This post was originally written to coincide with the launch of our new Broadband Your Way products. Unfortunately other events took over at the time and it never quite made it out back then. The background remains useful however, and for those interested in our Broadband product strategy and the design of BBYW this will be worth reading. This blog article is the first in a series which will discuss what is changing about broadband supply over the coming years and how those changes at wholesale level will impact our customers and consumers generally.
PlusNet has received criticism during the last few years for our Broadband capacity policy. We've been accused of under spending on capacity and of using traffic shaping to cut our costs and boost profits. We have always answered this by pointing to the costs involved in providing Broadband capacity, and by detailing the wholesale costs that we incur.
Once explained in full, most people can appreciate the reasons why we've chosen not to throw money at capacity. It's been an error of omission rather than intent that during this time clear expectations weren't set and we didn't do a good enough job of showing people the reasons behind our approach. We've spent a lot of time working to rectify this and we believe we are now clearer than any other ISP about the products we provide.
At the end of last year we published our Broadband Blueprint. This explained the rationale behind our product designs and has proved to be one of the most popular documents on our website. The assumption behind our product blueprints is that demand for capacity will continue to outstrip economic Broadband supply for the foreseeable future (Even with the planned new and upgraded broadband infrastructure). We'll be explaining more about why we believe this is the case in future postings.
About the Blueprint
Our Broadband Blueprint describes how we design our products. Simply put we take the amount a customer pays us each month, remove our fixed costs, and spend what is left on network capacity. These fixed costs include Broadband line rental, our staff, buildings, and network infrastructure, as well as a profit margin for each account. The Blueprint document demonstrated the amount spent on capacity for our older accounts, and I've updated this format to provide similar information for BBYW below.
The blueprint was published in order to remove the mystery behind our capacity purchasing decisions. It's a complex document (describing a complicated subject) and we perhaps missed a more straightforward way to explain how we proportion bandwidth to each customer in line with how we pay for it - in Mbps and Kbps.
Most suppliers of ADSL Broadband use a BT Wholesale product called IPStream. Although providers often sell to customers in terms of GBs used, we are not billed based on the actual quantity of traffic transferred. Instead, think of it like buying a motorway - we are billed for the road itself rather than for each journey a customer makes. This capacity is purchased in ‘segments' normally of 155Mb/s each. The price of these segments stays the same regardless of how much is actually used by customers. The Wholesale cost (Before May 2007) of this capacity was about £210 per Mbps, which equates to 21p per Kbps (Kilobit per Second). When you consider that a single customer with a download speed of 7Mbps and without any limit could therefore cost an ISP £1500 a month (210*7), you can understand why all Broadband providers have imposed usage limits (Even when they don't admit to them!).
Of course, in reality most customers won't download at line speed for 24 hours a day. Like motorway congestion though, if too many customers download at exactly the same time, the amount of available capacity can't increase to accommodate that. The result is commonly known as contention, where available capacity is shared between a number of customers. The problem is that as speeds and usage have increased the original methods of describing and applying contention are no longer satisfactory. Without adequate control this congestion will result in a Broadband experience that is more akin to the slow speeds and high latency of a dial-up connection.
When ISPs design any broadband product they will always make a presumption about how much customers will use, and will therefore allocate a smaller amount of capacity for each customer on their network. If they didn't, no ISP would offer broadband for less than an average monthly salary! Based on the capacity budget described in our Broadband Blueprint, using the wholesale price at the time, you can deduce that Premier customers were allocated an average of 23Kbps on our network and Plus customers 5Kbps each. In March 07, we increased the designs for Premier and Plus in advance of the May price reduction (As announced here).
An online calculator to convert Kbps (speed) to file size (usage) can be found here. Simply put, 5Kbps equated to a design of 1.5GB a month, 20Kbps is 6GB a month and so on. These were the levels described as "designed usage" in the Blueprint, and this worked OK when the average demand for usage from all customers on the product was less than the allocated amount. In reality, a calculation which presumes customers will use a trickle of data over a 24 hour period isn't particularly useful in the real world, even if it does help in explaining the theory. People's real habits are of course to use their allowance when it suits them. For most, that's not the same time or amount everyday, but usage is heavily weighted towards the evenings - particularly Sunday, Monday and Tuesday. It's at these times that reductions in the available download speeds are inevitable to prevent complete network saturation and the associated poor performance of the whole connection that would result.
As average usage has increased across all of our products, the previous Kbps allocations for our products had started to hold some people back, especially during the busier evenings. Broadband Your Way was designed with a higher Kbps design in order to address this. The ‘average' usage assumption is also much closer to the advertised allowance than was the case for Premier and Plus. There are three things which have made it possible for us to provide more capacity for use by each BBYW customer:
- We've been able to reduce our profit targets for our new products, meaning we can spend more of everyone's BBYW subscription on capacity provision than we could when we had to answer directly to the stock market. This represents a change in emphasis for our business, from one that had to meet profit targets at all costs, to a company that is focussing on longer term sustainability and growth.
