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Breakdown of Bandwidth Costs?
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)?
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.
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?
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.
God made the natural numbers; all else is the work of man - Kronecker
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.
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Error 500: Internal sig error
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.
Do you see my engineers =
Do you see why engineers don't run the show....
Sorry about that. Should have hit preview...
SPP
"It's technical in a psychometric kind a way" -- C. Parish
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.
You have not answered the poster's question but rather engaged in some ego-wanking.
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
"You never want a serious crisis to go to waste." - Rahm Emanuel
...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.
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?
Switch back to Slashdot's D1 system.
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.
what, you can't read english? :p
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!
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
Ctrl-Z
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.
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?If you could be told what you can see or read, then it follows that you could be told what to say or think - BoC
"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.
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 $300K per mile, etc.)
But once all that infrastructure is paid for (either from revenue or via chapter 11), the incremental costs are pretty small.
It's cheaper for the fiber owner to pay him to be on-site than it is for them to lose the money on lost bandwidth should the cable be cut and communication be down for an hour or two of response time.
He does have to re-certify on his splicing ability a few times a year, but that's about all he really does.
NetInfo connection failed for server 127.0.0.1/local
The goal is value based selling. I charge you what you can afford to pay. I think that ISP's who tried to survive on costs based selling couldn't handle the rapid changes in cost structure. But they were probably also responsible for the drop in pricing.
... but other parts of the organisation need the money, and they can charge for it.
Think the rate structures for long distance calls - why were they distance based ? Difference between business and residential rates, why ?
Think airline seats on traditional airlines vs. SouthWest. The airlines have seat blocks at different price ranges - while some of you may think business people who spend 2000$ 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
Thats what's so cool (business wise) in high-tech. Actualy, its how many businesses work.
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".
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.
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?
mogorific carpentry experiments
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 and Paid Peering )
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.
Sig (appended to the end of comments you post, 120 chars)
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.
SO YOU'RE GOING TO DIE: The Comic for Dealing with Death
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?
This is the first use of the term "Farked" in a Slashdot post. This term refers to an analogue of "Slashdotting" caused by the web site Fark.com.
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.
Be wary of any facts that confirm your opinion.
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.
"You can't make a race horse of a pig"
"No," said Samuel, "but you can make very fast pig"
If they simply used an Interocitor, 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....
"I would say that 99 per cent of what my father has written about his own life is false." - L. Ron Hubbard Jr.
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).
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.
> 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.
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...
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.
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.
"Sic Semper Tyrannosaurus Rex."
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 ?
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:
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:
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
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).
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).
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).
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?
You gotta be kiddin...apples grown for consumption are always cloned.
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.
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.
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:
_______
2B1ASK1
I recommend you read Telecosm: The World After Bandwidth Abundance by George Gilder.
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)
~A'Ëq'i4d)^'$ÊSÈòB
>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.
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 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.
I feel like picking a fight with everyone who thinks they are right. - Rainmakers
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.
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.
:) That's how they make money..
:)
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.
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.
Serious? Seriousness is well above my pay grade.
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.
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". 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?
Whew! This water sure is cold!
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.
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).
/.'d...?
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
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."
http://www.hawknest.com/
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."
<a href="http://www.joblessjimmy.com">Work is dumb and so is Jobless Jimmy.</a>
Set up a web server, give us the address, we'll see how they charge you... Seems easy enough.... :)
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!).
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$)
Get my e-mail after a captcha test in: http://tinymailt
Ironic...no UK ADSL ISP's except one (VERY low cost..and unlikely to survive long anyway) have ANY form of bandwidth throttling.
I also work for a hosting company, part-time.
We now flatly refuse, after some stupid incidents, to use 95%. We'd rather pay for the bandwidth we USE rather than being screwed over by our hosts.
Thought there have been several responses relating to burstable pricing, it's important to understand that burstable models are more of a marketing concept than a network costing one.
/can/ permit overbooking to occur.
Considering that IP service is in the class of packet sharing telecom - meaning you do not have a fully reserved, "100% yours and only yours" pipe from location A to location Z (end to end), your costing models have to be a bit more complex than adding the sum of the parts. But it should probably start there. Packet share != Overbooking, although packet share networks
To explain costing on a more common tier two or smaller level (tier one costing has much more to do with transport costs and a bunch more variables not interesting here), take your typical tier two or smaller ISP who we'll say is connected only to a single upstream, and that upstream provider is a tier one (multihomed at x+ bilateral and/or multilateral facilities; e.g. Sprint or AT&T Worldnet).
