Montana-based broadband provider Mid-Rivers Communications has taken a contrarian approach to broadband pricing, adopting a usage-based rather than a speed-tier approach. The change to usage-based broadband has increased customer satisfaction and take rates – and while margins initially dropped, profitability was back to its previous level within six months, said Michael Candelaria, Mid-Rivers general manager and CEO, in an interview.
Critical to Mid-Rivers’ success was the decision to let all customers have the fastest available broadband speed.
“People have been paying for utilities by usage for some time,” he commented. Customers don’t tally up how much electricity they use and then order a 30-kilowatt plan and they don’t count how many showers they take to determine what kind of water plan they need, noted Candelaria.
“Why should the internet be any different?” he asked. “Everybody should have good internet. It doesn’t matter if you’re rich, poor, you should be able to afford fast internet.”
Usage-based Broadband
Previously, when new customers would call Mid-Rivers, salespeople would ask about the number of people or devices in the home in an attempt to recommend the best plan for the customer.
Nevertheless, customers often would say “We just need internet. What’s the cheapest plan?” and would order the cheapest service, which offered a speed of 1.5 Mbps and cost $40 a month.
At speeds in the 1-3 Mbps range, customers were experiencing “pain points” such as buffering and “were beating us up on social media,” Candelaria recalled. Broadband take rates were flat or declining, depending on the market.
Delving into the data, the people at Mid-Rivers noted that fewer than 20% of customers were responsible for more than 90% of network traffic – a data point that helped drive the decision to move to usage-based broadband pricing of $19.95 a month plus 20 cents per gigabyte used, with all customers getting the maximum data rate possible. Some customers are getting speeds as high as a gigabit per second, Candelaria said.
Included in the base price is a Wi-Fi router provided and managed by Mid-Rivers — a decision made because the company had found that the poor quality of some customer routers also was contributing to problems. Mid-Rivers provides an app and a web portal that customers can use to check their data usage.
Today, “the majority of customers use less than 100 gigabytes a month and their bill is less than $40,” observed Candelaria. Social media commentary experienced a major shift as customers were increasingly satisfied, and customer take-rates began to increase.
Surprisingly, even heavy users of broadband stayed with Mid-Rivers. Those users tend to be streamers and gamers who appreciate getting the fastest possible service, said Candelaria.
Mid-Rivers operates as a competitive local exchange carrier (CLEC) in four markets, using DOCSIS 3.0 for broadband. Initially the company tested usage-based pricing as an option in one CLEC market. But considering that 80% of customers opted for usage-based pricing within one year of its introduction, Mid-Rivers moved completely to usage-based pricing and launched it throughout all four CLEC markets.
The company also has been deploying fiber-to-the-premises in its ILEC territory and recently switched to usage-based pricing in that territory as well.
Business Customer Response
Mid-Rivers has been particularly proud of the response it has received from local businesses. Candelaria noted that local hotels have seen occupancy drop after the area experienced an oil-related boom, followed by a bust. Nearly-empty hotels were paying $500 to $1,000 a month for high-bandwidth connections from competitors but only using a fraction of the capacity. The Mid-Rivers usage-based broadband offering was perfect for them.
During certain months, the hotels’ bills are dramatically lower than they were before.
“When the hotel is full, their bill goes up and they know why,” Candelaria said.
Meanwhile, as businesses that were not Mid-Rivers customers heard about the usage-based offering, “they came to us” after “we beat on their door for 20 years,” he noted.
This is just wrong in every single way. More and more people are using streaming services like Netflix. If you have a family of four, or you stream 4k content, it's easy to use 1TB in a month. In this example, your bill would be $219.99. If your ISP was Google, you could get the same thing for $70. Mid-Rivers know that they are doing the wrong thing. The FCC should not allow this kind of thing to happen.
I wonder if there is a monthly fee cap, that the monthly fee won't go above regardless of usage. That would seem fair.
When you say "wrong" do you mean immoral or that it's a poor business model because no one will pay that price?
