Michael Shields writes: [...]

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Why are you assuming that the Internet will continue to have non-distance-sensitive pricing, when it clearly has distance- sensitive costs (ultimately)?

I'm assuming it for several reasons.

1) The price of metering packets by destination exceeds the cost of providing the underlying service as it stands. This does not make me think that distance sensitive pricing has a bright future.

I don't think I can agree that the cost of metering is unreasonable, assuming you have the ability to monitor the traffic on your lines to know what sites are using the bandwidth. This data is available today on routers capable of flow-export; I think it will need to be a standard feature on all major routers in the future, because it is very valuable data even if not used for implementing a distance- sensitive pricing model. What you would need to determine is your cost per GB to each destination prefix (or from each source prefix) outside your network. You can do that by determining the cost of each of your backbone and border links, and the makeup of traffic on them. This computation scales with the number of links in your network times the number of prefixes in the Internet. I don't think the cost of calculating this would exceed the cost of providing the underlying service. It may or may not be "cheap enough". Please let me know if I'm misunderstanding something.

2) Long distance carriers have essentially eliminated distance sensitive pricing for domestic U.S. calls, and at the moment the price on such calls is only a hair above the local carrier settlement costs of 7 cents per minute (3.5 cents per side.) Cellular carriers are getting into the act, eliminating long distance charges for a small flat fee. International pricing is also plummeting. None of this leads me to believe that the future for metered PHONE SERVICE is very bright, and you're trying to argue that metered internet service has a bright future?

It's one thing to have semi-unmetered service, of which there are plenty of examples in phone networks -- unlimited local calling, or unlimited domestic calling. It's very much another to have fully unmetered service: free calls of any length to anywhere in the world. Until I can make a one-hour call from DC to Moscow for the same price, or even a similar price, as a one-hour call to New York, it's not equitable that I can ftp for the same price.

3) It does not appear that moves towards metered pricing have been well recieved by consumers. ISPs are sticking to their current pricing model, although they are often limiting the flat rate zone to "reasonable" personal usage levels of a couple hundred hours per month.

In short, I see no economic basis for such metering, and no moves towards such metering. Maybe I'm wrong, but I doubt that we're going to see any change in this any time soon.

Could be. I think the economic basis is there; I just don't know if it's strong enough to overcome customers' love of flat-rate. As long as usage is mostly homogenous within a price class, there won't be any incentive for non-flat-rate pricing. If a substantial number of users start doing daily large international data exchange, that may start to hurt. The question is whether a relatively small percentage of users account for a significant fraction of the traffic on the expensive lines. I don't know the answer but I would not be surprised to find many customers have much more long-haul traffic than average. Probably it will never make market sense to have distance-sensitive traffic pricing for "low-speed" users, where the cost of providing the service is mostly the cost of tech support, billing, dialin or xDSL aggregation, &c., and bandwidth is a small proportion of the cost. -- Shields, CrossLink.