That ISP will have:
- an egress transport cost: e.g. a T1 to Sprint and perhaps a local loop cost to get to the tier one carrier; sometimes this is bundled by the tier one provider
- a facility cost: router, colocation, switching and all the associated things to figure out what to do with customer traffic and send it where
- an ingress transport cost: this is the transport cost from the customer to the ISP (e.g. T1 to a local frame relay cloud from the customer, then another portion from the cloud to the ISP, or a similar model in DSL, or a fixed point-to-point line)
Plus applicable switching/routing/data center/network core/backoffice/customer support/billing costs.
Then the fun comes in calculating an aggregate the ISP wishes to use in predicting how many seats it can sell on its T1 until the plane can get full - understanding that if it oversubscribes the T1, it may have the possibility of bumping passengers (such as slow performance; people getting less than what they paid for).
(Note: You'd be surprised how many smaller ISPs don't even understand the concept of aggregation - many rural ISPs in our parts think Internet comes in T1 and put 500 DSL home connections on the T1 without thinking twice. "Order another T1? Why? We already have Internet!" Plus there are other reasons they never go past a single T1 - their Cisco 2600 only has two ports (T1 in, T1 out), they don't know how to load balance more than one T1, and fundamentally it's too expensive for them)
Aggregation becomes the process of determining how to share that cost, since it's a shared network. It includes variables like time of day (business customers will usually demand more bandwidth during business hours; residential after hours, etc.), whether the customer has a bandwidth guarantee in their service level agreement, etc.
After all of this calculation and checking of assumptions, the ISP may calculate it into a cost per Mbps as we do.
so they have to overbook. It's all about getting the most out of what resources you have.
Not always true. Overbooking can be perceived as ineffective loading - an error, in otherwords, to be avoided. Your power utility doesn't run a constantly overbooked network - that'd have serious regulatory and technical consequences. But when you've got very little backoffice expertise in a smaller ISP, they won't know how to develop traffic models and purchase effectively.
Overbooking can be avoided both by developing good subscriber models and by enforcing them (ugly reality: if you're using 1 Mbps up/down sustained and are paying $35/month, you're not paying for what you're consuming and you'll cause a problem somewhere along the line). Additionally, you're going to see better aggregation and closer matches to "what you pay is what you get" as the last mile part of the business matures. Much of the success of an ISP is in how it buys and how closely it matches what was bought with what was sold - you can't run a $2 all-you-can-eat prime rib buffet, nor can you charge $10 for one that has nothing but dinner roles.
Really, overbooking and the opposite end of the spectrum (giving excessive bandwidth without charging for it) are mistakes made early in the development of the business. Successful providers will tighten up both ends, providing the service people ordered and paid for, and smart customers will understand that in order to get what they paid for, they shouldn't also expect a free lunch.
*scoove*
Why? How else are you going to charge for access to your network?
Pretend you are starting from scratch, and buildingl a network. You lease/build lines from city to city, within a city, etcetera. This is all fixed cost stuff to you. Now, you only have so much bandwidth between cities... and given that you are selling internet, which is packet switched, and not full circuits.. you aren't selling dedicated city to city bandwidth to people. That's what some people call "overselling" though the term has a negative connotation when there is none; that's the whole point of packet switching. So how do you charge for use of those shared backbones that you own? Flat fee for every customer? Sure you can do that; some ISPs can and do. the cost ofen reflects this.
The natural thing to do is divide it up by bandwidth. Set your pricing so that you have a good idea of how much bandwidth each customer is going to use in reality, so you can properly manage your network for all your customers. If they exceed certain limits, the pricing goes up... this is a deterrent, as well as a money maker.
There are many ways to do this.. if you are just buying transit on some long distance cable, often it's a flat per-byte fee. Use as much as you want, but you pay.
Some do what they call "burstable" where thyings are based on an average throughput over a month... where a certain percentage of sample periods are permitted to be over the limit.
(384kbps burstable to 1.5Mbps.. your average speed has to be 384kbps max, but you are permitted up to, say, 5% of your traffic to be over 1.5Mbps). This is a convenient way for some customers to look at things.
Per the original post:
/. tech salary, add social security and both sides of income tax, plus health insurance, backoffice costs divided by employee, etc., and you'll have a nice $30+/hour number minimum. Multiply that times a the hours to put into place the management systems, policing time, customer contact time, etc. and you've got a cost well over $500, not including the cost of consumed bandwidth. At the $35 you're paying me, minus the cost of your service, it'll take me 5 or more years to make back that $500 you incurred. I'd rather tighten the noose and encourage you to abuse my competition.
