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Breakdown of Bandwidth Costs?

Cliff posted more than 11 years ago | from the who-pays-whom dept.

News 246

WCityMike asks: "What is the origin of the cost of bandwidth? For instance, if I'm being charged for an apple, I know that, theoretically, the cost of that apple is going towards the purchase of apple seeds, the land on which the apple trees are grown, the fertilizer and water that helps the trees grow, and the salaries of those who pick the apples, clean them, box them, and send them to market. When an Internet provider charges someone hundreds of dollars in bandwidth costs because they were Slashdotted (or Farked) and their bandwidth use shot up, what costs have the Internet provider incurred, and why does it cost them what it does? Is there usually any sort of markup going on along the line, or are people just passing along their own expenses down the line to the end user?" It would be interesting to note the most important factor contributing to bandwidth costs. How much of the total costs are tied to infrastructure versus the human component (technicians, sysadmins, technical support and so forth)?

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246 comments

FP (-1, Troll)

Anonymous Coward | more than 11 years ago | (#5019382)

FP Lookie Lookie Nigga

I don't see it (-1, Offtopic)

Anonymous Coward | more than 11 years ago | (#5019387)

I don't get what you're trying to ask here?

Re:I don't see it (-1, Redundant)

Anonymous Coward | more than 11 years ago | (#5019417)

Ummm yeah. I would like to know what the frik the point of this "article" is.

Re:I don't see it (0)

Anonymous Coward | more than 11 years ago | (#5019592)

thats cause you guys are dumb asses. he's asking why bandwidth cost's so damn much.

i'd like to know the answer to that myself. ( although we all know its corperate greed)

Disincentive? (3, Insightful)

David McBride (183571) | more than 11 years ago | (#5019388)

The high metered cost of bandwidth may partially be to encourage an ISP's customers not to be gratuitous with their use of a shared resource rather than from a need to recoup increased costs due to load.

Re:Disincentive? (2, Interesting)

miratrix (601203) | more than 11 years ago | (#5019491)

The fact that services like congent communication [cogentco.com] exist means that even with shared resources, companies can make money off people while providing unlimited service (of course, the question now is whether cogent does in fact make money providing non-metered connections).

However, the cost probably adds up when you need mission critical servers requiring connections to several backbones. Now, you need to take into account several links to several service providers as well as the extra hardware, etc. I think that's the reason why brand-name colocation/hosting bandwidth is so much more expensive as compared to, say, getting a quote for a T1 to your basement.

Re:Disincentive? (5, Informative)

gremlin_591002 (548935) | more than 11 years ago | (#5019517)

Perhaps, but when (a long time ago, in a galaxy far, far away) I ran an end user ISP. I got hammered once by a customer. His box was rooted and used in a denial of service attack.

Anyway, my bandwidth was paid for. I had a full T1, Sprint didn't care how much traffic I sent across it, they were set to cover it.

He was very sorry about it. It cost me about 2 hours of downtime for the rest of my customers. It took me about an hour to respond once I found out there was a problem and pulled the plug on his box. I issued refunds to customers that were affected.

I charged him the cost of those refunds, plus $35 for an hour of my time.

Note that this probably didn't cover all of my costs. I wasted most of a day adjusting bills of those affected, which I didn't charge for. The agreement I had with this customer was special. He was allowed to use all extra bandwidth for his peering box, but was not allowed to infringe upon the rest of the customer's requests. This was before QOS packet stuff so it was kind of a manual 'keep on eye on the MRTG graphs and make sure were aren't maxed out' kind of arrangement.

I have no clue about business so .... (-1, Flamebait)

AnyLoveIsGoodLove (194208) | more than 11 years ago | (#5019400)

I'll ask slashdot to come up with my answers. The complete and utter lack of understanding of business / management on Slashdot has always amused me. I can't


When an Internet provider charges someone hundreds of dollars in bandwidth costs because they were Slashdotted (or Farked) and their bandwidth use shot up, what costs have the Internet provider incurred, and why does it cost them what it does?


Well you probably violated your agreement / contract / and that triggered a cost. That's all that matters. It may not cost them a penny, but you broke your agreement on bandwitdth....


Is there usually any sort of markup going on along the line, or are people just passing along their own expenses down the line to the end user?


I love this one. Are people trying to make money? NO WAY I CAN'T BELIEVE IT.

Do you see my engineers don't run the show and will never run the show. I've been to a few companies where they do, and it's ugly.

Reply and I'll be happy to chat about this....

I give cliff some credit, he summed up the poster in a sentence....

Should be.... (0, Offtopic)

AnyLoveIsGoodLove (194208) | more than 11 years ago | (#5019418)

Do you see my engineers =

Do you see why engineers don't run the show....

Sorry about that. Should have hit preview...

SPP

Re:I have no clue about business so .... (3)

volsung (378) | more than 11 years ago | (#5019427)

It is equally interesting to see the number of people here who will go out of their way to interpret someone's words in the least favorable way possible and/or twist them so they can grind their favorite axe.

You have not answered the poster's question but rather engaged in some ego-wanking.

Re:I have no clue about business so .... (1)

moonbender (547943) | more than 11 years ago | (#5019431)

You totally missed the question. Nobody wonders whether it makes business sense for an ISP to charge for bandwidth, it's rather a question on if there is any technical reason for it, as well. Obviously making money per byte is good for an ISP, but how low could they go per byte before they make a loss?

Re:I have no clue about business so .... (0)

Anonymous Coward | more than 11 years ago | (#5019444)

"Well you probably violated your agreement / contract / and that triggered a cost. That's all that matters. It may not cost them a penny, but you broke your agreement on bandwitdth...."

Wow good analysis of why the poster is paying (contractionally obligated to do so) and even one reason (companies like to milk customers). Perhaps you could go beyond the surface and explain the other reasons. Things like...

Your providers bandwidth is charged using different mechanics..

- 95th percentile
- one big pipe till the pipe is oversaturated
- one contract saying for example 10 gigs

etc. depending on where your provider is on the foodchain. Sure it's a simple question but you didn't really answer it aside from company greed. Lets hope a few more people will take the time to answer the question.

Re:I have no clue about business so .... (2)

Gordonjcp (186804) | more than 11 years ago | (#5019555)

Do you see why my suits run the money side of things, and don't do any of the important work like dealing with customers and developing products? You've completely failed to answer the question.

The original poster isn't saying "I can't believe these people are trying to make money". What the original poster wants to know is why bandwidth is priced the way it is. Simply saying "It get spent on infrastructure and paying wages" doesn't answer the question either.

Look at it this way - if I let you use my car, there's a certain amount of petrol in the tank. I say that you can drive it for up to 600 miles for £100 - that pays for the full tank of petrol, and any wear on the vehicle. Now, if you try to drive for more than 600 miles, you can't - you'll run out of petrol. The petrol is very much a finite quantity - in this case around 18 gallons (UK - about 30 US gallons or 80 litres). If you want more petrol, you have to buy it.

Bandwidth, however, doesn't fit this model. You're stuffing a signal down a length of wire. For the most part, the wire doesn't wear out, and neither does the equipment at either end. If you don't use the bandwidth, the wire is still there. If you only use half the bandwidth available, guess what? The wire is *still* there. You're just not using half its capacity. Why does it cost more to use the other half?

Re:I have no clue about business so .... (2)

vudufixit (581911) | more than 11 years ago | (#5019599)


>If you only use half the bandwidth available, >guess what? The wire is *still* there. You're >just not using half its capacity. Why does it >cost more to use the other half?

Rationing effect of prices? If everyone used the full capacity of said wires, the telcos would then have to add additional capacity, which increases their capital costs.

Re:I have no clue about business so .... (0)

Anonymous Coward | more than 11 years ago | (#5019725)

I can't explain why ISP's hose the way they do BUT I can tell you that there are NOT 30 US gallons in 18 Imperial, there are 1.2009 US gals in an Imp. gallon (I use the add one fifth which is reasonably accurate!).

buying an apple? (5, Funny)

spacedx (458227) | more than 11 years ago | (#5019407)

I had always thought that if you were being charged for an apple, that cost was actually going towards Steve Jobs' personal Gulfstream V jet?

