ISPs Developing Their Own Billing Meters
October 20, 1998 INTERNETWEEK via NewsEdge Corporation :
Prompted by the promise of voice-over-IP
services and the high cost of transporting
Internet traffic across oceans, ISPs are
trudging toward usage-based pricing for their
Internet business customers.
Rather than paying more for access than
they already do with current flat-rate pricing
models, IT managers would only have to pay
for the bandwidth they use, rather than for a
whole pipe that sits empty after business
hours and on weekends.
For ISPs, usage-based pricing could help
differentiate their services from those of
their myriad competitors by charging for
different levels of service based on the type
of traffic.
Until now, the hardware and software that
would enable providers to gather the
information they need for billing has been
lacking from the connectionless,
router-based Internet. Some ISPs, such as
Digital Island Inc., have created their own
billing solutions, though some vendors are
beginning to roll out hardware- and
software-based solutions.
"Some customers want to pay for what they
use, and some pay for what they use in
certain markets. Others want to pay a flat
rate on a monthly basis, " said Digital Island
chairman and founder Ron Higgins.
"Customers are at a point where they want a
certain quality of service for a particular
application, and they're willing to pay for it."
Digital Island is one of the earliest ISPs to
offer its enterprise customers a variety of
pricing plans. Digital Island currently offers
destination-based and measured gigabit
billing, and has plans to add time-of-day
pricing early next year. Digital Island's
hub-and-spoke network architecture moves
business customers' IP traffic directly over
ATM connections to 16 countries in the
Asia-Pacific region and Europe. Once there,
it is handed off to a local ISP for one-hop
router delivery, avoiding often-congested
international circuits.
Time-of-day billing would work well for
customers that distribute software, for
example, and want to save money by
transmitting large files at night when the
circuits are almost empty and prices will be
lower, Higgins said. He believes the ability to
offer destination-based pricing will help
companies localize the pricing for
electronic-commerce applications and help
with issues like export restrictions and
taxation.
"Digital Island is forward-thinking; they're
looking at it from the enterprise perspective,"
according to Aberdeen Group
telecommunications analyst Dan Taylor.
"They realize that customers have different
priorities and are willing to pay for them, but
in terms of complexity, it's nothing. If you
want to bill across multiple carriers'
networks, then you really have complex stuff
going on."
Higgins maintains that flat-rate pricing wasn't
a problem when most IP traffic was
contained within the United States. "It
changes when you start moving information
on a global basis because circuits to Europe
and Asia are much more expensive, and many
providers oversubscribe their international
circuits to cover the per-port cost," he said.
Inprise Corp. found that congested
international circuits interrupted its
customers' ability to download 40-MB demos
of its products, which meant they had to
start again. Inprise, formerly Borland
International Inc., develops software
development tools, intelligent middleware,
and database and application management
systems for business enterprises and
software developers.
Chris Malatesta, Inprise's IT manager for
Internet media services, said the company
switched to Digital Island for its fast
international connections and chose to pay
by how much traffic it generates.
"Due to the slowness for people who used to
try to come across the water by
conventional means, we went to Digital
Island and reduced customer complaints
down to virtually none," Malatesta said. "For
us it's not about saving money but to better
serve our customers." Over the past two
years, Inprise has collected marketing leads
to 400,000 people who had tried out the
company's products via the Internet.
Hardware and software vendors have only
recently begun to create billing measurement
solutions for carriers. And the move may be
none too soon, especially if voice-over-IP
services take off. Xacct Technologies Ltd., a
year-old start-up, last month rolled out the
first solution that can provide ISPs with
exact usage details gathered from IP routers.
Its IP "mediation " software, which can
gather information from the physical layer up
through individual applications, is a first in
the industry and could prompt more ISPs to
move to usage-based pricing.
Although Digital Island built its own billing
application that can identify where a packet
enters its network and where it is delivered,
it leverages Cisco's NetFlow, a product
originally designed to speed router access list
authentication. NetFlow collected so much
information from the routers that its main
purpose now is to provide usage information
to ISPs for internal use, according to Kevin
Delgadillo, product manager of Cisco's
NetFlow technologies and applications.
Digital Island's usage and billing software
collects information gathered by NetFlow
from the eight routers at the edge of its
network-a tiny number compared to the
public Internet.
Some ISPs may consider usage-based pricing
when the technical capability becomes more
advanced, but they're not convinced it is
necessary. Alan Taffel, vice president of
marketing at Uunet WorldCom, formerly
Uunet Technologies Inc., said the network
resources needed to measure packets would
be prohibitive. "We're using a statistical
approach, which is accurate enough from a
network point of view," he said.
Uunet was the first ISP to offer tiered pricing
for T1 and T3 connections that measures a
customer's traffic flow at specific intervals.
Their customers' monthly charges fall within
four bands of service up to full T1 or T3
capacity, and they pay at the level they use
95 percent of the time. Uunet samples a
customer's traffic flow every 5 minutes.
Taffel credits the ISP's growth to the
homegrown system it developed five years
ago to offer tiered pricing. " It's a runaway
hit that about 70 percent of our customers
choose," he said.
GTE Internetworking offers a similar tiered
service that measures traffic every 15
minutes. GTE Internetworking chief technical
officer John Curran said his company also
offers tiered pricing bands for T1 and T3
services based on 15-minute interval
samples, but it has no definite plans to move
to a more specific usage-based offering.
GTE's Curran said many network providers
already use Cisco's NetFlow to better
understand how traffic is performing, and
entering and leaving their networks. But most
have no desire to set up a complicated
infrastructure to measure those flows on a
full-time basis, he said. The growth in
voice-over-IP traffic may be the wild card
that forces the ISPs to adopt usage-based
pricing faster, to ensure that international
cost recovery reflects the actual underlying
cost, Curran said.
Tiered pricing may have been the best
solution for business customers so far.
Forrester Research analyst David Goodtree
said that in 1997, ISPs sold corporate
customers 17,700 fractional T1s compared
with 15,500 full T1 pipes. This year, he
expects the fractional numbers to grow to
47,200, while full T1s will grow to 23,800.
"Eventually we're going to have to look at
the fact that all traffic is not created
equal-in particular, traffic to far locations"
Curran said.
Copyright c 1998 CMP Media Inc.
By Kate Gerwig
<<INTERNETWEEK -- 10-19-98, p. PG48>>
[Copyright 1998, CMP Publications]
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