How much will people pay for high-speed connections?
June 5, 1998
Web posted at 3:15 p.m. EDT
by Michelle V. Rafter
(IDG) -- Internet users
agree that a faster and more
reliable Net connection
would be a good thing D but
no one knows how much
people will pay for it.
Enter the Internet Demand Experiment, a $1.3 million study launched last
month at the University of California at Berkeley. Conducted by economists
and computer scientists, it's the most ambitious study of bandwidth
economics ever undertaken.
The Berkeley study is looking at the question of how much people will pay
for a higher class of Internet connection. Supporters believe that the Quality
of Service guarantee of faster and more reliable connectivity will be critical
to the Internet's long-term development, especially for applications like
multicasting that require a huge amount of network capacity.
"Until now there's been this one-quality-fits-all access, and now companies
are experimenting with [tiered] services. There's been a lot of engineering
work, but nobody's looked at the economic side," says Hal Varian, project
codirector and dean of Berkeley's School of Information Management and
Systems.
Tiered services will be especially attractive to businesses that want to charge
extra for premium services like videoconferencing, according to Sam
Lamonica, an executive at Northpoint Communications who's familiar with
Varian's research.
"Companies could demand higher bandwidth
to support video conferences, then lower the
bandwidth and lower the costs when they're
finished. It would be a bene_t because you
wouldn't have to pay for the huge pipeline all
the time," Lamonica says.
As part of the university's research, as many
as 150 faculty, students and staff will pay to
use the school as their ISP, connecting to the
school's Ethernet network through ISDN
lines. Subjects may choose to connect at
speeds of up to 128Kbps and can change
speeds at any time. Prices will change
frequently to measure how the charges affect
demand.
At some point during the project, subjects
will be charged for access by the byte to
determine how such a plan affects demand.
Researchers are using a custom-built billing
gateway at the network operations center to
control prices and bill subjects. Other
software will simulate the network congestion and anomalies that might lead
users to pay for more speed or better access.
Though the project is less than two months old, researchers have already
found that people will pay more for a steady, high-quality connection.
"We change prices on Sundays and I get mail from people complaining, but
one person used to not having to pay for access is finding himself more
willing to pay as time goes on. He's getting used to having control over
quality," says Richard Edell, a Berkeley grad student working on the
experiment.
The Berkeley research team received $800,000 from the National Science
Foundation and more than $500,000 in equipment and services from Cisco
Systems and Pacific Bell.
Varian has already presented reports on the project to the Federal
Communications Commission and Bell Labs. He expects that by year-end
the university will begin posting raw data from the experiment on the Web,
so other researchers can use it to come up with their own price-demand
estimates.
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