Not So Complicated (3, Insightful)

MimsyBoro (613203) | more than 11 years ago | (#5019408)

The reason is that ISPs are commercial entities. Shockingly they are in buisness to make money! It's all about supply and demand. There is a limited amount of bandwidth a connection can server and many many more people who want to use it. They couldn't charge users a one-time-fee because then their revenue would slowly die off.
They couldn't charge users a fixed-flat-monthly fee because then one (or a few) users could take up all the bandwith (terabytes of data) for a flat fee, thus bringing the ISPs servers to a halt.
The pay-per-bandwidth model secures the ISP a fixed amount of revenue as long as it has demand, and it does.

Re:Not So Complicated (3, Insightful)

onenil (624773) | more than 11 years ago | (#5019456)

I'm taking a bit of a stab in the dark here, but I think this guy actually wants to know *what* he's paying for - so he can perhaps engage his ISP in some informed discussion so as to bargain the costs to him incurred from say, a slashdotting, down. Not all ISPs out there would be bastards, let him be the judge of whether the ISP will engage in this conversation or not. Don't patronise him for raising the question.

Ok here is my question.... (4, Interesting)

SerpentMage (13390) | more than 11 years ago | (#5019505)

I have been reading in business week that the telco's have only utilized about 15% of all the capacity that they have. So now comes my question, what gives?

Here in Europe (Switzerland specifically) it used to be fixed bandwidth and extra costs. Now most providers for a higher price are giving unlimited. And it seems to have worked.

Re:Ok here is my question.... (4, Informative)

warpSpeed (67927) | more than 11 years ago | (#5019567)

I have been reading in business week that the telco's have only utilized about 15% of all the capacity that they have. So now comes my question, what gives?

That is probably 15% of thier fiber capacity, not total capacity. The other cost of hooking up the fiber is the routers and integrating it into the "net". The reason is that the price of getting bandwidth is so low now that is not cost effective for them to hook the fiber up.

Counter-intuitive? The fiber is only one part of the cost and it is fixed since it is in the ground alredy. There is the capital required, and the human cost to support hooking up and maintaining the fiber. If they hooked up all the fiber they would drive down the costs of bandwidth even more, and thus lose more money. So they leave the fiber dark until it make economic sence for them to light it up.

Re:Ok here is my question.... (2)

MimsyBoro (613203) | more than 11 years ago | (#5019695)

The reason is that although the prices are set on the supply/demand model since laying out new fiber is SOOOO expensive the ISPs perferred to lay a lot more fiber then they need. In order to not overflow the market with too much bandwidth thus causing the price of bandwidth through the floor the ISPs only use a certain portion of it. Think about it in terms of inflation. If the ISPs released too much fiber the price of a megabyte of data would lower to the point where the ISPs won't be making any money. Hence they leave a certain percent of the fiber untouched till demand grows.

Re:Not So Complicated (3, Interesting)

TheSync (5291) | more than 11 years ago | (#5019603)

Another issue is thta moving bits over fiber at gigabits per second is relatively cheap. Routing at gigabits per second is significantly more expensive. Both are getting cheaper thanks to Moore's law.

I regularly see DS3 quotes for $3k/month, I remember when it was more like $30k/month, and before that it was just nuts.

But last-mile is still a problem. I recently priced out a DS3 network to 180 locations in the US. The biggest cost was last-mile connectivity.

Maintenance? (0, Redundant)

robbyjo (315601) | more than 11 years ago | (#5019409)

I'm not a bandwidth provider nor work there, but I guess infrastructure maintenance cost a lot, esp for making sure miles of cable stay connected and be upgraded when needed.

Cable ships (4, Interesting)

IamTheRealMike (537420) | more than 11 years ago | (#5019412)

Cable ships are a large part of the cost of bandwidth, most of the major western top level bandwidth providers maintain fleets of undersea cable maintenance ships. These things are fantastically expensive to build and run, and part of the cost of them filters down to all of us. For instance, part of my £20/month connection costs are helping to pay for the undersea link that connects me to slashdot. Ditto for satellite/microwave links, they all cost a lot to maintain and run.

That's not the only source of expense of course, but it is one major one. Don't forget supply and demand of course - people charge what people are willing to pay.

yes, however (3, Funny)

zephc (225327) | more than 11 years ago | (#5019509)

If they simply used an Interocitor [shipbrook.com] , a device that can lay roads at a mile a minute, it can of course also lay cable, cheap! DIRT cheap! Just gotta get those folks with the funny, large heads to sell em....

Re:Cable ships (0)

Anonymous Coward | more than 11 years ago | (#5019590)

Are you sure?

Cable ships cost a _LOT_

I dont know of ANY ISP's that could afford one. Let alone a fleet.

Its an entirely seperate industry.

Well... (1, Redundant)

Boss, Pointy Haired (537010) | more than 11 years ago | (#5019422)

What is the origin of the cost of bandwidth?

Well, this is a stab in the dark, but at a guess i'd say it was related to the fact that you can't get something for nothing.

Re:Well... (0)

Anonymous Coward | more than 11 years ago | (#5019463)

He's not asking how he can get free bandwidth. He's asking what the exact, SPECIFIC connection is between bandwidth and money. (As in, does bandwidth cost someone besides the end user per amount and how does this work) Answers such as "DURR - BECAUSE THINGS COST MONEY" are kind of redundant in that case, don't you think?

Re:Well... (3, Insightful)

rmohr02 (208447) | more than 11 years ago | (#5019465)

Well, one of the topics frequently discussed on /. is "free software". Most of the time I can download this "free software" without paying a dime.

Re:Well... (1)

Anonymous Coward | more than 11 years ago | (#5019483)

Ah, but it takes bandwith to download it, which leads us straight back to the problem at hand.

Re:Well... (0)

Anonymous Coward | more than 11 years ago | (#5019484)

So, from where do you get this free downloading?

Re:Well... (2, Funny)

Anonymous Coward | more than 11 years ago | (#5019679)

oh yeah? what about ketchup packets?

the real costs of bandwidth (5, Funny)

kraksmoka (561333) | more than 11 years ago | (#5019429)

well, kind of like an apple, it all starts with the seed money from unwitting investors who realize not that their hard earned money is about to be thrown in a hole in the ground. then companies hire construction folks like Mas Tec (Miami, Fl) to quickly and quietly plant the seed money along with some fiber optic cables, or repeater boxes with really expensive chips, or whatever the potential bandwidth provider needs to throw into the hole to make some /.'ing possible. then, once the investor and the company throw all their money into said hole, a wonderful economy based on advertising emerges and the bandwith is carried to market by all the mom and pop bandwith growers and sold everywhere from local farmers markets to big grocery stores. UH OH, advertising didn't work! now we have to pay the saps, er investors, who gave us their money to pour into our special hole, something called a return on investment in a hole. ok, we'll either declare bankruptcy, or now, we'll charge alot of money for bandwidth for a while since our humble little hole grew into a mountain of debt.

and everyone lived happily ever after (except for northpoint, directv dsl, worldcom and anyone else who didn't own a regional telephone monopoly to cover idiotic spending levels and tremendous waste). the end

When it comes to a Slashdotting... (5, Informative)

Anonymous Coward | more than 11 years ago | (#5019430)

...the problem is burst. Period.

When you buy an apple, you can eat the whole apple at once (tossing the core into the compost pile when you're through), or you can cut the apple up into slices and eat those slices over a few hours' time. If you eat the entire apple in one sitting, it doesn't cost any more than if you'd cut the apple into 16 slices and eaten one per hour.

Bandwidth isn't like an apple.

Bandwidth is purchased in one of three ways (or sometimes several or all three ways at once):

1. A connection with a maximum of X amount of throughput at any given time, "unmetered" (ha ha)

2. A connection with a maximum of X amount of throughput at any given time, plus a restriction on how much throughput can take place in a given month

3. A connection with a maximum of X amount of throughput most of the time, which can increase on the fly to some multiple of X for short periods of time, with a restriction on how much throughput can take place in a given month

The third type of connection is usually known as "burstable." What it means is that the ISP sells you a line which is physically capable of, say, 3Mbps transfer; but they sell you this line with the understanding that 99% of the time you're only going to be using a maximum of, say, 1Mbps of that capacity. You're allowed to "burst" over your 1Mbps average up to 3Mbps.

