Quality Matters: Some Remarks on Internet Service Provisioning and Tariff Design

Abstract

Current Internet service plans for residential customers offer little or no choice of different quality levels. Instead, the vast majority encourages waste and leads to user cross-subsidies. However, in order to ensure further Internet growth and efficiently support quality-differentiated network services, users choice options have to go beyond different service plans that only reflect a rough market segmentation. To further subdivide these segments, choice options also need to provide the means to let users express their current needs by instantaneously selecting the service quality. This argument is strongly supported by empirical evidence from the Internet Demand Experiment (INDEX), a market trial for quality-differentiated Internet services. This article investigates user heterogeneity, activity heterogeneity, and acceptance of Quality of Service on demand to derive some consequences for Internet service provisioning and tariff design.