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The September 9, 2002 Issue Provided by System Dynamics Inc.
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Why The Move Toward Tiered Offers?

When MSOs introduced cable modem service, they began with an unlimited service at a flat rate. As operators have gained experience with the service and consumers learn about broadband, there is an increasing move for MSOs to provide different levels of service at different price points. The move comes from a variety of factors including:

  • The availability of DOCSIS 1.1, which allows additional control
  • The need to control usage so that it is commensurate with costs
  • The desire to get premium prices from those who have more demanding needs and are willing to pay for fulfilling them
  • The desire to offer a lower price point than today's service for those who want something better than dial-up but are not heavy users

The need for better MSO controls has been exacerabated by:

  • The increasing amount of available multimedia content, which drives up average usage
  • The disproportionate use of broadband by peer-to-peer networks (see "Napster's Dead--But P2P Progeny Live On", below) which both increases usage and shifts toward symmetric usage patterns
  • The increasing prevalence of Wi-Fi (802.11b) broadband users who are making their networks available to neighbors and others

Charter was one of the leaders in tiered pricing. Although initially their offers varied in their different cable systems, they have standardized to three levels of service. Prices and speeds vary slightly, but the Charter Pipeline service usually includes an entry-level offer for 256 kilobits per second upstream and 128 kbps downstream for $30; a 768-kbps downstream, 128-kbps upstream service for $40; and a top-level 1.5 megabits-per-second downstream, 128 kbps upstream service which costs from $50 to $60. Each level is promoted by the kinds of applications most generally appealing to a category of users. At the low end it's Web surfing and email; at the high end they market to gamers, those doing big file transfers and intensive users.

AT&T Broadband has joined the tiering movement by rolling out its UltraLink service in a number of markets. For $80/month users get to download at up to 3 megabits per second. Their standard service, which provides downloads at up to 1.5 mbps, costs about $46/month. AT&T has not yet introduced a low-end offering but is said to be planning a trial of such an offering before year-end.

Although DSL providers have historically had more than one offer, they seem to be moving in the direction of additional tiering as well. SBC announced plans to offer new speeds and prices for DSL, in what they call 'personalized' speeds, beginning this fall. A pricing structure has not been announced, although they have characterized prices as "competitive." The six announced plans range from a basic plan targeted for moving dial-up users into broadband, up to an "expert plus" package targeted for hosting Web/e-mail servers, uploading large documents and high grade videoconferencing. Details are in the SBC press release (http://www.sbc.com/press_room).

Covad Communications also recently introduced a lower-end offering. They now provide "fast, faster and fastest" grades of service for residential users.

( www.charter.com ) ( www.attbroadband.com ) ( www.sbc.com ) ( www.covad.com )