Re: Up to all the time
Whilst your proposal has gone certain merits, there is a couple of flaws.
First you state that if the maximum you use at 16Mb is 5Tb so if you only transfer 1Tb you should only pay 20% of your "current price". This is not going to happen. Your current price is likely calculated on an average monthly usage on the order of 50-100Gb (maybe you use more, maybe your neighbours use less, average). So this model would therefore first require you to increase your current monthly fee 100 fold (in peering and back haul infrastructure costs) and then you could reduce in proportion to your usage.
Second, the main issue with charging based on actual speeds is that the cost to the ISP doesn't really change based on what speed you get - the cost to actually peer 1Mb of data is a tiny fraction of the costs of providing your connection. There are two primary expenses - back haul connectivity and the cost of your line (in installation and maintenance).
Backhaul has high lead times to change so it's aggregated and estimated - before you order your line I have no idea what speed you'll get so I'll order a connection to your exchange based on a couple of guesses - first I guess how many lines I might get and then what the average speed of those lines is and buy the appropriate amount of fibre bandwidth, then I average the cost among all my lines. Calculating it on a per user basis is impractical since it's likely my guess doesn't always match with reality - the number of lines I have and their speeds will vary far faster than any changes I can make to the amount of back haul I have.
So unless you want to see your bill vary on a month by month (made up numbers: our back haul bill is £3,000,000 this month, we've gained 217 new lines, lost 113, your line sync speed averaged 9.8Mb compared to 9.5Mb to last month, every other line we have also changed slightly and therefore your share of the back haul cost has gone from 0.00023132% to 0.00023284%) a certain amount of averaging has to take place.
The second cost is that of your line. Your line is a length of copper and copper has value therefore there is a greater opportunity cost to Openreach to provide a long line (that will have lower speeds) than it does to provide a short line.
In addition longer lines are more prone to faults - there's more line that might go wrong, they're more prone to interference since there's more of them to pick up other signals, the signal is weaker so noise issues that could be ignored on a short line can become crippling. All of this means that a long line actually costs an ISP/Openreach more to provide - you're more likely to require technical support, you're more likely to require engineering work, etc. At present this cost is averaged - the long line pays proportionally less for their line (compared to the cost to Openreach) and more for their speed, the short line pays more their line and less for their speed.
So whilst charging you less if your line can only achieve a slower speed makes sense, it also makes sense to charge you more if you have a long phone line - just like what happens with the specifically installed not "budget residential" connections such as leased lines or ethernet connections.
Fundamentally ADSL is a stopgap technology - it was designed to deliver better speeds than dialup, which it does, but more importantly it was designed to do this cheaply. And consequentially it's a cheap and nasty solution.
As long as the average consumer in this country is obsessed with getting the cheapest possible service (and they are - the number of businesses that spend less than I do to be able to read my e-mail when I'm roaming around for their "business critical, I will lose tens of thousands of pounds for every hour that it's down" internet connections is depressing) then we are going to continue to receive a flawed and limited technology.
Pushing ISPs to cut costs further is not going to deliver you a better service - it's just going to result in greater contention, overloaded networks, and slower response time on fixing faults. You'll get a a pathetic connection but oh, look, you only have to pay half as much each month so it must be so much better.