
What does a GB of Internet service really cost? The worst case scenario (2011) - l1feh4ck
http://blogs.howstuffworks.com/brainstuff/what-does-a-gigabyte-of-internet-service-really-cost-a-look-at-the-worst-case-scenario.htm
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thomseddon
Yeah, because the only cost in broadband delivery is the undersea fibre??

How about the core network? High capacity core routers? Firewalls?
Datacentres? Power? Optics? Engineering? Ongoing upkeep? Monitoring? Upstream
bandwidth? Interconnects? Peering LAN membership? LIR membership?

In many ways their naivety isn't too surprising, we started an ISP last year
([https://telcom.io](https://telcom.io)) and the shear scale of the
undertaking and costs baffels us everyday!

~~~
joshvm
In that case could you comment on a more realistic number? Is a dollar per gig
reasonable in any way?

~~~
mmmBacon
Dollar per giga _bit_ is the current standard way to describe cost of a fiber
optic system.

------
tankenmate
Of course the missing item in that calculation is the last mile. Netflix could
set up a cage at each landing point and the savings would be nearly 99%. And
that adequately explains why international transit is rarely the biggest cost
issue (obviously there are corner cases around the world where this is indeed
the biggest issue). The biggest part of the cost in the infrastructure
(systems, staff, maintenance) is from PoP to customer.

Having said that some ISPs (especially ones that own the infrastructure) have
a habit of increasing prices (if they can from limited competition; i.e. roll
out costs are high so not too many companies roll out to a region) and/or
leaving customers to rot on old infrastructure (in order to maximise return on
sunk cost; makes the CFO happy).

EDIT: clarification.

~~~
Dylan16807
The last mile is the vast majority of the cost, but it's not what ISPs talk
about when they try to justify price increases and refusals to peer. They talk
about the usage, even as that gets cheaper and cheaper. If we shut that
rhetoric down, and get them to be honest, we're a lot closer to reasonable
policies.

Or we go with the simple answer and split last mile and transit into different
services, but that requires government intervention.

~~~
tw04
The only way to prop up their profit margins, in their eyes, is to talk usage.
They could very easily provide everyone gigabit service, but then there would
be no up-charge for the next 5-10 years as all the services catch up.

If they switch to usage based billing, they can literally print money. They
won't need to upgrade infrastructure for the foreseeable future because the
stifling caps will keep people from fully utilizing what they pay for. Forcing
video services/games/music/etc. to not create new services that require more
bandwidth.

It's an awesome snowball effect for Comcast, and a giant middle finger to the
users.

~~~
Aleman360
We have metered electricity, water, sewage, etc. Why shouldn't we pay per
byte?

~~~
simoncion
...because the marginal cost of each byte is effectively zero?

...because the cost of running the network _doesn 't_ significantly change
whether it's idle, or at full capacity?

...because -unlike electricity, water, and sewage- we have an infinite supply
of bytes?

~~~
Aleman360
> ...because the marginal cost of each byte is effectively zero?

So is the marginal cost of each electron or H2O molecule.

> ...because the cost of running the network doesn't significantly change
> whether it's idle, or at full capacity?

You have to have extra capacity to deal with surges. Plus you probably have a
normal distribution of bandwidth among your users, with some serious outliers.
Why should they pay the same as someone who uses it less often?

> ...because -unlike electricity, water, and sewage- we have an infinite
> supply of bytes?

To start with, transferring data uses electricity, so I don't follow your
logic. And there is certainly not infinite bandwidth.

~~~
simoncion
> To start with, transferring data uses electricity, so I don't follow your
> logic.

Given that you _totally_ misunderstood my second statement, I'm not surprised
that you don't follow my logic. The difference in cost to run a wired network
with a given capacity -whether that network is being utilized at 0% or 100%-
is effectively zero.

> So is the marginal cost of each electron or H2O molecule.

Again, you misunderstood my second statement, so it's not too surprising that
you'd say this.

You have to find and expend fuel to run electron pumping equipment. The cost
of each unit of fuel is non-zero. You have to _find_ and _treat_ H2O. Most
power plant fuels, and _all_ H2O is a finite resource.