Some ISPs restrict these "bursts" to certain lengths of time, some restrict the "bursts" to certain amounts of data (e.g. you can burst to 3Mbps for 1GB at a time). Either way, you're typically given a certain allotment of "bursts" per month. Any more "bursts" and you pay extra.

When your site is Slashdotted, you generate hella "burst," hella quick, and hella strong. As a result, your hosting company may wind up exceeding the allowable "burst" (either in time or in bytes) according to their contract.

Unlike the apple - where you can "burst" it all into your stomach at once with no penalty - bandwidth is sold on the contingency that it's going to be used over time. Use it all at once and you get fucked. That's pretty much it.

Re:When it comes to a Slashdotting... (3, Informative)

Anonymous Coward | more than 11 years ago | (#5019480)

You stopped just short from the cause: the same game repeats also one level higher.
This means that ISP has to shape his traffic (a sum of all users') into some other contract.
I don't know exactly but I assume that in these contracts "bandwidth" is bound by the same parameters: traffic, bandwidth (speed), pattern, ...

And they have to discipline the traffic pattern because they all do the so called statistical multiplexing what we normally call overbooking.

If you eat apples all year long and you get them from your supplier which supplies to whole street, he will be interested in knowing or otherwise predicting (defining, binding) your pattern of usage since he can't store the maximum-worst-case heap of apples because they will rot most of the time.

The same way of thinking do ISPs. They pay for their uplinks, say a fixed amount for a fixed bandwidth. To get the bet out of this setup, they have to keep the line as full as possible all the time, so they have to overbook.
On the other side they have to put some limitations on downlinks so that over time there won't be too much traffic all the time.

It's all about getting the most out of what resources you have.

Another example is calculating the cost of a mile/kilometer car drive. It's lower if you do 10,000 per month or only 100 per month since you have quite some fixed cost.

PG

Re:When it comes to a Slashdotting... (5, Informative)

Myxx (21264) | more than 11 years ago | (#5019507)

I work for a Tier 1 company that does Enterprise Hosting. We use the burstable method and the 95th percentile. You commit to say 1 mbps. As long as you stay under that you know your costs. You can burst 5% of the time the link is up for a month and not pay anything extra. That equates to something like 20+ hours you could burst, which is good for those who take a /. hit.

I also know that we mark it up so much that I think it is ludicrous, but we can because we can.

Re:When it comes to a Slashdotting... (2)

ErikZ (55491) | more than 11 years ago | (#5019690)


"Unlike the apple - where you can "burst" it all into your stomach at once with no penalty - bandwidth is sold on the contingency that it's going to be used over time."

This is the worst analogy that I can remember reading on Slashdot.

How we do it. (5, Informative)

standards (461431) | more than 11 years ago | (#5019432)

For my organization, about 45% of the customer's cost goes to pay for bandwidth. The rest is mostly people costs.

- We provide very limited end-user technical support.
- We provide a very specific service. We don't try to do "anything that could bring in a buck". I think a lot of ISPs get into the trap of "anything for money"... which results in a LOT of hidden costs. This should be MBA 101 stuff, but it's amazing how trapped people get doing things for zero benefit.
- Before we implement anything, we look at the potential costs and benefits.
- Everything has to have a complete process in place before we move it into production. Otherwise, on-going support costs skyrocket.
- We have a very clear contract with our customers. We trust them; they tryust us; they don't misuse us, we don't misuse them.

This is simply basic IT business stuff. But most small bandwidth resellers (and many large providers) fail at it.

Re:How we do it. (2)

ErikZ (55491) | more than 11 years ago | (#5019640)

"- We have a very clear contract with our customers. We trust them; they tryust us; they don't misuse us, we don't misuse them."

Really? Your contracts don't have that "We can kick you off our servers in case you do something we don't like, that we haven't thought of yet."?

Re:How we do it. (2)

standards (461431) | more than 11 years ago | (#5019676)

Clearly we have an obligation to all our customers before any one single customer.

In any case, talk with your attorney... you'll likely hear that such blanket, unilateral clauses are legally much weaker than being clear and explicit.

It's better to be explicit when possible.

Re:How we do it. (3, Funny)

kfg (145172) | more than 11 years ago | (#5019661)

"For my organization, about 45% of the customer's cost goes to pay for bandwidth. The rest is mostly people costs."

Which rather brings up the question, "What is the origin of the cost of bandwidth?"

Maybe someone should do an Ask Slashdot on that. :-)

KFG

supply and demand (0)

Anonymous Coward | more than 11 years ago | (#5019435)

supply and demand. the cost of sending data over a network is no more than not sending data over a network. the cost involved is initally buying that network and techie time keeping that network up and running:

i.e tecnical support ignored, the cost of a network that can support n users is the same whether you have 0 or n subscribers.

if the supplier didn't charge money, demand would exceed supply - the market price is such that they meet - the supplier wants to make as much money as possible!

Everything costs money!! (2)

mike_c999 (513531) | more than 11 years ago | (#5019436)

IMHO I guess that the money goes towards the cost of the cables, routers, servers, manpower and all the other costs of running an ISP.
And I guess that once that's paid for, there is the cost of upgrading.
And then there's PROFIT

Just a guess thought

Because they are "price searchers" (3, Insightful)

RhettR (632157) | more than 11 years ago | (#5019437)

I just finished an economics course in college, and ISPs are probably what can be termed "price searchers." I imagine there is certainly some extra cost per extra unit of bandwidth, but largely I imagine this is negligible--the bandwidth is there whether or not it is used.

As a few other posters have noted, ISPs are out to make money. A price searcher has a set cost that is basically unrelated to the amount of service they sell. However, they are faced with a demand curve sloping downwards: the higher they charge, the fewer customers they get. They simply match up the price/quantity demanded at that price that leads to the highest revenue and thus profit.

Re:Because they are "price searchers" (1, Flamebait)

Mononoke (88668) | more than 11 years ago | (#5019462)

I just finished an economics course in college, and ISPs are probably what can be termed "price searchers." I imagine there is certainly some extra cost per extra unit of bandwidth, but largely I imagine this is negligible--the bandwidth is there whether or not it is used.
In other words, you just don't know.

Thanks.

As a few other posters have noted, ISPs are out to make money.
That's what businesses do. Didn't they discuss that in your economics course?

Re:Because they are "price searchers" (0)

Anonymous Coward | more than 11 years ago | (#5019521)

um, stfu

Re:Because they are "price searchers" (3, Interesting)

sjames (1099) | more than 11 years ago | (#5019554)

ISPs are probably what can be termed "price searchers."

That may (or may not) be true of top tier providers (roughly, those who are big enough to have quid pro quo peering on the backbone). For most others, there is a cost they will incur for the bandwidth and they must pass it on.

Getting to the question, the cost of bandwidth is a combination of the upstream bandwidth charges, infrastructure such as racks, air conditioning, backup power, cardlocks, security cameras, switches and routers. More bandwidth consumed by a customer means needing more (or bigger) switches and more upstream bandwidth. More servers means more space, air conditioning, and power.

Then there are the costs for manpower to maintain that hardware and deal with customer support. If you want reliability, you'll face more costs for a border router, an ASN, a block (or blocks) of IP addresses, and multiple upstream providers. You also end up paying more to have techs manning the NOC 24/7 and others on-call should a situation arise.

All of this is all the more expensive because customers demand 5 9's even if they don't need it.

As for people who provide the long haul connections, they face costs for right of way and repair (such as when idiots see the call before digging signs and dig up and cut the fibre anyway).

