Why Your ISP Won’t Offer Uncapped Downloads

Why Your ISP Won’t Offer Uncapped Downloads

Why Your ISP Won’t Offer Uncapped Downloads Many Australians look with envy at the “unlimited download” Internet plans offered in markets like the US and ask: Why don’t we get that uncapped option in Australia? It’s easy to assume the answer is corporate greed, but the reality is a little more complex.

Picture by jeremybrooks

It’s not entirely true that you can’t get an uncapped plan from an ISP in Australia: for instance, AAPT, TPG and Exetel all offer them in certain circumstances. But it’s certainly not the norm, and there’s a fairly good reason why.

Consumers often assume that Australian ISPs could offer an unlimited connection without penalty, and simply choose not to do so they can charge more for their services. In simple terms, this isn’t true. ISPs still have to pay for connectivity to other systems, and they pay on volume. They buy in bulk — acquiring gigabytes of connectivity on a daily basis — but they still pay.

Those costs include both interconnections with other networks within Australia, and connections to overseas systems (which is where much of the data we access every day comes from). ISPs can often make peering arrangements — where they agree to interchange data without cost through common systems — but those aren’t universal, so costs can’t be entirely eliminated. (This is how providers offer unmetered access to services like iTunes music or iView catchup TV; it’s a restricted set of content whose cost of offer can be controlled.)

If your input costs are based on the volume of goods you purchase, then it makes sense to also calculate the charges you make to customers on the same basis. If you’re paying for every megabyte you send around your network, then it’s not unreasonable to also calculate your charges on the same basis.

While that’s a fairly straightforward proposition, it gives rise to an obvious follow-up question. If that’s how prices are calculated, how do unlimited plans appear at all? It’s first worth noting that Australian ISPs are automatically in a different position to US suppliers for a couple of reasons: far more content is accessed from offshore in the Australian market, and the underlying communications infrastructure is also different and differently regulated.

With that said, offering unlimited (or even high-limit plans) is a calculated gamble. Many customers will use far less than their allocated quota, while a small percentage will typically use much more. Exetel ISP John Linton offered a simple explanation of this recently:

While the plan may say it includes 20 gb the ISP actually bases the price of the plan on what they expect the average usage to be – usually much less than 50% of the stated plan download inclusion….in many cases less than 25% of headline inclusion.This principle works well and has been the basis for broad band plans from the beginning as far as I can tell/remember and the methodology provides a ‘marketing’ appeal that allows 80% plus users on any plan to subsidise the use of the other less than 20%.

This explains why those unlimited plans which are on the Australian market are only being offered either to selected existing customers, or in conjunction with other products. In the former scenario, the ISP assumes that download habits won’t change; in the latter, costs can be spread between the two products to make profitability more likely.

In general, connectivity costs fall, so it’s not unreasonable to expect that at some point unlimited downloads will become more common. It seems unlikely, however, that they’ll become the standard choice from large ISPs in the next year or two.

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  • With respect to the quote:

    While the plan may say it includes 20 gb the ISP actually bases the price of the plan on what they expect the average usage to be – usually much less than 50% of the stated plan download inclusion

    this just demonstrates the contempt that the ISPs have for their customers, since many if not most will actually offer plans that are capped at 50% of their high-end plans. If customers expected to use the lesser amount, they would have bought the lesser plan.

    Accusing people of being greedy because they actually *use* what they paid for in good faith shows that essentially these people just want to in a business that involves opening envelopes stuffed with money, without having to deliver any service at all…

  • I think “year or two” may be a little optimistic. While connectivity costs fall, usage increases – I’m consuming a lot more data now than I was a few years ago.

    And as long as the two increase roughly in step, I don’t think we’ll ever see truly unlimited data plans.

  • Jeff, i think you may have misread the article.

    they are saying they are basing the pricing on people purchasing X amount of Gb but only using 20-50% of it.

    the article isn’t saying people are being capped when they reach 50% of their purchased bandwidth

    Nor is anyone accusing anyone of being greedy.

    What is interesting, though not mentioned either, is that P2p file sharing actually helps ISP’s profit as the data is shared more locally then if users constantly download files from one source overseas. Since local data is much cheaper due to inter isp agreements.