We don't have to find and refine byte caches buried deep within the Earth.
Bytes are free. And -again- a network costs the same whether it's pumping 0
bytes, or all of the bytes it can.

------
akerro
On the other side, you can look how fast, reliable and cheap is fibre line in
Romania. Free market, no regulations, no corporations, no protectionism and
good competition in that field.
[https://www.reddit.com/r/europe/comments/2ct58s/average_inte...](https://www.reddit.com/r/europe/comments/2ct58s/average_internet_speed_in_eu_by_country/cjiyt5n)

~~~
djsumdog
Same in Moldova. Ny friends there had fiber for like 130 lei a month...I
think. It wasn't the fastest fiber I've used, but it was pretty decent.

~~~
Phlarp
This entirely ignores the part where we have 1000x the landmass. Providing
internet in Moldova or Estonia is an entirely different physical prospect than
providing it to Alaska or Montana.

~~~
function_seven
But it's not different at all from providing that service in metro LA, NYC,
SF, etc. Yet the rates in many metro areas are still way way higher.

~~~
Phlarp
Yea, if you want to treat all the major metro areas as islands this is a comfy
little world view to hold against the evil cable corps, however, American
cities are still generally less dense than their Europe or Asian counterparts.

Problem is there are large swaths of the population that don't live anywhere
near these metro areas and the communities and economies they participate in
are nowhere near as dense.

Take the upper mid-west for example: Chicago, Minneapolis and Detroit are
relatively easy (cheap) to wire up, but what about all the 15,000 population
towns in between? Or the other 25% of the population that don't live in cities
at all. In these places the options are most often between traditional 56k
dialup, or satellite.

As everyone else in this thread is saying, the last mile is where the real
costs are at, and in America we suffer from both the physical reality of being
less dense and the political paralysis that allows organizations like Comcast
to flourish. Even if we did fix the political problem, physics is still a
bitch.

~~~
erpellan
What makes the cables that carry data different from power, water, phone, gas
(does America do gas-powered hobs?)

Or are you telling us that 25% of the US population doesn't have these things
either?

~~~
Phlarp
If we had the political environment (and labor laws!) of the time when those
things were laid down, sure.

------
botterworkshop
First, great article and fun thought experiment.

Second, you forgot to factor in the costs of bad management (half kidding).

\- We are an ISP, lets rebuild every major app in existence, put our name on
it, and deploy it as bloatware.

\- We are an ISP, lets acquire a bunch of content and IP so we can provide
unique content to our customers.

\- We are an ISP, lets acquire company x that has nothing to do with our core
services and infrastructure.

Bottom line: ISPs love wasting effort, resources, and time on products and
services their customers don't want, and continue neglecting their core
services that customers do want improvement on.

~~~
mdip
Too true. Every time I've had a guy out to install service I've given them one
laptop to get connected to the service. When they're done, I hook up my router
and put the laptop back in the cupboard. I've been using the same Core Duo
Acer laptop for this purpose for years.

Comcast, when I was a Cable TV subscriber offered Video On Demand. With it I
could watch about 5 episodes of up to 10 different television series complete
with commercials for free. Or I could elect to be able to watch a movie within
24-hours of purchasing for $4.00 or more.

They basically did half of what their internet based competition did for a
higher price with more limited viewing options and a $10/mo fee for the box
required to use it. So I plucked down $35 a piece for a few low-end Rokus,
purchased a Netflix subscription, used my existing Amazon Prime and eliminated
my cable TV service all together.

If there was competition in local broadband it makes you wonder if these
companies would all go belly up when you look at how terribly their products
stand up in markets where there is competition.

------
dragontamer
What about the costs of network equipment? For all of the ports? What about
the price of internet from all of the middlemen involved? If I created an ISP
today, I would need to buy bandwidth from a Tier1 provider (like Hurricane
Electric, or Verizon) and then resell said bandwidth to my customers.

The last-mile is also the most expensive part of any cable. You aren't allowed
to just tear up people's yards and run cables through them, you have to work
with the local government (or Home-owners association) to get approval. Said
approval process may cost money, etc. etc.

The most expensive, regulated, and complicated, part of network delivery is
the last mile. And that's the real reason why local monopolies like Verizon
and Comcast exist... except in the cases where Google buys out an entire
municipality's fiber line and then gets cozy with the local government.

