Thursday 11:25am (4th February 2010)
The Business Model of ISPs..In the iiNet court case the popular question of whether ISPs profit from large downloads (such as illegal movies, YouTube HD, etc.) was analysed,
Here's a transcript,
Lawyer: "by the same token, you are not in a position to earn more revenue by offering higher quotas unless you actually acquire more bandwidth yourself?"
iiNet: "Revenue and profit are not the same in this context."
Lawyer: "But the ideal outcome for the business, is it not, is to push people on to the highest plans, to pay more, but not use all the bandwidth that they offer?
iiNet: "From a profitability point of view, yes, that is correct."
Lawyer: "And it’s in your interests, isn’t it, to sell more and more higher quotas; isn’t it?"
iiNet: "No."
Lawyer: "That’s where your revenue comes from?"
iiNet: "Yes."
Lawyer: "It’s in your interests to sell higher quotas because you get more money, don’t you?"
iiNet: "But not more profit."
Lawyer: "Whether you get more profit depends on how much of the quota is used, isn’t it?"
iiNet: "Yes."
Lawyer: "But in a perfect world, maximising sale of quota which is not used, leads to maximum profit; correct?"
iiNet: "Yes."
The Judge analysed this as,
One key issue in these proceedings was whether, as repeatedly submitted by the applicants, it was in the respondent’s financial interests to have the iiNet users infringing and using ever larger amounts of their quota.
It is instructive to extract Mr Buckingham’s affidavit evidence on this point:
The profitability to iiNet of each individual customer is contributed to by the extent of that customer’s usage of bandwidth in relation to the plan to which that customer subscribes...
...I consider that the examples (and the financial data upon which they are based) demonstrate that the most profitable customer for iiNet is the customer who signs up for a large quota (and pays the higher subscription fee for the large quota) but does not use it.
The examples shown above also indicate the high volatility, in terms of financial performance for iiNet, of customers who subscribe to high quota plans. It is beyond the control of iiNet how much of their quota customers use. On the high quota plans, the extent of the customers’ usage of the available high quota makes a very significant difference to EBITDA to iiNet in respect of that customer. The ideal customer from iiNet’s perspective is a customer who enrols in Home 2, Home 3, Home 4 or Home 5 plan (which do not have the financial volatility of the very high quota plans) and who does not use more than the average amount of the quota available to them...Home 6 and Home 7 plan customers are not the ideal customers, despite the high subscriber fees paid by them, by reason of the potential significantly higher costs if they use the full amount of their quota.