The Costs are simple: (1)

shepd (155729) | more than 11 years ago | (#5019441)

Breakdown, AFAIK:

Percentage of use of total resources based: Fixed Costs, such as:

  • Building maintenance costs
  • Energy costs
  • Salaried / Permanent staff costs
  • Taxes
  • Equipment
  • Telco charges for renting the feed lines, etc
Per seat based:

  • Permanent equipment (per user, such as a dedicated network router for your company to connect to the ISP)
  • Telco charges for renting your lines
  • Basic maintenance fees
That's my guess. Of course, add in profit incentive to both. Why? Did you get burned? Why not ask your next ISP to cap your account next time?

Tragic news ... Stephen King troll dead at 32 (-1, Offtopic)

Anonymous Coward | more than 11 years ago | (#5019445)

I just heard some news over Police radio - a Slashdot visitor was found dead in his Chicago home this morning.
The young man of 32 was found bloodied and bruised by an apparent assault with a number of Stephen King hardback novels.
He was rushed to hospital but the injuries were too severe to be treated sufficiently. Police have begun to compile a list of
suspects. It is thought that Stephen King himself may have been responsible for the assault.

I'm sure everyone in the Slashdot community will miss him - even if you didn't enjoy his work,
there's no denying his contributions to popular culture. Truly an American icon.

Apply standard economics. (0)

Anonymous Coward | more than 11 years ago | (#5019446)


Bandwidth WAS a monopoly - so price moved towards the maximizing value.

With bandwidth much closer to a commodity (it's not perfect), price tends towards the competitive equation, marginal revenue = marginal cost.

There are huge fixed costs in providing long haul bandwidth (cable ships, rights of way, physically LAYING fibre or cable is upwards of $300K per mile, etc.)

But once all that infrastructure is paid for (either from revenue or via chapter 11), the incremental costs are pretty small.

Costs you don't know about (2, Funny)

Mononoke (88668) | more than 11 years ago | (#5019448)

I know a person that makes a healthy sum of money (enough to support a family easily) to sit and watch people dig near buried fiber runs. That right, he just sits in his truck and watches.

It's cheaper for the fiber owner to pay him to be on-site than it is for them to lose the money on lost bandwidth should the cable be cut and communication be down for an hour or two of response time.

He does have to re-certify on his splicing ability a few times a year, but that's about all he really does.

Re:Costs you don't know about (0)

cpthowdy (609034) | more than 11 years ago | (#5019493)

communication be down for an hour or two of response time. But don't forget about the time that it takes to actually splice it back together, so we are still talking about a cut fiber cable costing about 3 hours (at least for our fiber provider) to do the atcual work, rather than 4 or 5 hours with response time factored in.

No direct corelation - value based (1)

alch (30445) | more than 11 years ago | (#5019452)

The goal is value based selling. I charge you what you can afford to pay. I think that ISP's who tried to survive on costs based selling couldn't handle the rapid changes in cost structure. But they were probably also responsible for the drop in pricing.

Think the rate structures for long distance calls - why were they distance based ? Difference between business and residential rates, why ?

Think airline seats on traditional airlines vs. SouthWest. The airlines have seat blocks at different price ranges - while some of you may think business people who spend 2000$ for a ticket are "subsidising" the cheap 200$ tickets, if it wasnt for the cheap traveler, that segment would not exist for the business traveller to take.

Do you think it costs microsoft 200$ to create an XP CD ? All costs considered ? No ... but other parts of the organisation need the money, and they can charge for it.

Thats what's so cool (business wise) in high-tech. Actualy, its how many businesses work.

that does make sense (0)

z01d (602442) | more than 11 years ago | (#5019454)

how about this:
you rent an apartment, you made a deal with the landlady, say, $300/M, and sometimes, your girl friend may live with you in this apartment for a couple days, that's OK, the landlady understand. contract done: $300/M for up to 2 person live in this apartment. then, some of your slastdot buddies (to apply the word "slashdotted") have no place to live, you invite them to live with you. and the landlady find out the overuse, charge you for extra $300. how do you think? does this make sense?

what's my point? well, don't be a sensitive clod. you pay for what you use. you use more, you pay more. maybe the stuff can not be materialized, that doesn't mean you are maltreated. this is what so called "service".

We seen this before. (0)

Anonymous Coward | more than 11 years ago | (#5019469)

Wow it is amazing to what people will read on one site, and then post a question on another. You know it seems as if most karma whores on /. surf the internet looking for potential karma points.

Peering agreements, etc. (5, Interesting)

wackybrit (321117) | more than 11 years ago | (#5019471)

All of the replies so far in this thread are banging on about general business issues and supply/demand, but what about the problems caused by the fragmented nature of the Internet itself?

I'd like to see some replies from 'people in the know' on how peering agreements, backbone interconnections and peering centers like LINX affect things.

After all, the average packet from the UK to the US doesn't just go over one provider. It goes over my ISP, a UK backbone, through LINX, to the US on a DIFFERENT ISP, then hits a NOC in NYC, goes to ANOTHER backbone.. and so on.

How do all of these different ISPs interact with each other? Do the larger ones set up networks then charge the smaller ones (like my ISP) for bandwidth which is then passed on? Or do they have 'back and forth' arrangements where the ISPs only pay for the difference between in and out traffic?

Re:Peering agreements, etc. (0)

Anonymous Coward | more than 11 years ago | (#5019553)

I work in the ISP/IAP industry (high quality DSL reseller)
Funny, this "bandwidth" thing, and the sources kinda remind me of "dealers"... and their sources in other circles... Heh... And all of the "cutting", etc, happens as well... Every router adds some lag, kiddies.

Re:Peering agreements, etc. (5, Informative)

aufait (45237) | more than 11 years ago | (#5019656)

Do the larger ones set up networks then charge the smaller ones (like my ISP) for bandwidth which is then passed on?

Yes. Only the big boys have free peering between themselves. And, even they have costs associated with peering: cost of colocation at a peering point, bandwidth between the two service providers, etc.

Or do they have 'back and forth' arrangements where the ISPs only pay for the difference between in and out traffic?

Some do this. However, it has always been a hot button issue with ISPs. Some ISPs, e.g. UUNET, have a higher percentage of web servers. While others, e.g. Earthlink, have a higher percentage of users. Who exactly is providing more value to the other. Is Earthlink supplying the viewers to the web sites? Or, is UUNET supplying the web sites to the viewers?

Peering arrangements (5, Informative)

GLX (514482) | more than 11 years ago | (#5019472)

Not all ISP's peer for free with other ISP's. In a lot of cases, they have to "settle up" for their peering costs at the end of the month, per megabyte, with their peers. UUNet is big on doing this with their peers and it's where they make 50% of their income...

Cogent and AOL just had a fallout about this - Cogent felt that they should have free peering with AOL but AOL felt Cogent should pay for usage because most of the traffic going to AOL was for Cogent customers and not vice versa.

(see 'Peering' Dispute With AOL Slows Cogent Customer Access [washingtonpost.com] and Paid Peering [carrierhotels.com] )

So yes, the short answer is that upstream ISP's do pay per Mb in a good amount of instances if they aren't a huge transit hub. Obviously some ISP's aren't subject to this and just charge by the MB figuring the more traffic you're getting, the more money you're making from their connection.

Re:Peering arrangements (2, Insightful)

seamustheshark (603643) | more than 11 years ago | (#5019563)

Of course, not all "ISP's" (especially those in the UK) are actual businesses.

Those in the academic community have their own networks, in addition to connections to commercial providers, and, as they are educational institutions, don't necessarily have to show a profit....

This can kind of distort your thinking if you try and see per-MB usage as a pure business function - not all those whose networks are used are for-profit organisations.

Just a thought!

cheapish unlimited bandwidth web server (2)

kisrael (134664) | more than 11 years ago | (#5019479)

I know of at least two shared-host web servers that run $10-20 month and claim to offer unlimited bandwidth, arrowweb.com and ezpublishing.com. I think part of the catch is they have rather small disk quotas in the 50-100meg range for that price. I don't know how they prevent abuse, but I've been pretty happy with them.

Re:cheapish unlimited bandwidth web server (1)

mparaz (31980) | more than 11 years ago | (#5019561)

I was looking for an unlimited bandwidth host as well, but this site [unlimband.com] gave some warnings.