~~~
kuschku
> You aren't allowed to just tear up people's yards and run cables through
> them,

That’s why you put PVC pipes to every house and run the cables through them –
to replace the cables you just have to tie the new one to the end of the old
one, and pull the old one out.

~~~
dragontamer
Who owns the PVC pipes? Does Verizon own them, or are they property of the
Home Owner's Association?

In either case, the private resident doesn't own stuff that literally is being
built under his front lawn. Such is local politics, and the rules and
regulations change from city-to-city, county-to-county, and from state-to-
state. And just studying the laws of one area may require a lawyer...

~~~
kuschku
They are property of the city. And the city has, by federal law, allow all
ISPs to use them. (in DE)

------
djsumdog
Centralized services are such bad models too. Imagine if YouTube came out with
a Miro type player that allowed everyone to cache videos and sever then to
others. No more waiting to buffer a video you've watched ten times. Google's
sever usage would drop.

But there is so much money to be made by restreaming that video every
time...with ads. Plus how could Google enforce deleted videos or marking then
pirate if there was a local cache.

The price of bandwidth is cheaper than telecoms are letting on, yes. But there
is so much that can be done to streamline the existing architecture as well.

~~~
pmalynin
Google has forward caches with many ISPs.

[https://peering.google.com/about/ggc.html](https://peering.google.com/about/ggc.html)

------
rayiner
So his bottom line is $50/month per customer for a constant 10 mbps. To put
that into perspective, the operating profit margin of wireline ISPs is 5-20%.
The low-end of that scale is for traditional phone/DSL/fiber. Assuming an
average subscription of ~$100/month, that bandwidth is coming out of an
operating profit of $5-20/month.

Obviously the cost of bandwidth is a lot less than $50/month. But even at
1/10th that figure, it's a big chunk of the variable expense of the service.

~~~
Dylan16807
>See why ISPs don't like Netflix?

No, because the $50 was almost entirely profit. You would have to subtract a
much smaller number.

Also bandwidth costs drop dramatically over time as we build better fiber
endpoints.

And in the real world Netflix will connect directly to your network at a cost
of $0. They'll come all the way into your datacenter for free.

Edit: Okay, you changed your post around a bit, let me respond to that.

>Obviously the cost of bandwidth is a lot less than $50/month. But even at
1/10th that figure, it's a big chunk of the variable expense of the service.

The ISPs offer different plans. There's usually a minimum plan that's
something like 1-2mbit. Just to reach the tier where you are capable of
pulling down 10mbps, you have to pay an extra chunk of money, and that covers
the cost of equipment and domestic bandwidth all by itself.

If those minimum plans are sold below cost, that's their problem, and they
should stop gouging at the high end to make up for it. If those minimum plans
are not sold below cost, then something isn't adding up.

~~~
rayiner
I'll use Verizon as an example because their numbers are easily available.
Verizon's ARPU for wireline was $125.32 per month in Q3 2014.[1] But their
operating profit margin on wireline was only 2.3%. So if you've got a
$70/month FiOS subscription, is that costing Verizon money? Probably!

What's going on? The nature of fiber deployment is that most of the cost is
getting wires out to a neighborhood. Once you're there, hooking up additional
households is relatively inexpensive. Moreover, most municipalities will not
let you just wire up the neighborhoods you want. To get permission to wire any
of them, you have to wire most or all of them. Once you've wired up a
neighborhood, it makes sense to offer lower-priced plans, because a customer
signing up even at below your average per-house cost is better than one not
signing up at all.

Now, you could fix this by not having different prices for different service
tiers. But that isn't what maximizes your revenue. And when you're working
with a single-digit operating profit margin, you need to figure out ways to
maximize your revenue. Services like FiOS wouldn't exist if it not for
"gouging" on high-margin stuff like Triple Play packages, just like airlines
wouldn't exist without "gouging" on first class seats and extra bags.

[1]
[http://www.verizon.com/about/file/3755/download?token=8QwymX...](http://www.verizon.com/about/file/3755/download?token=8QwymXvu)

------
Johnny555
Too bad this analysis has nothing to do with delivering internet access to the
home since the ISP typically just leases a few miles (or 10's of miles) of
fiber to the local internet exchange point, rarely do they lay an 8700 mile
undersea cable... and even if they do, they still need to build all of the
infrastructure to get the network to your house.

I'd be much more interested in seeing what it really costs to build an operate
an ISP with broadband service to the home (whether it's fiber or copper)

