Until recently, nearly all users faced the same pricing structure for Internet usage. A fixed-bandwidth connection was charged an annual fee, which allowed for unlimited usage up to the physical maximum flow rate (bandwidth). We call this ``connection pricing''. Most connection fees were paid by organizations (universities, government agencies, etc.) and the users paid nothing themselves.
Simple connection pricing still dominates the market, but a number of variants have emerged. The most notable is ``committed information rate'' pricing. In this scheme, an organization is charged a two-part fee. One fee is based on the bandwidth of the connection, which is the maximum feasible flow rate; the second fee is based on the maximum guaranteed flow to the customer. The network provider installs sufficient capacity to simultaneously transport the committed rate for all of its customers, and installs flow regulators on each connection. When some customers operate below that rate, the excess network capacity is available on a first-come, first-served basis for the other customers. This type of pricing is more common in private networks than in the Internet because a TCP/IP flow rate can be guaranteed only network by network, greatly limiting its value unless a large number of the 20,000 Internet networks coordinate on offering this type of guarantee.
Networks that offer committed information pricing generally have enough capacity to meet the entire guaranteed bandwidth. This is a bit like a bank holding 100% reserves in case all depositors want to withdraw on the same day. However, full provisioning is necessary with existing TCP/IP network technology since there is no commonly used way to prioritize packets, and because the statistical fluctuations in traffic are huge.
For most usage, the marginal packet placed on the Internet is priced at zero. At the outer fringes there are a few exceptions. For example, several private networks (such as Compuserve) provide email connections to the Internet. Several of these charge per message above a low threshold. The public networks in Chile [Baeza-Yates et al. 1993] and New Zealand [Brownlee1994] charge their customers by the packet for all international traffic. An economic study of the New Zealand system can be found in [Carter and Guthrie1994].