Re:cheapish unlimited bandwidth web server (1)

Kasper_Ca (638685) | more than 11 years ago | (#5019565)

I run one these types of webhosts. I use the income I generate from it to host sites for myself and friends, which are quite a few, and then some left over for domains and other toys for my pc. It works quite simply, we buy a block from the reseller and sell it to our clients in thier package. When you think our account allows us to resell 10gb/month, and I use maybe 500mb in total (one user uses 400mb) then there's alot of room for unlimited users. I don't offer an unlimited service, but my users get 2 or 3gigs per month for only bout $15cdn/month ($10 americian.) So if they go over (which has only happened once.) I just get a bill from my supplier, $2/gig over. No biggie.

The origin cost (0)

Anonymous Coward | more than 11 years ago | (#5019481)

What about the cost of the origin of the bandwidth? How much does it cost to maintain a T1 line for instance? Or the telco's link to the network?

Same with public transport. (1)

ComaVN (325750) | more than 11 years ago | (#5019503)

Why do I have to pay to ride the subway? What extra costs do they have because I'm in it?

It's all about big numbers. Once the cable is in place, it's extremely cheap to use the bandwidth. But if all 100000 customers use a little more bandwidth, they have to add cables, which IS expensive.

free market (1)

muyuubyou (621373) | more than 11 years ago | (#5019518)

I guess we have to rely on the market to set the prices. Different technologies have different costs and different behaviours/qualities.

As always, we depend on competence. We'll get good prices is there is enough competence and we are screwed if there is not.

This is a young market and thus, unstable. Besides, we get twice as powerful servers with more storage as Moore law keeps it's pace. Taxes change the minute away and that doesn't help either.

Unfortunately we need some years until market settles and salaries get stable. Infrastructure costs won't hold forever, too (these keep cable/satellite less attractive than DSL).

Why more bandwidth cost more money. (1)

TekBoy (142140) | more than 11 years ago | (#5019519)

The isp pays for a certain size pipe. It then sells smaller pipes to users. The isp has to pay based on the size of their big pipe. To figure out how big a pipe the isp needs they add up the average bandwidth of the smaller pipes + PLUS A SHARED BUFFER PIPE.

This shared buffer pipe (or standby bandwidth) has to be fill the need for peak bandwidth usage. So the fee you pay for momentary insane bandwidth usage goes to pay for this usually empty standby bandwidth.

The price you pay does two things. It helps pay for this usually unused but still costly resource and it encourges the customer to keep their peak bandwidth usage close to average so that the ISP doesn't have to waste more money on extra bandwidth that is only used occasionally.

seeds? (1, Informative)

Anonymous Coward | more than 11 years ago | (#5019520)

> the cost of that apple is going towards the purchase of apple seeds

Apple cultivars are clones, you don't grow them from seeds but cuttings, scion wood. Seeds only matter in breeding.

As a small ISP.. (4, Informative)

warpSpeed (67927) | more than 11 years ago | (#5019522)

My cost for Bandwidth is about 50% of my revenue. I am a one man show, and my ISP is not the bulk of my income. I make my money consulting.

I do not know how the big boys do it, they have to have teams of skilled techs, phone support people, support infrasturture, people to manage said infrastructure, oh yeah, and the actual network to provide the bandwidth.

I do not begrudge that fact that I have to pay a lot for bandwidth. I am actualy happy that I pay so little for what I get. However the barrier to entry into the market will make many people thing twice about doing it. If I knew then what I know now... well I probably would not have gone into this business.

As for the costs to the ISP when a site gets slashdoted, the cost is slow connectivity and frustrated clients. It is a delecate balance, making sure you have enough capacity, and staying in the black. There is a huge lead time to getting additional bandwith avaiable, unless you are a large organization and can afford standby bandwidth.

I have to keep a close eye on operations to make sure that bandwidth is not being over taxed by a single client, and that that client knows about thier usage. I have had several clients get hacked (open ftp Windows servers are a favorite). Suddenly they are pushing a full T1 of data out and they are scrathing thier head wondering why the Internet is so slow today...

Re:As a small ISP.. (1)

owenb (91248) | more than 11 years ago | (#5019673)

About your sig: how is :1,$s/^.*$//g

different from :%s///g

Apart from being longer, that is...

It's Simple really (0)

Anonymous Coward | more than 11 years ago | (#5019523)

Bandwidth providers purchase internet connections in bulk, and usually make assumptions on how much usage each account they sell will eat up on any given month. If its a smaller provider, they are on a similar plan as you are with a tier one carrier (AT&T, UUNET, Sprint, Qwest, etc). If their planning is incorrect, and you hog more bandwidth than they have alotted you, then they must "burst" their connection to accomodate your needs. Cost on burstable circuits are not cheap . . similar to they way overage is charged on a mobile phone account, but at a much higher cost. These costs are passed on to the user. Just make sure you buy your bandwidth from a reputable place, there are some snake in the grass organizations out there. I got my circuit from http://www.Bandwidth.com who gave me a ton of info on each carrier prior to purchasing my T1.

Isn't it all ultimately the human component? (1)

John Jorsett (171560) | more than 11 years ago | (#5019524)

How much of the total costs are tied to infrastructure versus the human component

Isn't the cost of the infrastructure basically the amortized cost of producing it, which, when you get down to it, is the labor of humans? I can think of a few exceptions (for example a premium charged for a scarce resource that's in demand), but it seems to me that the bulk of the cost of something is the human effort involved in creating it.

Re:Isn't it all ultimately the human component? (2)

jaoswald (63789) | more than 11 years ago | (#5019730)

Well, if you really want to be pedantic, there are really only two resources: land and labor. It's useful however, to think of capital (infrastructure) as a separate resource, because it "keeps giving" in a way that labor doesn't.

Even that premium that you think is an exception probably turns out mostly to be a return on investment in capital in what was a risky endeavor.

Apples (1, Offtopic)

Cyno01 (573917) | more than 11 years ago | (#5019527)

...if I'm being charged for an apple, I know that, theoretically, the cost of that apple is going towards the purchase of apple seeds, the land on which the apple trees are grown, the fertilizer and water that helps the trees grow, and the salaries of those who pick the apples, clean them, box them, and send them to market.
Did anyone else start reading that and think he was talking about apple computers? Man, i need to get out more.

How much of bandwidth cost is artificial ? (2, Interesting)

OneInEveryCrowd (62120) | more than 11 years ago | (#5019533)

This question has bugged me for years. I know that if you're a medium sized isp you might have to pay bandwidth charges to a backbone provider. Therefore you're probably stuck passing the charges on to consumers. But what is the reason for this and where are some details ? I'd really appreciate some good links or references to books.

One thing that really sticks in my mind is that 5 years ago Pacific Bell was laying fiberoptic cable in my neighborhood (San Jose, California, USA). Right before they were about to deploy some kind of gigabit network of the future SBC bought them out and put a stop to it. Later they even had the fiber dug out, maybe to make sure that no one used it. What could the reason for this have really been ? I can't come up with anything except that they didn't want to give consumers too good a break too fast, they were hung up on 1980's penny-per-pixel pricing schemes, and that businesses paying thousands per month for T1 might want a break too.

Another thing thats bugged me for years is what the bandwidth situation would be if Al Gore hadn't privatized the internet around 1996 in exchange for a couple hundred thousand in contributions to the DNC by MCI and others. Wouldn't the current bandwidth scenario be more like the Information Highway and less like the Information Tollroad ?

Why it increases per byte... (5, Interesting)

davew (820) | more than 11 years ago | (#5019538)

I guess what you want to know is why your charge increases per bandwidth consumed rather than just a list of the various expenses ISPs incur (which other people have covered pretty well), which theoretically could be dealt with by a flat charge. Here's my understanding of that. Some of it's outside my area of direct expertise - I'll mark the point where we hit that.