~~~
rayiner
We have some good data on how much it cost Chatanooga to build their network.
About $330 million total. For roughly 71,000 subscribers, that's $5,000 per
household.

We also have good data from Veizon's public filings. Their wireline ARPU is
$125 per month. Their EBITDA margin is 23%. Thus it costs about $96 per
subscriber to operate their network, no including capital costs or interest.

~~~
darksim905
So what you're saying is they're making at least 100% profit on us once the
buildout is paid off.

~~~
rayiner
How do you compute that? What the numbers show is that most of the revenue
goes to ongoing operation and maintenance. They have to pay for the original
build with what is left over. With respect to Verizon, analysts are skeptical
they'll ever pay off the build-out of fiber.

------
lquist
This thread might be a good place to ask: Why is enterprise bandwidth an order
of magnitude more expensive than residential bandwidth from the same company,
delivered in the same way?

~~~
jpablo
Because if the enterprise service stops working you'll have someone working on
it and giving status reports on progress in hours. In residential you'll have
someone look at it in 2-3 days if you are lucky.

~~~
kbutler
Yes, though "days" is hyperbole. 2-3 hours would be the max, even if it were a
single home. If many homes are out, the ISPs make it a high priority (or lose
customers to providers that do).

Anecdotally, a few months ago, there was a transformer-caused fire a couple of
blocks from my home that burned a telephone pole, disrupting power & internet
service to a few city blocks of single-family homes. Crews were re-routing
power as soon as the fire was out, and the ISP crew worked through the night
to replace the pole and restore internet service.

------
ck2
My 15mbps cable broadband in the USA costs $62 a month. Every year goes up
$5/mo or so.

The biggest problem in much of the USA is duopolies (and the DSL side of that
typically sucks so it is effectively a monopoly).

~~~
potatote
What ISP do you have? Mine is Time Warner and it started with $35/month (after
applying their first-time subscriber discount) >4 years ago. The first 3
years, it was 15Mbps, then it was increased to 20Mbps. But the cost eventually
increased to $55/month in 2015 and by then, I cannot justify spending that
much for an online access as a grad student (usually am not home), so I told
them to downgrade me back to 15Mbps for $35/month just a few months ago.
Overall, I do not notice much of a difference in speed decrease, but I wish
there is more ISP available in my area other than Time Warner, who seems to
have a monopoly here...

------
Animats
The CEO of Sonic.net points out that their wholesale bandwidth cost decreases
a little each year. They have no caps on their DSL or fiber services.

~~~
dalanmiller
Moved to the Bay Area ~6 months ago, heard about Sonic and even though their
service is slower and slightly more expensive than Comcast, they are an
excellent company that I have 0 regrets about signing up for.

10/10 would be a customer again.

