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Bandwidth Prices

4K views 26 replies 10 participants last post by  CenturyBreak 
#1 ·
Many ISPs are struggling with this question - how much should bandwidth cost? We see a variety of opinions of how much ISPs should charge customers for bandwidth overages. Some people think that a gigabyte of data transfer should cost less than a penny, some people (notably ISPs) have quoted prices as high as $1-$2 per gigabyte.

Here is what I think is a reasonable price level. Take what the "cloud" bandwidth providers (e.g. Amazon) are charging, and use that as a standard. For example, I back up data to a Amazon Glacier account. Here are the bandwidth (and storage) prices: http://aws.amazon.com/s3/pricing/


So, if you scroll down to data transfer pricing you'll see the cost is $0.12 (USD) per GB for the first 10TB. The next 40TB cost $0.09 per GB, etc.

What if a ISP offered these Amazon-level bandwidth prices where you only pay for what you use with a very low connection fee (say, $5-$10/month), would that be competitive and/or reasonable?

Discuss.
 
#4 ·
The value of a GB depends where you are. You're trying to compare a vast residential network to a high-volume purpose-built data center that has a simple connection to a peering center. You quoted the U.S. data center price. The South American data center price is $0.25/GB for the same GB.
 
#5 ·
Sure, but Amazon has a healthy markup in those bandwidth prices, and they only charge for data sent (not received), where ISPs typically charge for both data sent and received.

Additionally, I'm accounting for the difference by suggesting that ISPs like Bell or Telus could have a "connection fee", something which is not charged by cloud providers. The cost of "servicing the line", which is totally separate from the price of bandwidth.

Anyway, I'm merely suggesting that Amazon prices would be a pretty good rate to use when one wants to determine the price of a gigabyte. ISPs have a much lower cost-per-gigabyte of data transfer than companies like Amazon. I'm merely looking for a good example of the free market actually setting a price for bandwidth. By free market I mean a situation where there is actually market competition, not a monopoly or duopoly.
 
#6 ·
Well, Shaw's broadband 250 costs $150/mo, and comes with 1TB of data per month, which, assuming there's no overhead or markup comes to $.15/GB. I can't see how they could justify charging more than this per GB.
In fact, if Shaw were implementing their "bump up" plan, where if you go over your data cap, you automatically go to the next higher speed tier, then the difference between broadband 100 and broadband 250 is $40, and gives you an extra 500GB, which comes out to $.08/GB.
 
#7 ·
The problem with typical ISP plans as they are today is that you have a base amount of bandwidth that you're buying, irrespective of whether you use it or not, you're charged for the bandwidth.

For example, I get 400GB with Telus whether I use it or not. I think a price plan that is highly variable based on your data use makes sense from a economic perspective. Now, it may not be politically palatable for one reason or another, but I'd have no problem paying per gigabyte assuming the rates were reasonable.

If you need to pre-buy bandwidth blocks like you effectively do today, I'd expect that the bandwidth would be considerably cheaper than the Amazon rates. Especially when you consider that the bandwidth "expires" at the end of the month even if it's unused.
 
#8 ·
So what do ISPs get to charge for the substantial infrastructure they have to build out and upgrade in order to provide that bandwidth? Amazon doesn't have to run hundreds of thousands of kilometers of cable. They don't have to staff dozens of retail outlets. They don't have to roll out a truck whenever something goes wrong. The pricing model doesn't fit because the services don't match.
 
#10 ·
...with carriage fees being most likely the bulk of the $40.
The total cost for carriage fees is probably about $6-$7/month depending on which version of Basic you use and how much sports broadcasting costs have increased in the last 5 years. Remember, providers don't pay for Canadian or U.S. OTA stations. I think the cost of mandatory channels in a "pure" basic package would be under $2.
 
#11 ·
TorontoColin said:
So what do ISPs get to charge for the substantial infrastructure they have to build out and upgrade in order to provide that bandwidth?
Once the infrastructure is built-out, the maintenance on said infrastructure is comparatively tiny. And with new tech like fiber, infrastructure build out to new areas is much cheaper than with copper. So, a monthly fee of $5-$10/month should cover that.

Remember, much of the infrastructure that is in use today for Internet services is the same infrastructure that was deployed decades ago. It's not a recurring cost.

TorontoColin said:
They don't have to staff dozens of retail outlets.
Neither does Shaw, Telus does the retail outlet thing because it apparently helps with sales, but I believe most of those outlets are independent companies that work on commission, and I think mobile / cell phones are their primary revenue stream.

TorontoColin said:
The pricing model doesn't fit because the services don't match.
I think looking at the market price of bandwidth is useful, as well as comparing the ISPs the other parts of the world where there is more competition or less competition.
 
#12 ·
Once the infrastructure is built-out, the maintenance on said infrastructure is comparatively tiny.
The capital cost still has to be amortized.

