internet.
But in the real world, nothing
can be free for ever. Sooner or later, someone will have
to start paying for it. And, in the case of internet
access, it seems that the time is unavoidably approaching where
a new charging paradigm must replace the previous 'all you can
use for a single flat fee' concept.
The End of Unlimited Data
Yes, the concept of allowing
people unlimited internet data flows seems sure to end in the
near future. Indeed, as I write this, many Canadians are
finding their formerly unlimited internet connections are being
replaced by 'usage based billing' where there monthly fee allows
them a limited amount of data transferred, and any extra data
above that allocation will cost more.
The effective change in cost
when ISPs switch to a usage based charging system is of course a
key point. Whereas the cell phone companies have done a
good job of replacing unlimited data plans for cell phones with
capped maximum data plans, and reassuring people that 95% or
even 98% of customers will pay the same or less than before, the
same calculus is unlikely to apply to regular 'wired' internet
users; it may be that as many as half or more of us might end up
paying twice or more our current internet connection costs.
How much does it cost an ISP
to transfer data to their connected customers? According
to Netflix - a company with a huge vested interest in seeing
these fees as low as possible - it costs only about a penny per
GB. But internet companies are charging as much as $1/GB
for extra data usage. Netflix of course says that if there
is to be any charge for excessive internet consumption, it
should be at close to the cost of providing the extra data, not
at a cost one hundred times greater.
The internet service
providers are also trying to make money at both ends of the
equation - charging companies such as Netflix for the data they
send out onto the internet as well as charging end users for
receiving the data (isn't that a bit like charging you to check
a bag at the airport you fly out of, and then charging you a
second time to claim the bag at the airport you arrive at?).
A hint for the future can be
seen in
this article which details changes to internet connection
contracts in Canada. Will it be long before similar
provisions appear in US contracts too?
Implications of Paying Per GB
for Movie Watching
The loss of unlimited
internet access has many implications. It strikes at the
heart of the evolved business model of Netflix and its
competitors.
Until now, the idea of being
able to instantly stream a movie to a customer, for free, was
clearly preferable to the alternative of paying to mail a movie
to the customer - a process that requires substantial handling
of DVDs, packaging, lead times, and the twin postage costs of
having the movie mailed out to the customer and then mailed back
again subsequently. This also appealed to the customer -
not that they have ever needed to pay the postage costs, but
being able to get any movie instantly, rather than having to
wait three or four days, is clearly a major benefit, as is the
ability to 'overdose' on movies, to hold movie festival nights,
and to watch movie after movie after movie, pretty much without
limit.
But if both Netflix and its
customers each have to pay a dollar or two (or three or four)
each time a movie is watched, this destroys the whole concept,
returning primacy of movie sourcing back to the earlier bricks
and mortar stores and/or the 'in the mail' service originally
offered by Netflix, and/or new variants such as the Redbox
vending machines.
Netflix streamed movies are
also inferior to regular movies - not just in sound and video
quality, but also in terms of the loss of all the extra
features, deleted scenes, commentary, and other goodies that are
on most new DVD and Bluray disks.
If you had to choose between
paying, say, $2.50 to have just the basic movie streamed to you,
or $3 to rent the movie from a neighborhood rental outlet (or
through the Netflix mail service), complete with highest quality
video, up to seven channel surround sound, and hours of extra
bonus features, which would you choose?
Indeed, this change in
underlying cost/benefit also suggests a return to the concept of
buying movies to keep, particularly if they are available at
prices of $10 or less, as is the case for thousands of DVD
title. Even Bluray titles are now starting to break down
below $10 too.
Implications for All Other
Internet/Cloud Based Services Too
Paying per GB of data
transferred adds a negative disincentive for us as internet
users to consider adopting any and all new internet services, no
matter what they are, because they will all require additional
bandwidth and therefore additional cost.
For example, maybe you
already use, or are considering using, realtime automated backup
of your data from your computer into the 'cloud'? That
might represent 5 - 10 GB of data transferred a month - quite
likely enough to push you up into a higher tier of account
pricing, or at the very least, adding another $10 - $25 to your
monthly internet bill.
Are you using Google Docs or
some other type of SAAS (software as a service)? How many
GB will that consume a month? Photo sharing? Be
careful before you upload photos - at maybe 4MB - 6MB per
picture, you'll eat through the GB (and dollars) with that, too.
And so on and so on.
Even humble audio streaming
from eg Pandora, at say 160kbps, can run up 1GB of data every 14
hours. If you listen to internet radio/audio streaming
four hours a day, that is almost 9GB a month of data - perhaps
another $20 there.