    • p2p may be proportionally more local than overseas traffic but when it’s 95% of your traffic (i’ve worked at an isp and that’s a totally reasonable number) it doesn’t really matter where it’s coming from. I doubt we’ll ever see unlimited plans here, US providers are actually backing away from unlimited plans and all of our data goes through very expensive overseas links. unless someone slams in a HUGE link to the US we’re always going to have to pay more than US consumers.

  • Aren’t telcos buying bandwidth instead of traffic volume? That’s what I heard all around for a long while now.

    If that’s true, then why ISPs need to buy traffic then?

    I think if this step is true, then there *is* some corporate greed involved, just a level higher.

    • Pretty sure this is correct, actually. Perhaps big T’s control of the local system means some people are paying for GBs of traffic, but the main way most of the world pays for access is based on their available bandwidth for their customer base. Pretty sure it’s not the total count of bits, it’s the bits per second they have the capacity to transmit?

  • it’s pretty simple… there’s way too many middle men taking their cut! Basic economics!!!

    I think this article would be better if it was compared to the structuring of overseas based ISPs so we can REALLY get a look at how we are being forked!

    Thanks for nothing Telstra!!!!!

  • Good article, explained what I already knew but many don’t. This also explains why ISPs like iiNet can offer specific unmetered content such as ABC’s iView’s and iTunes (Australian store), as these are services hosted in Australia and therefore don’t carry the high premium for transporting the data across the Pacific, which is what they and ultimately we’re paying for.

    Now that Google have mirror servers based in Australia this also helps in reducing trans-pacific content and therefore these costs.

    Re High-bandwidth users:
    Internet very-high-bandwidth users are a small proportion of the subscribers, and I’ve heard iiNet’s CEO say he’d rather that minority switch to a different ISP rather than stay with iiNet. That’s one of the problems with unlimited download plans – that there are a small minority that would use it as much as they can but so out of proportion to the majority of users who end up covering the costs.

    Better to have cheaper limited plans for those that don’t need it, as is the situation now.

    I wish the government would do the same with road tax – base it on your mileage and how much you wear out the roads. Though this is partially done via fuel tax…

    In saying that – I think I’m going to have to increase my internet plan next month to meet my current needs!

  • “This principle works well and has been the basis for broad band plans from the beginning as far as I can tell/remember and the methodology provides a ‘marketing’ appeal that allows 80% plus users on any plan to subsidise the use of the other less than 20%.”

    Funny, Mr. Linton, how you say this, yet your company has recently told us we’re using *too much* of our 24GB plan. Also YouTube slows to a crawl at night.

  • It’s not just the U.S. that has uncapped plans, I’m just back from Finland (where even mobile data is uncapped) and China (even though filtered) where traffic volume is not capped… I imagine any nation (thinking of South Korea as an example) that wants to foster and reap the economic benefits of innovation would not tolerate traffic volume caps. So the question is where else are broadband plans capped, and why do Australians tolerate it?

  • soo…why can’t we just pay as we go then?

    the real reason isp’s love capped plans is that as consumers we have to base our choice of plan (ahead of time) on what we estimate our maximum monthly usage will be… so if you get the balance right and, unlike me, don’t max out the connection every month.. the isp will ALWAYS be ahead

    seriously, can you imagine buying other things under these kind of terms.. like fuel?

  • What absolute BS. Australia as a developed country is one of the only ones with capped plans. Majority of western civilization (and some eastern) have uncapped, unmetered, net neutral internet access. Looking/ comparing at/to the US is a bad example as they are way behind in providing internet access to their 350 million inhabitants. Most uncapped plans are only available in major cities in US. Dont let perception fool you. Why? Corporates….AT&T = Telstra……Same shit.

    However, looking at most of UK, Europe, S. America, Russia and Japan, where you have an open competitive market, uncapped access is the norm!

  • We tolerate it because (until recently), there has been no other option. It’s only in the last 5 years that International Peering (IP) costs have fallen to a price point where backhaul (local peering) is actually more expensive. As a result of the drop in IP costs we now have two ISPs offering unlimited (24mbit) broadband (AAPT and TPG) and two or more ISP’s offering unlimited “off-peak” (6-12hrs day).

