How to charge for network services – flat-rate or usage-based?

Abstract

Currently, the Internet service provider market offers two different types of pricing plans. In the USA, the predominant pricing plan is a flat-rate plan. In Europe and Asia, the predominant one is a per-minute pricing plan. Enrolled in such a pricing plan, users have to pay for the connect time to the Internet. Although Internet Service Providers (ISPs) have competed heavily for users in these last few years, they only have focused on trying to offer the lowest price within such pricing plans. A potentially more profitable and sustainable method of doing business would be for ISPs to differentiate themselves by offering more customized pricing plans for certain user groups. An important question then is whether a pricing plan exists that is attractive to users, but also allows ISPs to build a sustainable business. Based on empirical results of the INDEX project, we discuss a pricing plan for Internet access that appears to be appreciated by Internet users as well as by ISPs. This pricing plan combines the advantages of flat-rate pricing and usage-based pricing. Users will benefit by receiving unlimited access to a basic service with the choice of higher QoS whenever they demand. From the ISPs perspective, such a pricing plan will help any ISP to focus on certain user groups and to reduce peak network load.