- Our expectations, based on indications that BT have provided to all ISPs, is that the price of wholesale Broadband bandwidth will reduce by up to 50%, based on the speed of the 21CN rollout (See notes 1 & 2 below). We are fortunate to be able to ‘forward price' BBYW on this basis (See note 3 below).
- We've changed from an 8 hour to 16 hour usage monitoring period (We no longer describe this as 'peak' time) for BBYW. This ensures our network is protected from disproportionate heavy usage for a longer period of the day and allows us to offer higher overall usage allowances as a result.
Since the takeover by BT, our focus is now firmly on sustainable growth and leading service delivery. That means we can take these longer term views of profitability for our new products. This explains why for many people BBYW will provide better value for money now, and why we wanted to make sure people could move to the new products without penalty. Our older Premier and Plus products will of course continue to track the current wholesale costs as laid out in the original Blueprint document.
So, BBYW has been designed quite deliberately with a higher Kbps average usage than the equivalent Plus or Premier products. This is shown below compared to Premier, Plus and PAYG. It's for this reason that we have made such efforts to allow people to make an informed, free, choice about the product they want to use. Customers are welcome to stay on their existing products, or can move to the new BBYW products without penalty if that suits them better.
I've used a price of 11p per Kbps over a 16 hour period for these calculations (1728000 seconds for those who want to play with the calculator linked above). This is close to the design price we have used when forward pricing BBYW. The actual price could, in reality, be above or below what I've used, and the price used in this design is potentially a lot more complex to get to than I've gone into here (There comes a point where both the commercial sensitivity and complexity of the topic outweigh our ability to explain!).
Approximate pricing calculations for BBYW:
|BBYW Option + Price||VAT + Line rental + Overheads + Margin||Network Capacity Allowance per month||Average Daily Kbps (16 hours)||Average Designed Monthly Usage|
|1 - £9.99||£9.64||35p||3.2 Kbps||0.7GB|
|2 - £14.99||£12.19||£2.80||26 Kbps||5.6GB|
|3 - £19.99||£12.84||£7.15||65 Kbps||14GB|
|4 - £29.99||£19.32||£10.67||97 Kbps||21GB|
I should be clear that the above is an indication of how the process has been performed for BBYW, rather than solid figures confirming our product design!
There are two things that probably spring out to people that see this:
1) If everyone used up to the advertised allowance, these products would become loss making and/or undeliverable.
As explained above, all ISPs make an assumption that not every customer will reach their account usage allowance every month. For BBYW, we have planned that during the lifetime of the product, about 70% of customers will reach their product design. Our projections suggest that this won't happen yet (And on Premier, average usage reaches a much lower percentage compared to the design), but we are planning for increasing usage in the future with the take-up of services like the BBC Iplayer and 4 On demand. Even with those considerations, we believe we have been conservative in our design. If people regularly exceed the account design, they will generally either upgrade or pass the advertised allowance and pay for their additional usage. That helps to redress the balance and should ensure our products remain sustainable.
You won't find another ISP so transparent about this, and I'm certain other ISPs won't like what we highlight about how the industry works. It's actually a pretty normal facet of business however - Think what would happen if everyone who bought an unlimited public transport pass for the day then spent all day riding the tubes! It's no problem if a few people do this, but with lots of people things would get pretty uncomfortable, or prices would have to increase significantly for everyone so the network could be scaled up to cope. This is the gamble all ISPs take to be able to offer products at a lower cost than would seem possible if you look at the maths alone, and it's become part of the accepted method of advertising broadband products across the industry.
2) Usage from any particular customer clearly won't be a linear 25Kbps all day. Real usage varies!
ISPs rely on the fact that the combined usage of customers at any one time will balance against the available capacity. The underlying wholesale product (IPStream), was only designed for ‘bursty' usage and the high cost of anything else enforces this assumption. That is why continuous downloading causes such an issue for any Broadband product design based on the current BT Wholesale products. This is something that will get better once 21Cn and Wholesale Broadband Connect is available, because that has been designed with video and streaming in mind. However, constant line rate downloads will still not be viable under WBC if more than a small percentage of customers want to do that.
As mentioned earlier, most people will use their connections most during the evening. It is at these times that some download applications are slowed down in order to prevent network saturation and poor performance for everyone on all applications.
‘Real life' usage patterns present a problem for any capacity planner. We've published what we can do based on ‘normal' usage patterns. On some days however the pattern changes. When a new series of Top Gear or an England football match is on the telly, for example, our network gets noticeably quieter. As such, the download speeds we can provide to non motoring / football fans should be higher than normal. On others days usage is higher than normal. We've seen during some school holidays that there is a big average usage increase during the day, although the summer holidays don't have the same impact presumably because people spend more time outdoors or holiday.
