NEWS RELEASE, 5/20/99 Internet congestion caused by flat-rate pricing and waste, UC Berkeley researchers find

By Kathleen Scalise, Public Affairs

BERKELEY--Much Internet congestion can be chalked up to flat-rate pricing and consumer waste, according to a new study from the University of California, Berkeley. Researchers found that by charging subscribers as little as a few extra pennies per megabyte of information moved across the Internet, network traffic dropped 35 percent. The scholars say this charge translates into about $3 per month for the average user they studied. "The current way Internet service providers are doing business is not good," said Pravin Varaiya, a UC Berkeley professor of electrical engineering and computer sciences. "People waste enormous amounts of service. All of this waste goes away if you have even a tiny charge. . . . The flat-rate scheme distorted the whole Internet service provider situation in the United States." Varaiya said average use rates for America Online, for instance, climbed from six to 22 hours when access charges were dropped in favor of a single monthly fee. The UC Berkeley researchers have been engaged in a year-long test to see how pricing affects consumption of various Internet services. They invented a system that would work somewhat like a toll road. When customers hop on the Internet, they can choose to pay a few cents more and cruise into a high-speed fast lane. Or, they can avoid the extra charge and content themselves with slow downloads and file transfers. "Lots of people have speculated about willingness to pay for bandwidth," said Hal Varian, a UC Berkeley professor of information management and economics, "but we've got the hard numbers." First results from their "Internet Demand Experiment," or INDEX, are in and presented in their report, "Providing Internet Access: What We Learn from INDEX," available on the web at http://www.index.berkeley.edu/reports/99-010W. "Money is a great motivator," said electrical engineering and computer sciences graduate student Richard Edell. "We wondered how users of the Internet would behave if they were paying for exactly what they were doing." Over the last year, the researchers evaluated about 70 customers in a variety of Internet experiments. Software designed by Edell made it possible for these customers to change Internet speed at the click of a mouse, while an accounting system kept track of additional charges assessed for different levels of service. The customers, all affiliated with the UC Berkeley campus, "were given variable qualities of service - from terrible to good - and they could choose what they wanted," said Varaiya. "But they had to pay for what they picked." The researchers, who already have extensive data, measured the value a customer placed on a particular service quality by the time and money spent consuming it. Further analysis and data collection will continue this summer. "We can measure not only how much people value different access speeds," said Varian, "but also how much they value the quantity of bytes transferred and even how much they are willing to pay to avoid the ticking meter." Preliminary results show not only that flat-rate pricing wastes resources and Internet capacity - contributing to congestion - but also that it forces light users to subsidize heavy users and hinders deployment of technology improvements. For instance, when users were offered high-speed 128-kilobyte-per-second Internet service at a flat rate, customers transferred about 58 megabytes of information per week. With an additional charge of only .1 to 6.6 cents per megabyte, usage plummeted to 38 megabytes per week, a drop of 20 megabytes or nearly 35 percent. This shows, said Edell, that customers were willing to change their behavior significantly to avoid adding only a few dollars a month to their bills. When customers were charged small additional fees by the minute rather than the megabyte, they transferred even less information, only about 29 megabytes per week, or about half of what they moved across the Internet under flat rates. The UC Berkeley researchers contend that even such tiny charges encourage customers to pay more attention to what they download and to avoid waste, leaving the Internet a better place all around. To do these experiments, Edell designed software that allows customers to select or change Internet speed at any time. The software signals the network to respond accordingly and keeps track of billing charges. The billing system is intricate, Varaiya said. Customers can see itemized bills on-line at any time and a spending meter ticks away on the screen as users surf and download information. The Berkeley researchers think this type of billing system could be a way to fund Internet growth and improvements. "When usage means revenue, then service providers will eagerly welcome traffic and quality will be improved a great deal," Edell said. INDEX collaborators from UC Berkeley are Edell; Varaiya; Varian; postdoctoral researcher Jörn Altmann and graduate student Karyen Chu, both of the School of Information Management & Systems; Walter Beckert, a graduate student in economics; and Jun Shu, a graduate student in industrial engineering and operations research. Also participating is Björn Rupp, an economics graduate student at Humboldt University of Berlin.