Year in review 2011: Usage Based Billing (UBB) will punish all broadband users

The news: Claiming that heavy use of a broadband line by what are sometimes referred to as "bandwidth hogs," U.S. service providers including AT&T (NYSE: T) and Frontier (NYSE: FTR) put in place usage based billing (UBB) rules that would give users a set amount of bandwidth that they could consume in a given month.

In a typical UBB plan, any broadband users that go over that set limit would be given various warnings and charged extra for going over their allocated amount.

Undeterred by the outrage that reared when it initially conducted a UBB-like trial in both Beaumont, Texas and Reno, Nv. in 2008, AT&T decided last May to go ahead with its UBB plans. Under AT&T's plan, existing DSL service customers will get a 150 GB allowance, while U-verse subscribers have a 250 GB cap on services.

The telco was quick to argue that only two percent of its user base, which it says use "a disproportionate amount of bandwidth" will be affected. Any subscriber that exceeds the new usage cap three times over the life of their account will be charged $10 for every 50GB over the 150 GB or 250GB limit.

Besides AT&T and Frontier, CenturyLink (NYSE: CTL) has been the latest wireline telco to propose a UBB plan. Beginning in February, it will implement a 150 GB cap on users with connections of 1.5 Mbps or lower and a 250 GB cap on users who have a 2 Mbps connection and above.

But UBB is not just a U.S. phenomenon. In Canada, the Canadian Radio and Telecommunications Commission (CRTC) initially allowed Bell Canada (NYSE: BCE) to implement a UBB plan on competitive service providers that rent their copper facilities to deliver service to consumers.

Facing similar outcry from Canadian consumer groups and political leaders Prime Minister Steven Harper and Industry Minister Tony Clement, the CRTC modified its stance. Taking what it called a "middle course," competitive providers like Tek Savvy will have to put up money via a "capacity-based billing model" in which they explain in advance how much data they will retail. The other option is that they will pay a flat monthly fee, "regardless of usage."

Notably absent from the UBB mix was Verizon (NYSE: VZ), which has maintained that it if a user violates its Terms of Use agreement it will inform them of the violation. Similarly, competitive provider, which has ambitious plans to bring Fiber to the Home (FTTH) services right in San Francisco, putting it in competition with AT&T and Comcast (Nasdaq: CMCSA), has indicated no plans for a UBB model.

A number of analysts believe that the UBB idea is somewhat flawed. Diffraction Analysis in its "Do Data Caps Punish the Wrong Users? A Bandwidth Usage Reality Check" report, argued that service providers implementing caps don't have a clear view of how bandwidth consumption really plays out.

"Our thesis was that most of these strategies are implemented without an accurate understanding of the customers' real time usage patterns, and as a result such strategies are neither accurate in targeting disruptive users, if they exist, nor fair to users who may consume a lot of data overall but not in a disruptive way," wrote co-author Benoit Felten. "Further, our analysis aimed at assessing whether a very small number of users could indeed be considered to degrade quality for all other users."

Why it's significant?: Even if most users don't even come close to violating their usage limits, the implementation of UBB will make them frustrated that their service provider is dictating to them how to use their respective Internet connection.

Year in review 2011: Usage Based Billing (UBB) will punish all broadband users