    Our ADSL2+ broadband is provided “up to 24mbit” (depending on distance from the exchange), whereas plans in the US or other countries may be limited to 3/7/12mbit.

  • I read this article and all the comments with an open mind in the hope of finding something that resembles a real explanation for this stupidity. But no.

    In short, what you are saying, is that – Australia is soooo far away and big that the infrastructure makes it more expensive. I call BS.

    I can’t think of a single other country that charges by the amount downloaded. Conroy might think of one, but that doesn’t justify anything.

    Always having to look over your shoulder to make sure you wont get shaped until the last day of the month is effectively putting the breaks on Australian web development. You are being held back, missing out on potentially huge online achievements. I see the lousy bandwidth issue trickle all the way down to the development/design of local websites. If the internet doesn’t work properly, people won’t pay good money for it. Cheap pay = cheap quality. Where are the good online banking solutions, news sites, TV sites, live video/music streaming? And why is that asking to much?

    And, can we please start paying for the actual bandwidth we get, not some “theoretical maximum speed living on top of a connection point when nobody else are online” speed? Just another proof that all telco’s is only interested in our $.

    Thanks for reading my rant. Coming from Norway this is annoying the hell out of me.

  • Does this author realise that the 2 unlimited plans on the market are available to anyone (with TPG as long as their exchange has been upgraded with extra backhaul capacity)? I am on this plan now for $75 per month.. no minimum committment plan.. It now feels like the internet when I first got Cable back in early 2000’s with Optus which was then unlimited (for a while)… This is the way the internet should be.. FAST and Unlimited.. With NBN around the corner for Big cities, this argument just doesn’t hold water.. value will get better and download’s will get unlimited.. no matter TPG or telstra.. you just watch.

  • This is nonsense. Capping is not only bad economics in the short run (since prices are much higher than marginal costs), it is also keeping the internet users use internet only at necessity and prevent them from developing the habit of using internet more.

    For internet companies it’s basically shooting your own feet. The company that will offer uncapped plan at a reasonable price first will get a huge market share and end the game.

    And the article compares the policies with US but there is no other developed country in the world that has capped internet anymore. Is Australia really so different?

    ps. And the connection quality is also much worse than many European countries.

  • I am on a 60/120GB ADSL 1 8-mb connection, and regularly see 800+ kbytes per second download.

    I usually download 50 GB/month, minimum.

    This costs me $89/month from Supernerd.

    There are no unlimited plans for ADSL 1, because of Telstra.

    I could get ADSL 2, but I’m 3.5km from the exchange, so I doubt I’d get anywhere near my current download speed. I’m actually connected to a sub-exchange for ADSL1 but it has no ADSL 2 equipment, even though it was built 5 years ago.

    • I’m nearly 3kms from my TPG exchange and I get around 3.5mbps average on my $50 ADSL 2+ 130GB plan. I use about 70% of that a month but would use a lot more if there were no on/off peak limits, just 130gb any time. Shaping is up to 1mbps up and down, but I haven’t been shaped since my plan was at 80GBs per month.

  • In Thailand, they also offer unlimited download
    for around B600 per month, roughly $20 a month.

    So your argument in favour of Australian ISPs in the article does not seem valid!

    • I’m not in favour of it — it’s a market reality. Other countries have different infrastructure and different regulatory history, so the experience doesn’t necessarily translate.

  • Unfortunately, the arguments for unlimited broadband tend to become circular. People say they would use high-bandwidth things (streaming movies, tv, etc) if only they could afford the bandwidth to do it in their plans. Content providers, in Australia, don’t even offer high-bandwidth applications because they know people can’t afford the bandwidth to use them. ISPs don’t offer larger caps/unlimited because there are no applications to take advantage of a larger cap, so what would end up happening is the larger cap plans would just be taken up by file sharers, and then you get the case where the ISP is getting sued because they dare to offer a product that people want, but content providers aren’t willing to supply a legal download path for them.
    It also doesn’t help when politicians believe that all this “high-bandwidth” stuff is just for “porn and games”. And that’s the best case when they don’t think its all just for illegal downloading.

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