And talking about audio
streaming, paying for data means the next time you use Skype, it
is no longer free. Someone will have to pay for the voice
data being shuttled between you and the other person; and if you
add video conferencing too, your cost per minute just leapt up
even higher.
Impacts on Service Providers
Too
It is not just us as
information consumers who stand liable for new
consumption based internet pricing.
Most of the 'free service'
providers on the internet make only a small fraction of a penny
out of every web page view they provide, or of other data they
serve for users - money they get from hosting ads on their
pages. Some services are completely free, even though they
are very 'costly' to someone or something, somewhere, in terms
of bandwidth used. The obvious example of that is Youtube
- although Google is adding advertisements to the bottom of some
Youtube videos, most have no advertisements, and they are easy
to switch off.
What would happen to the
business case for Youtube and other similar free video streaming
services if they had to start paying for bandwidth? Their
already fragile revenue models would implode due to the massive
increase in costs.
Imagine if Twitter and
Facebook also had to pay for their bandwidth and passed those
costs on to you - how would you feel if you had to pay a 1c fee
every time you posted a tweet or updated your Facebook profile?
And so on through all sorts
of other internet services we currently take for granted, all of
which rely upon a close to zero cost to send and receive
sometimes very broad data streams to the users of the services.
The Bottom Line
So start adding this all up.
Start off with perhaps $50 for internet service a month anyway.
Add $8 to Netflix for their internet movie service, and then
maybe $25 for the data costs of watching some movies each month.
Add maybe $5/month to an online backup service and another
$10/month for the data transferred there. Add another $10
for some audio streaming. And next time your friend sends
you a 5MB powerpoint file in an email (you know the files I
mean!), then you've just paid a penny or so for that, too.
Send it on to three of your friends, and there's another 3c.
And then who knows what
other internet uses you will use or will add. Oh - all the
spam you hate receiving in your email? You'll hate it even
more when it is costing you money to download it.
The bottom line? Your
$50/month internet bill suddenly became $100, maybe more.
And then remember the fact
that internet usage grows 50% a year. Which do you think
will be more likely - each year our ISP reduces the cost per GB
we use to keep our bills more or less steady, or each year our
bill increases by 50% too?
The rapid rate of increases at
50% a year
A 50% increase in each year
can see a terrific change. Look how the $100/month changes
over just five years. For the first year, you are paying
$100 a month. In the second year, $150. Third, $225.
Fourth, $338. Fifth, $506. Is that starting to hurt?
Would you pay $500 a month now for your present internet
connection? If the answer to that is an emphatic no, what
will you do in five years if it then costs $500?
And why stop there.
Look ahead a bit further into the future. At the start of
year six, it becomes $759, and at the start of year seven,
$1139. Year eight and we're at $1709, year nine and it
grows to $2563, and at the start of a tenth year, what cost
$100/month at the start of the ten years will now be costing
$3844/month.
Something will have to
change. Drastically.
It Will Affect Us All
And if you think this only
applies to 'the other guys', think again.
A survey released in January
2011 is predicting that by 2015 (barely four years from now) 75%
of all HD tvs in the US will be connected to the internet - 150
million of them. When you factor in other devices such as
Apple's iTV, Google's television connectivity, the increasing
ability of Blu-ray disc players (now to be found for less than
$100) to also connect a television through the player to the
internet, and we'll all be getting a growing amount of our
television type programming through the internet.
The irony of this is that
the 'wire' we connect to the internet with was, for many of us,
originally a 'cable' connection for our television only, and
then a connection shared by television and internet and even
phone/voice service too. Now, increasingly, the prime use
of this 'wire' will be for internet, and the television cable
served data will diminish, being supplanted with television type
data sent to us via internet protocol.
Paying for our internet
service based on how much we use it (as measured by the data we
upload and download) is almost unavoidable. It is also
potentially fair - why should the person who uses 1,000 times
more internet data pay the same as the person who uses it 1,000
times less?
But the reality of the
fairness will depend on how the ISPs set their fees. Will
they charge closer to 1c/GB, to reflect their incremental costs
of serving more data? Or will they charge $1 (or more) per
gigabyte, just because they can?
Based on the Canadian
example above, there's every reason to fear outrageous
profiteering.
This was part two of a two
part article. Please click to read the first part - 'Warning
: The End of the Internet As We Know It'.
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Originally published
11 Feb 2011, last update
21 Jul 2020
You may freely reproduce or distribute this article for noncommercial purposes as long as you give credit to me as original writer.
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