As the bandwidth use in an ISP increases, the overall quality of service provided to its customers goes down (i.e. contention increases), until the ISP does the following:

  • Upgrade their external (upstream) links (more on this in a minute)
  • Upgrade their internal infrastructure (which might also be telco links between cities or countries, or might be 10M hubs going to 100M or Gigabit Ethernet switches)
  • Upgrade their supporting infrastructure (proxy caches, mail servers, billing systems, people on the tech support line, abuse department - this last one is a problem that seems to increase exponentially with size)

You're probably already familiar with the difference between server hardware for 100 users and hardware for 10,000. Switches and routers tend to be a step upgrade; they work fine for three years then BANG you need to spend forty thousand euro, and that'll do you for another three years, or whatever.

Telco bandwidth costs money, and upstream ISP service over that bandwidth costs more. The increase in that is usually sublinear - 4Mbps costs a little less than 2*2Mbps, 8Mbps costs a little less than twice that. The reasons for those costs are where I start to leave the stuff I do for a living, but my understanding is this.

For internet service (this is different and separate from just getting a leased line!), the same principles as above apply, just on a bigger scale. The larger bandwidth user takes a larger chunk of the provider's resources, therefore they'll (within certain parameters) get charged commensureately more.

For the cost of the leased line itself:

  • It costs money to put fibre in the ground, or under the sea, or whatever, and that needs to be recouped. This is a once-off, and it takes ages to pay back (hence the massive debts that the Worldcoms of this world are operating under).
  • The equipment that goes at each end of the wire costs a fuckload. At really high speeds (10 gig and thereabouts) it could cost more than the fibre itself. This isn't quite a once-off, but is a step upgrade a bit like your own switch infrastructure.
  • People and systems need to monitor the network, work out what bits have broken and need fixes, what's just had a digger put through it, etc. etc.

That, of course, is without all the associated costs of running a business with more than two people in it, which are (to put it politely) non-trivial.

Dave

Integer Constraint (1, Insightful)

Anonymous Coward | more than 11 years ago | (#5019543)


As a mini-ISP, we face what might best be called "Integer Constraint" -- if we go over a certain threshold, we get bumped up an entire 1 Mbps tier for the month, which ain't cheap.

So, if your site gets slashdotted and takes our 95th percentile traffic from, say, 1.98Mbps, to 2.03Mbps, we see a huge difference in our bill.

Now, generally, we don't care, as we purchase an excess of bandwidth so that we're not near any particular threshold. But if various customers combined start doing things that push us near that threshold, we have to recoup the cost somehow, otherwise we'd eventually be at 0Mbps! :-)

Of course, this only applies at certain points in the ISP world, so YMMV. Why our upstream provider charges us in 1Mbps tiers instead of just prorating it? Dunno. Maybe they suffer the same fate at the physical line level -- if we, combined with some other customers, push them over a T3 barrier, they have to get more lines (or face saturation, delays, angry admins).

Cost of R&D vs. Production (1)

HeX314 (570571) | more than 11 years ago | (#5019544)

Isn't this question just the same as "Why does Intel charge so much for a Pentium 4?" The answer is that (if I'm not mistaken) most of the cost of the chip you purchase goes to the initial cost of developing the chip. This is the way most products are made. Most funds are spent on research and very little go toward the cost of making the individual product (not counting the fabrication facilities themselves). Intel's chips run more expensive than AMD's because... um... well... I don't quite know. Someone want to help me out here (I'm an AMD fan).

bandwidth cost (5, Informative)

Anonymous Coward | more than 11 years ago | (#5019546)

First off, an increase in load does not mean you need to increase the number of people who work for you (sysadmins, techs, etc.)

Second, costs are obviously passed to end users with a mark up (however little).

Third, cost of bandwidth DECREASES AS BANDWIDTH ITSELF INCREASES. At least with ISPs. ISPs who buy bandwidth in bulk actually reduce their cost per Kbps (that is, we get charged a lower per Kbps rate if we buy 45Mbps outright than 64Kbps). For example, we used to pay $1600 for a 64Kbps link but now we pay only $6000 for a 2 Mbps link (we're outside the U.S. so this includes physical connections) instead of $51200 ([2048Kbps / 64Kbps] x 1600).

HOWEVER, buying in excess usually result in part of the bandwidth being unused but the ISP still pays for it. That's where the numbers game starts, where the ISP divide the cost of the bandwidth plus a mark up, to get what they charge customers.

Obviously they can't charge customers on a per Kbps rate to recoup costs otherwise the customers would be up in arms. Now here's a secret (ssshhh!), most Internet traffic is bursty, that is, customers don't always utilize the entire bandwidth (at least, not at the same time) that the ISP guaranteed(?) - you access a webpage, read it (while you read, you don't utilize bandwidth) and access another page. ISPs rely on that fact when coming up with prices. That is the reason most do not like it when you upload stuff in P2P nets. Most probably they just use the RIAA, DRM, whatever, as an excuse to block access to P2P. Why? Because the minute you offer upload access over P2P nets, chances are high that you'll be utilizing whatever bandwidth they promised you. They don't like that because if a significant number do that it'll throw off their numbers (remember, they didn't expect you to actually consume the entire bandwidth so they didn't charge you based on a per Kbps rate). Noticed this trend lately with so-called broadband providers who "guarantee" you so-and-so amount of bandwidth/speed?

You asked for the breakdown of bandwidth cost. Yes, most of it is caused by having to get additional bandwidth (larger pipe to handle larger traffic) but it is actually holding on to that large bandwidth (with very few users paying for it) which is the cause of you getting slapped with a huge bill if you go over the allotted amount. Their cost would be lower if they didn't have to keep excess bandwidth to give to you when the time comes that you actually need to burst over when you're slashdotted.

We solved this problem of having to offer competitive prices while still being able to pay for bandwidth by charging on a per-MB basis (with a minimum of course). We give enough free MB to cover a month's worth of surfing/browsing (done thru extensive study of usage patterns) but the minute customers go to P2P nets, we hit them with an excess usage fee. This limits them from keeping their connections 24 hours doing nothing but downloading mp3's and mpegs.

And we don't even have to hide behind RIAA or DRM.

ALL our customers btw, are satisfied with this arrangement. Only those who go to P2P nets and download recklessly are the ones complaining (until now, all those who exceeded our allotment by a large margin have ALL been caught using Kazaa, iMesh or Morpheus).

Having worked for an ISP... (2, Interesting)

quikgrit (638508) | more than 11 years ago | (#5019573)

I can probably give you a few ideas as to how that cost is composed, on a departmental level, at least. :What is the origin of the cost of bandwidth?

To the seller or the buyer?

To the seller, assuming they are somewhere below the carrier grade level, their cost for the bandwidth itself is whatever they are paying the carrier(s) that they are renting their own bandwidth from. Of course, then you have to add in all the costs that come with doing something useful with that bandwidth - equipment, employees, et cetra.

To the buyer..it depends on the selling organization. In some places, Marketing gets to determine the cost, based on the current market value. This often leads to doom because hey, if they knew how to do math, they probably wouldn't have ended up in Marketing where everyone sits around and looks at shiny things. In other organizations, Engineering and Provisioning (or other Operational groups) determine the actual cost to the company, then they let either Sales or Marketing tack on a little more for overhead/profit. Depends on which departments in a company have power.

Yes, I realize that seems ludicrous, but that's generally how it works. People are people, and all that. I worked at a company where I gradually watched a shift in the balance of pricing power over a few years from Marketing/Sales to Engineering/Ops, and let me tell you, it's a fascinating thing to watch.

What the market will bear (1)

MightyDrake (612329) | more than 11 years ago | (#5019580)

I suspect there's also some what-the-market-will-bear logic in the pricing structure.

The basic idea being, if a site is using a lot of bandwidth, then by definition it's popular. If a site is popular, then chances are somebody is trying to make money off of its popularity. If a site is generating revenue then it makes sense for the owner of that site to find a provider who can reliably provide the bandwidth the site needs and who will listen when the site needs something.

This affects a site who gets Slashdotted just accidentally. A hypothetical site can suddenly get reclassified from a hobbyist bandwidth bracket to a business generating bandwidth bracket, where the pricing rules are different.

