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.

Lifehacker 101 is a weekly feature covering fundamental techniques and issues that Lifehacker constantly refers to, explaining them step-by-step. Hey, we were all newbies once, right?

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