Token Offer Could Prove Hit for Broadband Subscribers

By | April 1, 2012 | Telecom

Satellite broadband has always suffered from greater bandwidth limitations than terrestrial alternatives. Even with the new generation of satellites, such as ViaSat’s ViaSat-1 and Hughes Network System’s Jupiter, this remains an issue. These satellites will offer speeds that rival or surpass terrestrial DSL service, but DSL service does not currently operate under bandwidth caps. On the face of it, this seems like a very black and white difference. I recently had a discussion with Hughes that put this in a very different light.

Although we all want unlimited service we often don’t get it. Wireless devices generally have caps and even cable companies have toyed with the idea. Given the reality of limited resources, what subscribers really want (according to Hughes) is to not hit their bandwidth cap. Another way to look at it is that this is a game of perception as much as reality. Satellite broadband subscribers are satisfied when service is uninterrupted and unhappy when they hit a bandwidth limit.

All of this is obvious, one might say, but a difference that makes no difference, is no difference. However, this concept makes a tremendous difference because satellite broadband, like all communications networks, is oversubscribed. Networks are not designed to accommodate all possible users at the same time; this would involve a tremendous waste of resources because any given user is only active part of the time. In a purely commercial sense, if you can pack more users on a transponder then you make more money. On the other hand, if the user experience degrades too far, churn increases and you start to lose money. The goal then is to maximize the number of happy subscribers, not leaving bandwidth on the table but also not upsetting your users. Hughes has now implemented two new policies that attempt to hit this “sweet spot.”

Hughes has always given its subscribers a free token each month that allows them to reset their bandwidth limit when it is exceeded (additional tokens can also be purchased). In fact, this is in many ways an accounting gimmick — Hughes plans on the basis of this reset, and all of their pricing and resource allocation is based on the assumption that a certain number of subscribers will exceed their limits and use the token. From the subscriber’s point of view, however, it is a “get out of jail free” card. The token offers a way to immediately avoid the annoyance of having your connection speed throttled back.

Hughes now lets subscribers “bank” this token if it goes unused. Users can save up to three tokens this way and while it does not, in fact, increase their total available bandwidth, it does give them a greater ability to choose when to use that bandwidth.

The second innovation is the “download bank.” Previously, users had a daily bandwidth cap on a use it or lose it basis. Now they are allowed to bank two days worth of capacity. When added to the current days bandwidth cap this can allow the use of three days capacity on a single day. Again, because this is largely a matter of shuffling usage around it does not call for a vastly increased network capacity.

By allowing short-term bursts of usage Hughes is making more intelligent use of their limited bandwidth. I was told that Hughes watched the number of subscribers who bumped up against their bandwidth caps at the same time they watched overall network bandwidth usage and determined that a three-day bank kept most people from hitting their limits. In time Hughes will continue to watch these metrics and adjust their policies accordingly, but to me the real insight is to manage the number of subscribers hitting bandwidth caps by making the limits more elastic. I cannot speak for how well these innovations will work, but I find the idea of managing subscriber frustration (by avoiding actually slowing service) brilliant. In a resource constrained environment like satellite broadband, it is impossible to simply throw bandwidth at capacity issues. Subtlety is far more likely to give the best possible user experience.

Max Engel is an experienced satellite industry and telecom industry analyst and founder of The North Star Consultancy. He can be reached at maxnorthstar@gmail.com.

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