Sevice verses tangible goods (5, Interesting)

eyeball (17206) | more than 11 years ago | (#5019583)

I'm not an economist or financial expert, but it would seem that it would be more difficult to put a price on a service than on a tangible good. It's like comparing (sorry) apples and oranges. Seriously, it's easy to see where the money goes: raw materials, processing equipment, employees, insurance, etc.

Since it sounds like you are asking where the money goes to help understand why it costs what it does, consider this:

There are equipment costs for service delivery (i.e.: routers in the case of an ISP, or trains on the case of Amtrak), and related expenses (i.e.: electricity for routers, fuel for trains). But the more important costs that aren't obvious are intellectual expenses (engineers to design and run networks, enginners to run trains). Not to mention repayment for investors for risking their hard-earned money in the first place.

Think of other services and how difficult it would be to determine where your money goes, and why it costs what it does:
  • Lawn mowing / Landscaping
  • Medical Care
  • Cable TV
  • Hotel Service
  • Auto Repair


Well, duh.. (0, Troll)

Turbyne (563535) | more than 11 years ago | (#5019594)

What is the origin of the cost of bandwidth?
The cost originates from the Force. The Force is an energy field that occurs naturally in the galaxy. It has a light side (1), a dark side (0), and binds all things together in a great worldwide web of existence.

The force is like duct tape.... (-1, Offtopic)

Anonymous Coward | more than 11 years ago | (#5019715)

...it has a light side, and a dark side, and it binds the universe together.

Some Factors (4, Informative)

aufait (45237) | more than 11 years ago | (#5019609)

When an Internet provider charges someone hundreds of dollars in bandwidth costs because they were Slashdotted (or Farked) and their bandwidth use shot up, what costs have the Internet provider incurred, and why does it cost them what it does?

That is not a simple question to answer since there are several factors that have to be taken into consideration in determining price. Different type services, e.g. dialin lines, colocation, dedicated bandwidth, etc, have different factors.

The primary thing to remember is that the ISP business model is based on setting prices for the "average user". They do not directly pass on the cost of each user to that user. For example, a dialin phone line costs $25. That is the cost of just the line. It doesn't include equipment, employess, or bandwidth. The reason ISPs charge $20 or less is that the average user doesn't tie up the line 24/7 so that they can 7 to 10 users per dialin line.

The same is true with bandwidth. An average customer who gets a dedicated T1 usually averages 50% or less of the lines capacity. So the ISP can sell T1 service to two or three customers for each outgoing T1.

Another factor is peak vs average load. The ISP has to provide facilities to handle the peak load. Yet, most prices are set according to average load. Check this site [angband.oook.cz] if you want a graphic example of the slashdot effect.

All this presents a problem for ISPs in pricing for users want fast speeds but have low averages, e.g. colocated web sites or DSL lines. They can't charge for the maximum possible load. If they did, DSL lines would run closer to $1000 per month instead of $50. If they stictly base it on average load, the low users are subsidizing the bandwidth of the high users.

To resolve it, they have come up with a price tier that gives an incentive to users to, accurately as possible, estimate their usage. They make it cheaper for the user to pay for the next tier above their average monthly usage rather then paying for the tier below their monthly usage.

Easy! Wires, cables, people, etc cost money (0)

Anonymous Coward | more than 11 years ago | (#5019623)

Let's say I run a small ISP and you are one of my customers. Now since there isn't any magical connection out there that ties me into the Internet, I have to pay a larger provider to provide access for my company.

I plan on having X number of customers, so I purchase x number of T1/T3/OC3/whatever. Now I have a monthly bills for those lines and a monthly bills to my upstream provider. I based my bandwidth costs on the average usage + allowed extra for new customers and busy times.

Now you and a few others come along and start using a lot of bandwidth, my other customers / new customers start taking a performance hit. What do I have to do? Pay for more lines, more access charges, maybe upgrade my routers, etc. This costs me more money!
Where are the costs? Well there is a lot more than the apple example, using that example there all kinds of items that are needed: technicians, engineers, helpdesk staff, servers, routers, T1/T3/OCx, workstations, etc. multiplied each time you step up a tier provider.

Now I'm not an ISP and I don't work for an ISP so this is just my view. However I have seen some of the costs that they try to charge sometimes and they do seem a bit high, but hey, you have to pay if you need it.

Costs of Bandwidth (3, Informative)

JWSmythe (446288) | more than 11 years ago | (#5019654)

Well, from what I understand, there are a lot of factors.. Bandwidth itself doesn't cost anything. You're paying for the right to use it. :) Kind of like driving down a toll road. The road is there. It's going to be there. If you use it or not, it's still there. But when you use it, you pay $0.50.

The ISP already owns (or leases) a bunch of fiber going wherever. They already own a bunch of routing hardware. Those were initial costs, which may not come again, unless business is good.

There are a bunch of costs that they continue to have.

Staff. Everyone from the salesman trying to sell you a line, to the support staff answering the phones at 3am when you can't remember what your netmask is suppose to be.

Building costs. Like, those lines run somewhere, right?

Fees. Everything else. :) It costs money to run your fiber into someone elses equipment (peerings), or to share fiber across an ocean, or a satellite link.

So, they can't directly make money back for all those costs. They just turn around and say, "We'll charge you for the bandwidth usage", and voila, they do.

From what I understand, the actual cost of running a DS3 (45Mb) or a OC3 (155Mb) isn't too far apart.. But they'll sure charge you a lot more for it. :) That's how they make money..

Like with dialup providers, they expect to need so many customers to cover expenses, then they turn a profit. If they can support 200 customers, and need 20 to make a profit, they don't start charging all the customers less as the number of customers increase.. The ISP owners just start driving nicer cars. :)

Real costs (0)

Anonymous Coward | more than 11 years ago | (#5019658)

The costs are realy more to do with maitnence and paying down debt. Figure most teir 1's as they realy are the guys the set the pricing have racked up millions in debt buying cisco 12012's etc a single line card on those can cost 30k or more. Actualy leasing the fiber in the ground is expensive and most have some pretty heafty costs associated with the local loop end with the teclo. The fiber build out can also be expensive I have looked at 5k a month for 4 pair in the NYC area but the cost for the buildout was in the hundreds of thousands.

The cost of doing business (3, Informative)

Frightened_Turtle (592418) | more than 11 years ago | (#5019667)

How much money does it cost an ISP to be a good ISP? A lot more than you expect! Take an OC-3 line. This can run you upwards of US$50,000 PER MONTH! This is just to connect your customers to the major communications backbones of the internet, so they get reasonable bandwidth.

But now you need to connect those communications lines to something so that your customers can actually get onto the internet. How 'bout a couple of routers. A couple of new Ciscos could run you upwards of US$100,000. Oh, wait a sec! You need servers so your customers can put up their websites, and to manage their accounts and stuff? Servers are the "creeping featurism" of providing service. The more customers you want, the more servers you have to add. For good, high-quality, industrial grade servers, let's take an average price of $2,000. I haven't even mentioned all the Cat-5 cable and switches you're going to need internally to connect all your equipment together.

For that matter, how on earth are your customers going to physically connect to your service? Dial-up? Well, you will probably need a CLEC to be installed at the local phone company. Be a cable provider? You'll have to string lines up around town. That's expensive! Either way, you are now a utility, and you will have to license yourself as such. THAT costs some bills. The more customers you have, the more stuff is filling up your OC-3 bandwidth. In order to maintain a higher quality of service, you're probably going to need to add another OC-3 -- or more economically add a couple of DC-3's to help spread out the load. $! $! $! It's really starting to add up! Whew!

Just to connect alone, you are looking at a recurring cost of better than $500,000 per year. Equipment costs will probably run you another $300,000. But you have to maintain all that. There's another cost for maintenance contracts. Believe me! You can't run all this by yourself! You will need to hire people just to help run this. And sell your services. And deal with irate customers. And accountants to watch your books so you don't put yourself too deep in the red. Parasites- er, uh, "lawyers," to keep you out of trouble with RIAA when some cheese-eating high school boy decides that paying someone for their music so the musician can make a living goes against the constitutional rights to free listening...

And here's something that few people stop to think about: all these gadgets feed on electricity. There's yet another whopping, monthly recurring cost! Oh, well...

