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No more flatrate Internet

Interview: Chiponda Chimbelu April 24, 2013

Deutsche Telekom introduced limits for broadband Internet on May 2 for new customers in Germany. DW asks analyst Dan Bieler whether it will set a precedent for the industry.

Deutsche Telekom's logo on a building. (Photo: dpa)
Image: picture-alliance/dpa

DW: What has prompted Deutsche Telekom to make this move?

Dan Bieler: Because effectively the traffic is exploding, and it's driven by in particular multimedia, so YouTube and these kinds of applications. And it's very expensive for carriers - any carrier, not just Deutsche Telekom - to invest in the necessary network upgrades to handle all the traffic, but the potential to charge extra, so far, has been fairly limited. People are simply not prepared at this stage to pay for higher bandwidth.

So why are they shifting the costs onto the customers and not Google, Amazon, or other content providers out there?

The end user wants content that is available, or is being made available by providers like Google, or Amazon, or whatever else. And the question is, do these providers like Google or so actually have to pay for using the infrastructure, and I believe they shouldn't unless they want to ensure a certain quality of the network infrastructure. But otherwise I would say, it's up to the consumer to put value on what he or she perceives as having value because if people really feel that it's such a privilege or so important for them to watch YouTube video clips or some streaming on some provider, then they also need to be prepared to pay for it because the carriers certainly are not able, over the long term, to come up with the necessary investments to maintain the infrastructure upgrades that is required to support the traffic.

A picture shows the logo of French internet service provider Free, displayed on a tablet in Paris (Photo: LIONEL BONAVENTURE/AFP/Getty Images)
ISPs like Free in France want special deals with Google to cope with traffic explosion on the InternetImage: AFP/Getty Images

But you just mentioned that customers are not willing to pay for higher bandwidth at this point, so what needs to change for them to actually see the value in paying more to get a higher bandwidth?

It's not as if we don't see the value in it at all, but so far there was a balance where you could sort of average out the quality that you could get from any given broadband connectivity and be reasonably happy with it, but if the infrastructure is not capable to deal with the increase in traffic then we will all feel a deterioration in the quality that we get via YouTube or so, and then we have to ask ourselves, are we prepared to only pay 9.99 because it shouldn't be more, or are we prepared to pay a little bit extra to get a better quality? And we might find that there may be a compromise going forward between Deutsche Telekom or any carrier and Google or Amazon where they share the extra profits that are being made to ensure a certain quality of content. But at the same time, we could also see different models...

Doesn't this also set a precedent for other internet service providers to make this change [to their pricing models]?

It could. But at the same time, you could also argue Deutsche Telekom is taking a risk here and it might lose potential customers because they go to other providers that are not making these changes. And we have seen this, to a certain degree, happening in the States where on the mobility side, certain operators have rolled back their flat rate and certain trends amongst customer groups moving away from these providers to other cheaper providers, so it's not necessarily a situation where Deutsche Telekom is necessarily going to win this gamble.

A smartphone and a PC at the Deutsche Telekom stand at the IFA 2012. (Photo: Manfred Böhm/DW)
Dan Bieler believes that more companies will offer bundled services in the futureImage: DW

It's certainly a risk that Deutsche Telekom is taking but it is one attempt in a long line of attempts to deal with the issue of traffic explosion. And other providers like Swisscom on the mobility side have introduced speed-based pricing where you pay more if you want faster connectivity. And they bundle this particular solution with voice, with data, with messaging, to enrich the overall package. And certainly this is something where I believe the future lies - that you bundle several components and that it's not this plain vanilla pricing for just the broadband component.

What does this do for net neutrality? And for the people who can't afford to pay more and yet want to consumer the same content as other users?

I'm not a lawyer, but the issue about net neutrality is that you don't block certain content. And this is not at stake here. This is about the bandwidth that is being made available to you, not about any particular kind of content that is being bundled with connectivity, so it's a different subject here.

Instead of putting the burden of the cost on customers, France Telecom struck a deal with Google to get a share of its ad revenue and use it to improve the infrastructure. Why isn't Deutsche Telekom doing the same?

The deal that you are referring to between France Telecom Orange and Google refers to the connectivity between France Telecom and Google data centers. And it in particular has some sort of agenda that France Telecom that way provides access to new markets - to push Google content into African audiences, hence Google was prepared in this case to pay part of the way. And by the way, this deal is not the only one, other carriers don't talk about it just as much. So there are deals between carriers and Google...

I would be careful to say that this deal [by Deutsche Telekom] is a radical change in pricing overall or a break with any kind of tradition. It's an attempt much more by Deutsche Telekom to test different models of how it can charge for the necessary infrastructure upgrades, and it's far from certain whether this will work or not. I believe it will not be a roaring success. I believe that the future lies much more in bundling all sorts of value-added services with top quality connectivity, rather than just paying extra for the connectivity itself.

Dan Bieler is a principal analyst at Forrester Research. He analyzes the changing market and the emerging business models for communication service providers.