If the latter, won't the market signal that to MidRivers and they'll change their pricing? If the former, I think it's hard to make an argument that not being able to stream 1TB of Netflix per month is a necessity of life and therefor the government needs to regulate. I realize some people really like watching TV, but at the end of the day it's entertainment that we all survived without ten years ago.
Who do you think has to pay for the cost of the bandwidth used to downstream the content that will reach 1TB? What do you feel your internet connection is worth being able to use 1TB? Are the economies of scale the same for Google as it is for Mid-Rivers?
This makes sense. The customer using 1 TB per month should pay more than the customer using 100 GB per month, since they are using more bandwidth. The more bandwidth used, the more the provider needs to buy and the more costly their infrastructure. Add to that the fact that customers are cutting the video cord, so they are losing revenue from video business. They probably don't care that much, because that's not profitable business for them because of the high costs of programming. But, that person who is no longer buying their video package suddenly starts streaming TV and HD movies every night over the broadband connection. And, as people move to 4K, the operators costs will go up significantly, too. I would think that they will have a limit on how much they charge someone, but I don't know for sure. Rick Yuzzi – http://www.ZCorum.com.
$0.20/gig is a rip-off. For people who hardly use the internet, that might look like a good deal. But those people are simply bad at math. Mid-River has turned the cheapest/slowest $40 plan into a potential $120 customer. I understand it's a complex situation. Your customers are ignorant of their actual needs, but if you think 1.5Mbps is an acceptable speed for "just internet", you are the fool. Even 10Mbps is too slow for today's common tasks.
The most important question is "who's certifying your traffic meters?" The ISP industry has a nearly zero confidence track record for getting this right.
Everything you buy is metered. Your electric, your gas for your house and car. Your long distance for years was metered. Most people are used to controlling their cost by adjusting their consumption. Why should internet be any different?
Because you don't want to pay for what you use?
The ISP continually has to buy more and more bandwidth without raising its cost to the end user. The old days of over subscription are gone. With Streaming Video, bandwidth is being used more now than ever and the internet was not designed for that kind of a load.
Why shouldn't the ISP be able to offer lower bandwidth users a lower cost and have those that are using a lot of bandwidth for streaming or gaming pay their fair share?
Maybe the cost should be tiered. Say $0.20 for the first 100 gig's and $0.15 for the next 400 gigs and then $0.10 a gig up to a 1TB and then maybe something less after that, the ISP has to be able to get its money back.
Everyone wants more for less, what else in your life do you get more of for less money?
The FCC should and would support this, as opposed to some saying they don't like it because they are consuming all of the bandwidth in the network and they don't want to pay for it. Fair is Fair.
TechJim,
Google has subsidized their business and don't have to make any money as an ISP and that is why they are slowly getting out of the FTTP / ISP business. Their model does not stand on its own, so you are trying to compare apples and oranges.
This is a good, albiet a misleading, article about Mid-Rivers and it's general manager Candelaria. The information contained within it is mostly true, but the facts have unfortunately taken some time travel to conform to the current offering from Mid-Rivers.
"The change to usage-based broadband has increased customer satisfaction and take rates"
This is a nice sentiment, but not entirely true. The reason for the 'take rates' is that if you attempt to change or upgrade service, you are forced onto the usage-based service. There is no choice, so the take rates are very misleading. Customer satisfaction would increase for those that don't use the service as of now. However, with more and more of the world going to internet, those customers will feel the squeeze soon enough.
"At speeds in the 1-3 Mbps range, customers were experiencing “pain points” such as buffering and “were beating us up on social media,” Candelaria recalled."
This is where Candelaria time traveled a bit on his answer. Two things to note on this one. Before the usage-based internet, the tiers Mid-Rivers used were 8M, 12M, and up to 50M. There has not been a 1.5Mbps speed at Mid-Rivers for YEARS. And multiple households could run just fine on the 8M connection, including a family of four with two gaming and two using netflix.