These are the things that your money is going towards. Admittedly, I'm listing out all the top tier stuff, here. When you want to handle industrial and commercial uses, many customers at that level want guarranteed levels of service. Just to run this level of ISP can very easily run you over US$1,500,000 per year. You had better keep your customers VERY happy in order to make enough money just to cover your costs.

At a lower level -- say you just want to be a neighborhood server for people in your part of town. Or maybe, all you want to do is be a hosting service, where people can park their web sites and pay you per month. A Mom-an'-Pop type set up could probably be pieced together for under $50,000, but you still have to connect to the internet so your customers sites serve to the world at a reasonable bandwidth. A DC-3 line could handle this at under $15,000 per month. You'd need quite a few customers to cover that cost, at least 200 at $75 just to match that price. More to make a profit.

A long time ago, before Broadband. When 2400 baud modems were considered lightning fast. It was quite possible to set yourself up with a couple of computers, a couple dozen modems and a T1 and call yourself an ISP. In fact, that's how a few of today's ISPs got started. Take a look at Pair.com" [pair.com] . They are a classic example of a world class hosting service that got started in a garage. Nowadays, just to keep up with the competition, you have to put out over 200 time more cash just to get started.

Gee, I bet you wish you had that $350 million dollar Powerball lottery ticket now, don't ya?

Hopefully I can shed some light on this. (2, Informative)

JasonKiley (634808) | more than 11 years ago | (#5019671)

I have done a fair amount of shopping on hosting and spent 70,000 USD on it last year. At the top, are the big network providers (UUNet, Qwest, AT&T, etc.) These companies have substantial costs associated with technology and connectivity. Their customers are typically end user ISPs, hosting companies, and colo (colocation)facilities, so support is a very minor cost. They have a commisioned sales force. Next in the chain, we have end user ISPs, hosting companies, and colo facilities. End user ISPs provide an obvious service. Hosting companies and colo facilities are somewhat intertwined. Large hosting companies have their own datacenters and connections. Colo facilities have separate racks that are leased out. The customer is responsible for the connectivity, but these places are typically prewired with every sort of network provider available. As an added complication, Many colo customers are small hosting companies. Let's look at the cost impacting factors at each of those levels: Network providers: Infrastructure: High Connectivity: High End user support: Nearly nonexistant End user ISPs: Infrastructure: Moderate Connectivity: Moderate End user support: Very High Hosting Infrastructure: Moderate Connectivity: Varies on account size End user support: Varies on account size Here is the problem with hosting: The largest companies are running large *nix servers with huge numbers of accounts on them. These are the 10-300 USD accounts. You pay for a minor amount of bandwidth and hardware, but the fixed costs of collecting payment and providing support make up a large portion of your bill. The high overage charges are there to discourage you from exceeding your planned bandwidth. These companies are paying for a fixed connection typically in 100Mbps and 1Gbps units. They need to keep a certain level of utilization and keep burst down to maximize the return from their connectivity costs. An additional cost of overage is in hardware. Those large servers are balanced with a high, but manageable number of accounts. When several accounts are at high burst, there is a possibility of slowing other accounts and getting complaints. The cheapest way is using dedicated servers and a fixed connection size. The problem with this is that it is not cost effective until you are using a fair amount of bandwidth. The reason it becomes so much cheaper here is that there is no uncertainty for the hosting company. You are also generally responsible for administration of these servers. Colo is pretty much the same except that you install your own servers in a facility instead of leasing a server from a hosting company. I hope this helps. I have explored many options and I have learned a great deal about hosting from being a large account.

Yield Management (1)

hhawk (26580) | more than 11 years ago | (#5019674)

A key part of the cost of bandwidth, like other commodities (e.g., commercial electric power), is the cost of keeping bandwidth available; bandwidth that you may or may not use. If they allow their network to be utilized anything approaching 100%, then its performance will typically degrade. They need to have this extra bandwidth available for their needs (network performance) and your needs (spot available and network performance).

My prediction is over the long term their will be future markets for bandwidth (along with spot markets) and if you need to IM Tokyo every night you can get discount bits (in the futures market) or take your chances in the spot market.

If you need flat pricing then you'll get unlimited use of the "left over bits." It's like eating buffet at Atlantic City; you can eat all you want and the food isn't bad, but it isn't as good as the food in the sit down places with the linen tablecloths.

When that type of pricing develops (maybe in 10 or 15 years), then heavy regular users of bandwidth will get bandwidth with LOW market-up, because their usage is steady, predictable and contracted for.

On a tight bit budget (like a low cost PCS Cell phone plan)...?

Worried about getting /.'d...?

You can either pay for the extra bits on the spot market or simply allow service to potentially degrade by eating off the "bit buffet."

Does "law" of supply and demand really apply? (3, Interesting)

release7 (545012) | more than 11 years ago | (#5019678)

Theories about supply and demand look good on paper but in the real world, the law is much simpler: get as much cash as you can anyway you can. Unlike natural laws, there are many ways to artificially bend the laws of supply of demand in such a way that serve self-interested parties. Take OPEC for example. It's a group nations working cooperatively to maximize profits for the member nations by either creating artificial scarcity or oversupply.

Oil is a little different than bandwidth in that it is a very tangible good. You get mechanical devices to pump the stuff out of the ground, pipe it down to a ship, get it to an oil refinery, and distribute the stuff. OPEC may be able to influence the market somewhat, but when capital is tied very closely to physical product, the laws of supply and demand become harder to control and manipulate.

But look at what happens when you try to apply the law of supply and demand to a much more intangible good like electricity. Electrons can very easily be "hidden" and then magically reappear practically at the flip of a few powerline circuits. It instantaneously can be shuttled over great distances from one place to another at little or no cost. And this makes it a market ripe for manipulation and scamming a la Enron. They took OPEC one step further by creating an entire artificial markets to sell electricity.

Enron was also about to create an artificial market for Internet bandwidth. Just like electricity, you can play a lot of games with the "supply" of bandwidth and play a lot of bullshit games with the actual cost of the good. I definitely don't trust corporations to set the price of bandwidth.

It's extrememly difficult to place a cost on bandwidth especially when the corporations that control bandwidth have their fingers in many different other communication services. Basically, companies will charge whatever they can get away with, the "true" cost of bandwidth be damned.

And that's precisely the problem. When utility company's first started out, they were entirely unregulated and they were the only game in town. They charged whatever they could get away with until government stepped in and allowed them to charge just enough but still make a handsome profit.

The Internet is not much different. Though we have more than one ISP to choose from, there are only a small group of players who control access to the Internet's backbone. It wouldn't be much of a trick for them to fix bandwidth prices and make a killing.

So to answer the question "what are the true costs of bandwidth", I'd say, "However much gouging the average consumer can accept. The public be damned."

Re:Does "law" of supply and demand really apply? (5, Interesting)

the eric conspiracy (20178) | more than 11 years ago | (#5019765)

Take OPEC for example. It's a group nations working cooperatively to maximize profits for the member nations by either creating artificial scarcity or oversupply.

One thing that prevents OEC from doing anything it wants with oil prices is that there are other sources of energy out there. If the price of oil gets to be over $45/barrel for a significant period of time, those other sources become competitive.

The Saudis understand this issue and have publically stated that they will not let the price of oil rise to the point where alternative energy sources are competitive.

Even cartels are subject to supply/demand laws if they distort a market too much.

It depends where you live (1)

MrJones (4691) | more than 11 years ago | (#5019733)

It depends on which country you live: a 1st or 3rd world country.
- In the case of a 1st world country, >50% of the money goes for paying humans. Because tech is cheap(they invented it) and human salaries are high.

- In the case of the 3rd world country, >50% goes for the infrastructure(hardware, telco, satellite bw, etc). Thats because all prices are in dollars and a poor countrys can not compete with the strong dollar. Blame globalization or whatever, but thats the truth, at least here.

For example, here, a 32kbps 24x7 Internet conection cost 100$ per month. The minimum salary is about 120$ a month. Do the math.
(New offer, pay with credit card and you get 64kbps per 100$)
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