That highlights the reason why we intend to continue development of our network management to ensure a more intelligent use of the available capacity. We discussed this in more detail in the Traffic Management Roadmap and already report when we are seeing abnormal loads on our Broadband network. Dave Tomlinson, who regularily blogs on this site, is charged with ensuring the network is running in the most efficient manner.
Below I've answered a few of the questions which have been asked in the forums since the BBYW launch, and which we haven't had the time to answered in full elsewhere. We'd be happy to answer any other questions here, so please do add your comments to the bottom of the article.
The first thing the PlusNet User group said when we explained our approach with the BBYW launch was "How come you are not passing on the BT cost savings to customers on existing products?". It's an understandable question, but doesn't consider the three 155Mb/s segments which were lit in February and March as a result of the expected May 07 price decrease. We then provided a fourth segment shortly after the BBYW launch to cope with the additional customers signing up for the new product.
I don't think there is a right answer here though. It's true that we have focussed on making our new products as attractive as possible, but it's not fair to suggest we are neglecting existing customers as a result. We spent a long time debating this, and ultimately a few factors swung it in favour of launching a brand new product set rather than changing the existing ones:
It's important for people to see that Plus & Premier have not been made worse as a result of the BBYW product launch, and the May 2007 pricing had already been reflected when we lit the additional segments in March. The benefits of 2008 pricing and any new features will however in the majority go to BBYW and not Plus, Premier or PAYG customers.
We chose to launch BBYW as a separate product partly because we didn't want to make arbitrary changes that would impact some people who are happy using our current products - Especially those who make use of the shorter monitored usage period. We have been keen to ensure that at any time customers will be able to make an informed choice about whether to stay where they are (we won't be withdrawing Plus, Premier or PAYG in the next year and have no plans to do so at any time) or they can move without penalty to BBYW. We've emailed all customers about the new products to avoid some of the accusations we've had in the past about failing to keep our customers up-to-date, and will send occasional reminders in newsletters and other communications.
Customers who would like to compare network performance between Premier, Plus, PAYG and the BBYW Options can do so using the PlusNet Usergroup's comparison tool.
We have new central 622 pipes on order and have now moved to a strategy of ordering capacity ahead of demand (whilst still planning a managed capacity based on customer numbers) rather than the "Just in Time" approach operated in the past. We activated the 1st segment of our sixth 622Mbps Central Pipe on the 19th June and the next 155Mbps segment is due to be lit soon, in line with predictions for growth in our BBYW product set.
We will continue to add network capacity in line with customer number projections and the products they are using. To illustrate the point, because of the higher usage design, even if all existing customers moved to BBYW and customer numbers didn't increase we would still add more capacity to our platform.
Each BBYW product is designed based on what we predict will happen as average Broadband usage increases, and how we expect the use of certain protocols at certain times of day of the day will impact load on our network.
We believe that the conservative predictions we have made about the percentage of customers who will reach their usage allowance means that BBYW products will maintain the expected speed levels even with the predicted growth in average usage. This will come about as a result of new services like the BBC iPlayer, 4 on demand, and a multitude of feature rich and bandwidth demanding applications which we imagine will enter into mainstream usage in the coming months.
It's of course possible that we might not see the explosion in average usage we predict, and in that case we'll be able to provide faster speeds on some of the protocols that are currently speed restricted on our network at busy times. On the other hand, we can't predict the future, and if more killer apps are developed that really drive up average usage for ‘interactive' protocols, there is a chance we'd have to reduce the expected speeds for some non-interactive protocols to accommodate this. As an example, no one predicted the growth in usage that youtube.com would generate when we were launching our last generation of broadband products.
Look out for my next blog posts, in which I intend to cover:
1. This includes further IPStream price reductions due in 2008, as well as indicative pricing for the new Wholesale Broadband Connect products (which are based on the rollout of BTs new 21st Century Network). I intend to discuss 21CN and IpStream Connect pricing in more detail in a future post, but in short, WBC will be more suited to today's type of Broadband usage (i.e. Video streaming, as supposed to the current IPStream product which was designed primarily for simple web surfing and email use).
2. The decrease in cost also needs to be balanced with the increases in speed that many people will see as a result of 21CN and ADSL2+, as well as the increase in Internet usage that is occurring across the board as discussed elsewhere (Youtube for example is now using 11% of our network at peak - It wasn't even a factor a year ago). For these reasons, some type of traffic control and management will probably always remain necessary, even when more capacity is cheaper. BT has already built optional traffic prioritisation into the design of the WBC products on this basis.
If you would like to discuss any aspect of this article, please add a comment below, or come over to the forums and add to the thread.
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