As for the beating up on social media, Mid-Rivers must approve any comments made on their facebook page, so 90% of the complains are never seen unless Mid-Rivers has a full (even if not accurate) response ready to post along with it.
"Social media commentary experienced a major shift as customers were increasingly satisfied, and customer take-rates began to increase."
Again, Mid-Rivers controls their social media very closely, no dissatisfied customers would know of others because of the control. Their facebook page used to show all comments when posted, but that changed once they got a better understanding of how to control the flow of comments.
Mid-Rivers usage based is not being followed by much more well liked companies, some of them within 40 miles. To give an idea:
RTC – Reservation Telephone Cooperative
100Mx100M UNLIMITED DATA $55/month
Midco — Midcontinent Communications
75Mx5MUNLIMITED DATA$56/month
25Mx3MUNLIMITED DATA$42/month
Nemont
10/10UNLIMITED DATA$71/month
"People have been paying for utilities by usage for some time"
This is an argument that has become rediculous. ISP's don't pay for each GB that's used, they pay for a pipe of total bandwidth. As long as your users don't go above that, the cost of how much each user does is negligible. So unless all your high users actually do all the traffic AT ONCE, you really aren't affected.
If you'd like to see some unfiltered comments about Mid-Rivers, then I suggest you check out http://milescity.com/forums/posts/view/372225/1 that has comments from real Mid-Rivers users, not just the ones they allowed to speak publically.
Yours Truly,
Dane Corey
While a novel idea, Mid-Rivers had priced the service way out of proportion of typical traffic costs. I recognize Mid-Rivers is a small Montana-based co-op and their broadband service pricing across the board is much higher than what one would find with a larger provider, but they have insured themselves by setting traffic pricing high enough to protect their revenue stream.
We've fought data caps and phony usage based pricing for several years that includes arbitrary allowances and slaps punitive overlimit fees on customers that exceed them. Mid-Rivers is closer to an honest usage-based pricing system, but bandwidth pricing is not a function of data usage alone. ISPs contract with providers for peak usage bandwidth adequate to meet their customers' needs. Off-peak, the traffic costs next to nothing. By putting everyone on a max-speed tier, peak usage demands could increase substantially because customers can do more with faster speeds. This, in turn, could force Mid-Rivers to increase upstream connectivity to meet that new demand. But then that increased capacity also goes unused and effectively costs next to nothing to use off peak.
Please don't make analogies with electric, gas, and water service. These resources must be generated or purchased at a cost that reflects generation, drilling, transport, etc. The closest analogy here would be to telephone service and prices to transport calls or data over that network have plummeted to a level where flat rate long distance calling is now a reality for most people. Data networks have a sunk cost for infrastructure, but transporting that data across those networks happens at a minuscule cost that is falling all the time.
Mid-Rivers is counting on that 20c/GB to make sure their ARPU numbers don't crater as a result of this. Most ISPs pay pennies per gigabyte of traffic. A Time Warner Cable executive in an internal memo called traffic charges "a rounding error" in the scheme of things. Bandwidth is plentiful and cheap. It's more important that they have adequate peak use bandwidth. While that 20c does not sound expensive, it actually is if you use streaming video services. If you consumed 500GB a month, which is becoming more common, this equals $100.00 in traffic charges, which is quite a lot.
The problem with this plan is that it is compulsory and consumers in these areas are not given any other options. This is clearly done to protect revenue because Mid-Rivers is counting on those heavier use customers to subsidize lighter users that will pay less under this plan than under their earlier plans.
Phillip Dampier
Stopthecap.com
So, if you use 0b/month, you bill is $0.00, but if you are "cutting the cord" and use 500GB, your bill is $100.00 "which is quite a lot"… Either billing strategy is wrong or right to various customers, depending what is the fastest and cheapest internet they can acquire.
I wonder if there is a monthly fee cap, that the monthly fee won't go above regardless of usage. That would seem fair.