It's not a recurring cost.
They still have to periodically replace the plant, especially if new tech comes along. Years ago, they were coax all the way. Now fibre is getting closer to the customers. Next big change will be fibre all the way. In the 15 or so years I've had a cable modem, the technology has changed twice. First I had some proprietary modem, then DOCSIS 1 and now DOCSIS 3. The head end gear has to be updated as well Routers etc. also have to be updated as load increases. The faster the tech changes the faster it has to be amortized. Years ago, telecom gear was amortized over decades. Now it's a few years.
 
#14 ·
^^^^
Not any more. See my previous note. Telecom is changing quickly which means gear has to be replaced (amortized) sooner. In 15 years, I've had 3 different types of cable modem. Each required a change in the head end as well. As I mentioned, there has also been significant changes in the cable plant, with more to come. Back when I first got a cable modem, I had 10/1 service, IIRC. Back then most LANs were still 10 Mb/s. There have been many other changes since then, which often require replacing equipment.
 
#15 ·
The majority of the costs for cable is actually running the coax underground. That is something that isn't done very often. Changing a modem or changing equipment at a head end is relatively cheap.

Sure, migrating from copper to fiber is going to cost some money, but after running fiber to a house, the house is good (bandwidth wise) for the next many decades, I'm sure. The fiber "cable" running to my house has 4 fiber strands in there, each strand capable of multi-gigabit up/down speeds. The bandwidth needs will be served for a long time with that cable.

So, we're talking about amortization periods of decades, not months, not years. So, even if it cost the company $1000 per house to connect fiber to it, I'm sure that investment will pay dividends for ~30 years.

So, let's not pretend that infrastructure justifies, say, a $20/month fixed fee. Especially when it allows them to sell bandwidth and services at a good profit margin.

And the cost estimates to connect someone up with Google Fiber is $464 for Internet-only, and $794 for all services which includes providing the customer with TV box, "network box", a NAS of some sort, and a Nexus tablet.

Source.

And I have every reason to believe that the cost of provisioning fiber will go down over time, especially since it's getting easier and easier to terminate fiber connections.
 
#20 ·
It is to me.



我的气垫船装满了鳝鱼

;)
Damn... where's that slow-clap emoticon when you need it? :p I'm presuming you didn't just tell me to pi$$ off!

In any case, "fiber" is incorrect in Canadian English, which is what the majority of us use here on Digital Home Canada. ;) :D

It's easy to confirm: as I type this post, "fiber" has a squiggly red line underneath it. Needless to say, I have and use a Canadian English dictionary in this browser, and any others I use: Dolphin on my tablet and occasionally Chrome on the desktop for those websites that don't play nicely with Firefox.
 
#21 ·
Some people think that a gigabyte of data transfer should cost less than a penny, some people (notably ISPs) have quoted prices as high as $1-$2 per gigabyte.
That's because ISPs do not charge based on cost. They charge a penalty based on a business model which relies TV and telephone subscriptions to keep profit margins high. The business owners figure that if you stream an HD movie, from Netflix the iStore or wherever, they are losing out on about $2/GB in revenue. They feel entitled to that income and make consumers pay a penalty. If consumers drop subscription TV and use Netflix and other internet services exclusively, the ISP owners stand to lose and average of $56/mo. In order to recover that revenue, to which they feel entitled, they force consumers to pay $30, $40 or more a month for that ability. In any other countries, where there is less concentration of ownership and less protectionism, ISPs charge half the price for much better service. The one exception may be the US which has very little real competition in many areas. Even there, Google has decided to compete in some markets by providing 1GB fibre at about half the cost of the incumbents. You only need to look at what happened between Comcast and Netflix to see what lack of competition does to the marketplace.
 
#23 ·
@Wayne: Well, we're on the Internet and the majority of the Internet uses fiber. The people who aren't on the Internet are like people who don't vote; their opinion is irrelevant. :)

ExDilbert said:
That's because ISPs do not charge based on cost. They charge a penalty based on a business model which relies TV and telephone subscriptions to keep profit margins high.
Companies that don't have to charge said penalty would always have a marketplace advantage then, assuming there is competition in the region. For example, I'd expect Google Fiber would totally crush the incumbents in every region in which it's rolled out to.

That said, a few years ago Shaw went from a scenario like the $1/GB overage fees to their current "bump up" model which is much more reasonable (and not even implemented yet, from what I understand).
 
#24 ·
Otho, Iowa (estimated population of only 529 people as of 2012) is losing its only Cable company. There might be another buyer that will save the day, but at the moment, things are still up in the air (literally, via a Satellite service).

http://www.messengernews.net/page/c...of-Otho-cable-service-uncertain.html?nav=5010

April 24, 2014

Phone and DSL Internet are still available from Frontier Communications, she said.

But the only option for TV will be satellite.

Jim Suchan, Lehigh Valley chief executive officer, said the co-op is in negotiations with a potential buyer which would provide service to Otho, but he declined to comment further. He said more information should be available within the next few weeks.

In a letter to Otho customers, Suchan said the infrastructure upgrades needed to continue serving Otho were too costly.

The company transmits its Internet and TV signal over a 100 percent fiber-optic network, Suchan wrote.

"The cost to plow fiber optics to the residents of Otho was a little over $1 million, and with only 103 TV customers and 44 Internet customers the board of directors has decided to discontinue service."
 
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