All ISPs who keep sensible usage records know exactly how much the users on each of the plans they offer actually use and the time frames in which they use it – a rule of thumb is that the average usage (across any 12 month period) is less than 40%.
John Linton’s Personal Musings
The formula by which Internet Service Providers (ISPs) in Australia price their ADSL2+ plans is pretty standard. The rough rule of thumb is “a dollar per day and a dollar per GB”. So, for example, you can expect an 80GB plan to be priced at around $30+$80=$110 per month. Give or take. Certainly some ISPs offer additional large “off-peak” allowances (that can only be used in the wee hours of the morning). Or they bundle broadband plans together with telephone line rental & calls. But if you look at standalone ADSL2+ plans, and consider only their “on-peak” allowances, the dollar per day and a dollar per GB rule is remarkably consistent from one company to the next.
Internode are little bit different, and perhaps unique, from other ISPs in the way in which they structure their plans. In June 2007 they completely revamped their plan pricing structure and now cost average within plans, not between plans. Each pricing tier is self-supporting. In other words there are no loss making plans being subsidised by profitable plans.
Knowing that each pricing/allowance tier acts independently it may be possible to derive some sort of average customer usage from information that is publicly available.
Below is a summary of Internode’s Home Extreme ADSL2+ plans (for simplicity I’ve rounded up to the nearest dollar):
|download quota||monthly cost|
If you run a regression line through these data you’ll find that they can be very neatly described by the formula:
monthly cost = $45.28e.0121quota
The model is saying that before a customer even starts downloading data there is a fixed cost of $45.28 per month (i.e. when quota=0, e0=1). I’m not sure that an ADSL2+ port connection is really costing Internode anything like $45 per customer per month. To be honest I’d be surprised if it was more than half that. But what do I know? Nevertheless, that’s our starting point.
Taking out the $45 fixed monthly “supply charge” from the overall plan cost an indicative price per GB in each tier can be summarised as follows:
|download quota||indicative cost of data||per GB|
It’s very interesting to me, looking at the table above, that the indicative cost per GB (after taking out the $45 fixed monthly access charge) delivered to the customer varies from tier to tier. From 50c a GB in the lowest quota plan up to $1.05 in the highest quota plan. Common sense would dictate that it costs Internode the same amount to deliver a GB of data to you regardless of what quota plan you’re on. If cost-to-the-ISP is constant then a possible explanation for the variation could be that customers use different proportions of their quota from tier to tier. Apparently, and perhaps not surprisingly, customers on low quota plans use proportionally less of their full allowance than people on high quota plans. If it’s possible to make a guess as to what it costs Internode to deliver a GB of data to its customers, it may be possible to determine what those proportions are.
From what I’ve read, it costs an ISP of Internode’s size something in the order of $130-$200 per mbps of bandwidth delivered during the 12-hour peak time noon to midnight period (off peak is significantly less from what I understand). So let’s split the difference and say $165 per mbps. Delivered 12 hours a day over a month this equates to (165x8x1000) / (30x12x60x60) = roughly $1 a GB per month. That’s the raw bandwidth cost, ex-GST. It does not include all the other costs of running an ISP such as tax, rent, equipment, and staff. Not to mention their profit margin. And it does not take into account the cost of uploads which Internode absorbs into their download pricing (uploads don’t count toward your quota at present). I don’t think it’s unreasonable to assume that it costs Internode somewhere in the order of $1.50 to deliver a GB of data in a month.
Dividing each of the nominal costs per GB across each tier in the previous table by the estimated fixed cost of $1.50 calculated above results in the following estimates:
|download quota||est. propn. of quota used||est. avg. download|
So for example looking at the 40GB tier: $0.75/$1.50=50% of the monthly allowance=20GB per month. In other words it appears that, on average, subscribers to Internode’s Home Extreme ADSL2+ 40GB plan use just 50%, or 20GB, of their monthly quota.
Can this analysis be correct? Maybe. I get a good vibe from it. The numbers feel right. It kind of fits in with John Linton’s quote at the start of this blog entry. And the average of the estimated averages (I know, I know… average of an average and all that) across the tiers comes to about 30GB… about right I think for ADSL2+. But obviously the estimated proportions are dependent on my wild guesses at Internode’s fixed costs.
Anyway, the point is it suggests the typical customer is on a plan too large for their average requirements. They could potentially save money by dropping down a tier without loss of service. Perhaps people are unaware of their average usage. Or perhaps customers are willing to pay more for that extra overhead.
Or perhaps I just got it totally wrong?