------
mastazi
So in the last paragraph the author imagines a dystopian future where you have
to plan which movie you are going to watch tomorrow so Netflix can pre-
download it for you during the night, and for some reason he thinks that it
would be a desirable scenario. LOL.

~~~
icebraining
A decade or so ago, back when 256kbps was the average cable speed and there
were caps for international traffic here in Portugal, our ISP had something
called Happy Hours, which meant that all usage between 1-9am didn't count for
the cap.

We didn't "plan which movie we were going to watch tomorrow", we just marked
them for download (on locally-adapted forks of P2P software like eMule, with
time/IP range filters) whenever we found an interesting one, and then we'd
have 20-30 to choose from when we actually felt like watching a movie. And we
could still watch a different one, it was just somewhat more "expensive".

It was far from a dystopian scenario, and frankly I wouldn't mind returning to
that model if it could save me 20% on my bill.

------
brownbat
It's true that the economics of bandwidth depend on the hour.

I don't know about surge pricing, but I'd definitely join an ISP that just
offered uncapped off peak speeds.

------
grahamburger
This is kind of like saying the cost of an apple seed is so low that we should
only be paying pennies for apples.

------
mdip
There's more than a few problems with this particular assessment as it relates
to "what we pay" and what kind of service we can expect for that price.

On the cost side, I suspect the cost of support, service and customer
acquisition significantly affects the cost/GB. I used to switch between UVerse
and Comcast every 6-12 months (the point at which the promotional prices
ended) because it was very easy to do so and they didn't have a requirement
that I remain for a contractual period of time.

However, even given all of this, "what we pay" _is barely related_ to "what it
costs", at least in most of the US. In the majority of markets there is often
only _one_ service provider that provides service at speeds in excess of
25Mbps. Sometimes, there is two, but in the state that I live in, the choice
is often "Cable Provider" vs "Phone Provider". If you're lucky, your phone
provider is AT&T on the newer network (with those giant boxes in each of our
subdivisions -- no FIOS here) and they can deliver more than 25Mbps (inbound)
and the other is Comcast at up to 100Mbps. Both have caps (unless you are a
business subscriber) with AT&Ts at 150GB or 250GB depending on the service and
Comcast at 250GB. A small number of areas have an additional cable provider
(usually Wide Open West) that offer reasonable speeds and I _think_ WoW
doesn't do caps but I'm not sure.

The price you pay from each of these providers will be different depending on
how many competing providers exist in the area. AT&T U-Verse at much higher
speeds costs less in my house than AT&T U-Verse in my family's cottage up
north (it tops out at 12Mbps with 150GB caps).

Until there is competition offering uncapped service (and customer demand for
it), it doesn't really matter what the cost is. The folks at these companies
charge what they can get away with given the market they're operating in,
which in many markets is either an absolute monopoly (me, up north with AT&T)
or them sharing the market with a single competitor who is able to deliver
faster or slower service than them with identical data caps. The cost for
entering a residential market is high, riddled with regulation and practical
concerns, and the companies have lobbied hard for restrictive state laws that
prohibit municipalities from providing a competing service.

Prior to them setting up this whole "pay for unlimited service" arrangement, I
ran afoul of the 250GB cap and immediately switched to Comcast Business. The
difference is _stark_. I had some service done with AT&T that resulted in one
of the AT&T guys putting a shovel through the Comcast Business wire at 4:30 in
the afternoon. I called them up and they sent someone to my house at 6:30 PM.
I also get a special phone number, not open 24-hours, but I rarely talk to
more than one person about the problem I'm experiencing and the hold times are
minimal. He fixed the service (at no charge -- despite it being a competitor
that _caused_ the problem). That was one experience, but I've called support a
few times and I've always had my issues addressed _quickly_. When I was a
residential customer, waiting several days for a service call was normal.

I pay more than _twice_ as much as the residential service at $130/mo for the
same speeds, but I have no data cap and routinely use 2-3 TB/mo according to
my router. I'm on the same wires, using the same company, paying a lot more,
and getting no caps, and what I'd characterize as exceptional customer
service. This almost irritates me _more_. It's not an issue of being unable to
provide this kind of service to everyone, or an issue of network capacity,
it's an issue of being unwilling to provide this kind of service to everyone
because the market dictates that they don't need to in order to be (very)
profitable.

Now, I suspect that the small businesses that they target this service at
probably don't use the kind of bandwidth or have the performance requirements
that I do (I'm in the 2-3TB/mo range). My dad's 9-person company was happy
with IDSL at 1Mbps bidirectional until two years ago and would probably still
be on it if Comcast hadn't wired up the park and undercut the other providers
by half, so they're competing for a different kind of customer in small
business. And this may bean that the small business market actually has _more_
competition since many are willing to accept slower service offerings as
identical products (or maybe the manufacturing non-tech heavy small businesses
in my area are just that way).

