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Small ISPs should work in niches - and differentiate themselves

By Mauricio Freitas, in , posted: 2-Oct-2008 00:01

After reading pages and pages of rants about users being affected by heavy downloaders in another small ISP, I've posted this reply:

Folks, reading these pages again made me think of one solution: increase the prices.

Seriously, while I'd love to have cheaper Internet access (believe me I don't) money is still a natural way of filtering customers.

Small ISPs should differentiate their services by quality and value added services. For example Telecom offers Flickr Pro (US$24.95/year) and McAfee Internet Security (NZ$95/year) free with their services. WorldxChange offers a good VoIP service and it seems it had good services.

Why I am saying that? It has become clear that smaller ISPs can't compete with large ISPs in terms of price because of scale. When they offer good price they sacrifice something - and most of the times this goes into quality of service. which for many (if not everyone here) is speed.

The reality is that the price charged seems not to accommodate plans for expansion and those are very slow and spaced in between.

For a small ISP the solution would be to work in "niches". Either offer services only for high download users (or have separate "circuits" just for those) or charge more and offer a premium service for "normal" users.

By charging more they would obviously scare away heavy downloaders that would move to "Go Large" type of plans where there are no limits, but speeds are not so great - two things that don't worry that many heavy trafficers.

On the other hand users paying more would do so in the knowledge that this extra price is the guarantee they get a speedy service.

Why do you think large ISPs have small allowances like 40GB/month? Because then they start charging dearly, making sure heavy downloaders go somewhere else.

Seriously, how many of you would pay $150/month for a fast service? And that's exactly how much it costs for 10Mbps services on TelstraClear's cable modem service, with a 80 GB allowanc. On the other hand "slow" episodes on this network are mostly due to some fault and not because of contention.

I guess this post is more of an observation on small ISPs practices than agreeing with the rants in this thread.

We are talking about managing a scarce resource. Some large ISPs could even have different resource pools for each niche. That's what Telecom did with Go Large.

When Go Large was "unleashed" people were attracted by the "unlimited", which in PR speak meant "no caps". Even people who really didn't need the "unlimited" and would comfortably be served by plans with 20GB or 40GB caps decided to go for Go Large - just in case.

Telecom created a niche plan, with its own pool of resources. The only problem was that it was badly implemented and the solution adopted to "prioritise" packets was broken. Since no one seemed to be able to fix it Telecom decided to gandfather the plan - it's no longer available and whoever is in it could change to another plan, etc, etc.

So while the implementation was bad, the idea was good. If you are a heavy downloader get into a "no caps" plan, but share with others. On the other hand they offered a range of more expensive plans more suitable to "normal" users.

But those "normal" users decided to use the Go Large plan, because it was cheaper, not because they needed the "unlimited" - so the idea of using price as a filter didn't quite work right?

Well, perhaps because Telecom came up with plans such 1GB, 5GB and 10GB as "premium". Who in their right mind would get a 1GB plan? Only newcomers to the Internet, that  soon realise that 1GB or even 5GB is nothing really these days and afraid of paying too much in overuse decided to go for the unlimited plan -even though they didn't need it.

And a lot have changed in the last two or three years since. We can easily see Apple releasing 400MB updates for their OS. If you have a couple of iMacs at home then there goes your month's cap.

People are using Apple iTunes to download legal movies now. TVNZ launched TVNZ OnDemand. TV3 released their news on the web. People watch Campbell live on the Internet after the program finishes because it's a more convenient time.

People even download - gasp - one or two "illegal" movies a month. Nothing like the heavy downloaders, but certainly now the 10GB plan is not a good thing.

People started migrating from ISP to ISP. The ISP of the day was the fast one. The news of a fast ISP spread quickly, and soon it was overloaded, and the cycle starts again. Like grasshoppers.

Then we have the WorldxChange experience. It's not done yet, but they decided to create a "soft niche". I don't know exactly the technical side of it, but the idea was to create a "virtual resource pool". They've done that by creating a plan that charged a bit more for day traffic, but made evening traffic free.

So people flocked to WorldxChange. But we then found out that heavy downloaders really don't give a damn to other user's access to resources.

And now people move from this to the next ISP.

Perhaps WorldxChange should have created a complete different pool, including different network access and routes?

What do you think?

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Mauricio Freitas
New Zealand

I live in New Zealand and my interests include mobile devices, good books, movies and food of course! 

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