/. before about profiling customers in other industries - e.g. Delta Skymiles. Don't think your ISP won't model who the good and bad customers are. Instead, count on it and use the system to your advantage, or understand that by being in the bad category, you're going to be treated just as someone with a lousy credit rating has at the bank. We already score customers on support cost - and know when you call in if you're a recurring problem user (blaming us because your MSWord doesn't work right), or if you're a prompt payer that rarely complains.
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?"
The original poster refered to a "rate increase" scenario, such as being slashdotted (though this is almost never the condition seen; more often, it's things like abusive P2P, sustained large-pipe VPN connections to another network, or nonstop downloads of DVDs, MP3s, videos, etc.)
Contrary to common net paranoia, most ISPs don't go chasing after bandwidth abusers unless they really are a problem. Network "policemen" are an expensive distraction from the primary focus of our business, so they don't usually send the heat out unless someone's really out of control.
So per "passing along expense" vs. "marking things up," I wish!!! By the time a customer has been notified of bandwidth or AUP abuse, they've not only consumed much more resource than they've paid for (which typically won't be paid back, even if a rate increase is applied to the subscriber), but they've incurred a hefty administrative expense.
Take your typical
How much of the total costs are tied to infrastructure versus the human component (technicians, sysadmins, technical support and so forth)?
Very good question to raise. In our network, bandwidth costs are only #3 - they follow payroll (people cost) and network infrastructure capital costs (e.g. routers, buildings, towers, switches, servers).
When you're down to a per Mbps/month cost of less than $350 (for both upstream egress to tier one networks and ingress from your customer), bandwidth abusers still can cost you a bit of money (chewing up a sustained 1 Mbps/month while paying $30-$40 for residential service), but the people cost associated with dealing with the abuse is more significant.
So what's the best way to deal with this? Information retrieval charging
Actually, I'd expect more and more providers to pursue a tighter bandwidth model (down from the ~3 Mbps unlimited of early cable modem years) with bandwidth caps being more common. Understand that by making 95% of the customers overjoyed, and either making the 5% bandwidth hogs pay for their use or go to the competition, it makes service better and lower cost for everyone else.
And a final thought: We've seen threads on
*scoove*
The sum of all the costs to create a product or provide a service does not make up the price. The price is determined by market conditions (the demand curve, etc.).
As for bandwidth, providers buy 'chunks' of bandwidth, and generally not charged on a metered basis. As far as my experience goes, few interenet users pay on a metered basis, and in actuality vast amounts of bandwidth go unconsumed.
- Ubique, Tom Termini www.bluedog.net - WebObjects / J2EE SOA / iPhone solutions for knowledge workers
Let's look at cost first. Typically, service providers think of costs as some percentage of the dollars coming in for a given service. They break these down into several categories. Although each company is different, here's a simple example:
- Cost of goods sold: These are dollars that the companies spends to provide the specific service. More on this later.
- "SG&A": Sales, General and Administrative. Otherwise known as "overhead" -- cost associated with running the company that aren't tied specifically to a service (management salaries, office space, etc...). Sometimes sales salaries and marketing are broken out from this on a per-service basis, other times they are lumped into the general company overhead costs.
- Margin: This is the money left over after the company's costs are taken care of. If the company sells everything directly at retail price, this is equal to profit. However, if a company has resellers or other types of "sales channels", they will be paid a certain percentage of the margin for selling the product. Discounts also come out of this chunk.
Very rough rule of thumb: cost of goods sold should *never* exceed 50% of "retail" (undiscounted) revenue in the telecom / service provider space. Of course, if a company is desperate for business they may give away very large portions of the margin percentage in the form of discounts, etc...The "cost of goods sold" for a typical hosted dedicated server generally break down into several major categories, that may or may not be broken out as different "services":
- Hardware cost & software licensing: This is the fixed purchase cost of the dedicated server itself, and any associated software licenses. This is typically paid directly by the customer up-front, or broken down into lease-like payments and buried in a flat monthly fee.
- Data center: These are costs of having the server sitting in the data center, including lease cost of the space, supporting rack and LAN infrastructure, electricity, cooling, security, etc... Typically these costs are figured based on averages per square ft. of server room space or by rack space.
- Operations / management: These are the costs of management services provided for the server: NOC staffing, management / monitoring system cost, tape backup costs, etc... In the case of colocation, this may be minimal or non-existant, while it's very significant for dedicated / managed services, since you're paying for system administrators to upgrade your OS, apply patches, etc...
