ISPs Could Make More Money by Offering Multiple Service Plans

With just a handful of different pricing packages, Internet service providers (ISPs) can increase profits and better meet demand, says a new paper by Nick Feamster, an associate professor in Georgia Tech's college of computing, and colleagues.

Tiered pricing is not new -- several ISPs already implement it -- but Feamster's team analyzed the effectiveness of tiers using models built from real-world ISP data. "The research addresses the fundamental tension between the desire for simple billing models ... and the economic efficiency of the resulting flow of traffic," says Jennifer Rexford, a professor in Princeton's department of computer science. Simple models, like the blended rates based on megabytes of information per second per month that most ISPs use today, are easy to understand and enforce. However, blended rates disregard other factors, such as the distance the packets of data travel, that can influence the costs of providing service. Ideally, says Feamster, ISPs would offer an "infinite" number of tiers in which the price precisely reflected the costs of the service provided. But how much benefit do tiers offer compared to the bundled pricing used in today's systems? And how many tiers does it take to approach the optimal results?

(Aug 24)