Metered local service: A threat to the net?

[Originally published 1996 |
Updated here 1999.06.28]

While much of the growth of the Internet and other online services has been credited to the ubiquity of relatively powerful home computers and zippy, inexpensive modems, a less-obvious factor may be at work: Nearly everywhere in Canada, local phone calls are free ("unmetered," unlike "metered" long-distance calls), meaning that the only direct dollar cost in surfing the net with a local Internet provider or similar service is what the online service charges you itself. But with metered local phone service having been bruited by Bell Canada, the experience of other countries with metered local service may become relevant in this country, and the effects of metered service on online use may be replicated here.

In 1995, Bell Canada proposed to the CRTC that some business customers pay for the time they spend on local phone calls. After public outcry, the company withdrew the plan, emphatically denying all along that it had any intention of proposing metered local service for residential customers. In February of this year, in response to a request for proposals for "affordable" local phone service, Bell proposed to the CRTC that residential customers be offered the option of a lower monthly phone bill in exchange for limiting the number of local calls they make. Calls beyond the "free" threshold would be billed according to both call duration and distance.

Analogues of both plans can be found in other English-speaking countries. In England, local phone calls placed via the former monopoly provider, BT, are generally billed at 1 to 1.5 pence per minute. (Certain parts of England boast more than one local phone company, some of which have lower rates or offer free local calling under limited conditions.) In Australia, all local calls from a given class of telephone (payphone, residential line, cellphone, etc.) cost a fixed fee, usually between 20¢ and 40¢.

James Eibisch, an Internet analyst at Input, an information-technology consultancy in London, notes that when U.S. online companies like CompuServe and America Online reach Europe, "they are finding they have to adopt different pricing models" from the American practice of offering limited free hours per month and charging for each additional hour. "Given that there is no way around being charged by your telephone company whatsoever, this model of also being charged by your online company per minute or per hour just hasn't taken off."

[1999 update: Indeed, Eibisch's predictions have borne fruit, and today the fastest-growing sector of the U.K. online market is the so-called freeserve movement, which provides Internet services free to consumers. The only catch: Consumers' phone calls to the ISPs are still metered, and the ISPs receive a cut of that billing. See article on AOL's response.]

However, David Gilroy, marketing manager of international operations at CompuServe Inc. in Ohio, an online service with some 220,000 members in the UK, notes that "[British] people just accept they have to pay the phone cost. Unless British Telecom or Mercury or someone do any different, that will always be the case."

In 1995, Demon Internet-- the UK's largest single Internet provider, with some 30,000 users-- conducted an experiment in the British city of Hull, whose local phone company ran a brief promotion offering free calls to one of three local numbers you specify. Demon Internet officials did not respond to inquiries by press time, but Eibisch recalls that "the problems it caused ran so deep that Demon still has a very bad reputation in that city because, despite being the largest provider in the UK and the most technically advanced, it just couldn't put into place the infrastructure and equipment it needed to serve one city that had no incentive to log off.

"I really don't understand how, in the US and Canada, the [online providers] can afford to provide unlimited uncharged time."

(Actually, few online providers in Canada offer unlimited usage. Netcom Canada Inc. does sell an all-you-can-surf package for about $26 a month with unlimited online time, but, according to president Ron Close, a client who leaves the connection idle for hours can be disconnected, according to terms of the service agreement. "People do find a water level of how to fit the Internet into their lifestyle," Close says. "There are limits on 'all you can eat on the Internet' in practice.")

While metered local service does not yet exist for residential phonelines in Canada, a comparison between metered and unmetered cellular service is instructive. A Bell Mobility spokesperson, for example, notes that free weekend use of the Liberti consumer cellphone service is up 30% to 40% over this time last year, when it was also free. Evening usage last year cost 65¢ per minute; now it is free, a price reduction that "has pretty much doubled the evening usage although the calls haven't gotten significantly longer." This suggests that people will make more calls when they know they don't have to pay directly per call, though they won't necessarily talk for long.

This psychology makes sense to Bill Buxton, chief scientist at Alias/Wavefront Inc. in Toronto. "Let's put it this way. If you had a payphone in your house and the phone was there for free, so there was no monthly rate, but you had to pay a quarter or even a dime every time you used it, your use of the phone would change"-- both in frequency of use and when you use it. "That's true even though it's likely that in many cases, even paying a quarter, your phone bill would be less." Your behaviour would still alter, Buxton suspects, even if you had an unlimited supply of change on hand.

Even the Australian model of fixed per-call charges "affects behaviour dramatically. I know that because when I'm in hotel rooms where they have a fixed charge of 50¢ or a dollar for a local call, I will go out of the hotel and make the call with my charge card... just because it offends me so much that they're charging me that extra buck for a call."

Buxton warns against "the electronic gentrification of the net": "I'm not averse to the phone company making money. I will just suggest they will make more money by having people get more lines" than by nickel-and-diming customers for local calls. "If you think of the Internet not as a technology but a community... that community is going to be disenfranchised if they change the tariffing structure, and it will be economic barriers that determine who's there and who's not. And that's in nobody's interest."

[See also: A relevant mailing-list article.]