- Customer service / support: Costs for the right to call someone on the phone and get help with your service. This primarily includes call center infrastructure & support staff salaries. Again, may vary widely depending on the level of service selected.
- Bandwidth: At a minimum, this is the cost of the routing infrastructure, the cost of the WAN part of the NOC staff and systems, and the monthly costs paid to the upstream providers for big dedicated pipes. Your average hosting company is not running their own fiber or even buying dedicated circuits: they are buying IP transport from a large ISP, and pay for a certain amount of bandwidth. Usually, they'll lay in a very large fiber pipe to the ISP's local POP, and then activate additional bandwidth as needed. I can't break down the long-haul ISP's costs for providing that bandwidth, but presumably it breaks down similarly.
Now, a few words about pricing, and specifically bandwidth pricing, since the poster was interested in that. Aside from bandwidth, the costs above are reasonably predictable from customer to customer and month to month. The more predictable a cost is, the more likely a service provider is to lump it in with a bunch of other costs and charge a flat fee. The less predictable a cost is, the more likely it's going to be metered and broken out.In general, customers demand / want flat, fixed, predictable prices. This is why ISPs charge $19.95/month for dialup rather than $.05 / hr. Of course, at some level the ISPs price for dialup is proportional to actual use, but they've figured out that, on average, they can make money at a $19.95 flat fee, and customers are willing to pay it. Of course, customers who use less are subsidizing the service of customers who use more. But as long as the *average* cost remains low enough that the low-usage customers feel they are paying a fair price, it works out.
Server bandwidth is a case where it doesn't work out. The amount of bandwidth that a single static web server is capable of consuming is quite stunning, and goes up along with Moore's law. Many hosting customers choose a dedicated server not because they need gallons of bandwidth, but because they have some sort of custom app or want full administrative control of their system. These folks aren't willing to pay a price that would cover the "average" cost of bandwidth across all an ISPs customers, which may include large streaming media systems or pr0n hosters. So the ISP meters / measures the bandwidth and charges each customer appropriately.
However, it's a bit more complicated than that. You'll notice that, if a customer buys a lot of bandwidth, they pay a lot less per GB than a small customer. The smallest customers may pay ridiculous prices for bandwidth if they exceed their plan (case in point the Farked "boobies" page that racked up $400 in bandwidth charges in two days). It's obvious that SPs are charging much more than their "costs" for the bandwidth in these cases, and you'll notice that the same thing is true for cell phone plans, etc... What's going on?
The answer is that it's all about predictability. A service provider must maintain adequate capacity for providing service. If they don't have enough upstream bandwidth, service quality for their entire user population goes down the toilet. It takes a long time to add additional capacity- new fiber needs to be run, new equipment purchased, etc... As a result, service providers are always buying new capacity in advance of demand, and to do this accurately they must be able to forecast demand. This boils down to getting accurate forecasts from their customers, which is impossible to do directly. Instead, as capitalists, they put economic incentives in place to motivate customers to predict their maximum demand accurately by pricing in tiers, or packages. Buy buying a particular bandwidth package (say, 20GB/month) you are effectively telling the provider that's how much you are planning to use, and they plan their capacity accordingly. Deviating from their master capacity plan is very, very costly for the service provider, and accordingly, the "right" to deviate from your plan as a customer is proportionally more expensive.
Another way to look at it. Customers who buy the smallest bandwidth package are the least "valuable" to the company because they are making no revenue commitments. They are also the most easily able to double, triple, or quadruple their demand from month to month because their servers are capable of consuming so much more bandwidth than they are buying. On the other hand, a large, multi-server customer is a more valuable customer, and is likely to be using a larger portion of the available capacity of their servers, and thus less likely to have wild changes in the amount of bandwidth they consume. The small customer thus pays much more per GB of bandwidth than the large customer, especially if they exceed their plan. In a lot of ways it's like the airline industry or any other industry where buying additional capacity is expensive and/or time consuming: you pay a premium for being able to use that capacity on short-notice.
Well, that's more than you probably ever wanted to know. Hope it's been educational.
-R
Perhaps this is how it works for a colocated customer. But for most end users (buisiness and residential), the majority of the monthly cost goes to the line charges from the phone company and other infrastructure costs. There isn't really that high of a markup, at least for us, on the cost of, say, a T1. Not once you add in the cost of our DS-3's/OC-3. Then we have to pay for OUR upstream connection.
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.
Again, maybe in a colocated situation, but ISPs could NEVER charge a one time fee unless that fee covered the estimated line charges for the length of the contract. Really, "bandwidth" doesn't cost anything. The only real cost is the infraastructure. And then there is a markup (like with any product or service) so that the ISP can make some money. Actual bandwidth used is only factored in to make the people who use the infrastructure more pay more to offset cost of maintaining things. Usually its not factored in at all, at least for us, since the majority of our cost is in delivering the physical connection.
To answer the original question, for us, as a T1 reseller, the majority of the cost is line charges from the phone company. Thats the cost of the loop and a fraction of the cost of our OC-3. Then we markup maybe 30% to pay for our upstream connection (which may be broken down differently) and to pay for administrative costs. We don't make a whole lot of money in the end. Really just enough to stay in business.
-matthew
"THERE IS NO JUSTICE, THERE IS ONLY ME." -Death
What on earth are you talking about? If 5 people live in the same amount of space, it doesn't cost the landlady any more money than if there was one sole inhabitant. How does having guests over constitute extra 'service'?
The same is true of bandwidth; even more so in this case because nobody has yet paid off the costs of the cable ships, the fibre itself, and the switches and routers, not to mention the brick and mortar housings for all of this which are quite expensive with redundant power, HVAC, etc. When you buy bandwidth you are paying mostly for two things: amortization on infrastructure, and telco monopoly rents on local loops.
About your sig: how is :1,$s/^.*$//g
:%s///g
:%s/.* ? Those pesky newlines still hang about, though..
ex command for the first line of the file to the last line, substitute everything from the beginning of the line to the end of the line with an empty string, as many times as possible per line.
Result: one file full of empty lines!
different from
ex command for each line of the file, substitute empty string with empty string, as many times as possible per line.
Result: not much different from the original file..
Actually, a few flavours of vi will take the empty pattern (//) and replace it with the last regular expression used.
Apart from being longer, that is...
why not try
Somebody earlier mentioned about the "burstiness" of internet traffic. To be more precise it is the On-Off nature of a single traffic source, or a user. Simply put, the user is ON when he/she, for example, downloads a page, and is OFF while reading it. Internet users cycle through this behaviour.
Since many users are dynamically using bandwidth the ISP benefits from the fact that their peak usage is uncorrelated in time (lets stay from fractality for simplicities sake). Thus burstiness leads to what is called "statistical multiplexing" which actually offers powerful economic advantage.
Thus traffic aggregation is a key design feature of todays internet.
Every user has a peak-bandwidth usage (P) during ON phase. This is interleaved by long periods of silence, or OFF phase. Understandably the average-bandwidth (A) of each user is much less than peak usage, or A is less than P.
When ISP provisions his network what should he consider? A or P?
If he commits to P then he will always be in a position to fullfil the user demand whenever it may happen. User gets QoS but ISP gets shafted as the network will be most of the time underutilized.
If he commits to A then each transfer would be spread out in time, and each user would feel the that service is unsatifactory. But the ISP benefits from the fact that he can have "more" customers as compared to the earlier case.
Example (units ignored)
P = 20
A = 10
Bandwidth = 100
ISP committing P will have 100/20 = 5 customers
ISP committing A will have 100/10 = 10 customers
Now i did mention that users would feel that "service is unsatisfactory". It is due to the fact that more that 85% of internet traffic is TCP and is elastic in nature which roughly means that each additional user of the bandwidth will result in decreased available bandwidth to every other user using it.
Theoratically there is an optimal point, or a certain number of users, upto which aggregation is desirable. Under this point, aggregation is small but QoS is high. Beyond this point the aggregation is high but the users begin to feel the impact in shape of degraded QoS.
Congestion pricing is one of the ways of moving the number-of-users to that optimal operating point.
Voltaire: God is dead.
God: Voltaire is dead!
Yes, yes... I was exaggerating. You should be using metric like everyone else anyway.
First thing missed:
It seems to me that this question is in regards to the charges a client incurs from a web host ISP. What I haven't noticed anyone reflect on is that a lot of web hosts have network resources that are either dynamically allocated or provisionable on the fly. There is a fixed cost for the equipment for the capability and an incremental cost for additional circuits, bandwidth, etc. These costs+margin are passed on to the customer that drives that increase in bandwidth.
Second thing missed:
Keep in mind that we still live in a circuit-switched world. Everything can be broken down into voice-grade equivalent (VGE) circuits, aka DS-0's. These have a bandwidth of 64kbps. Every additional 64k in throughput that someone needs is going to require an extra VGE circuit. A T1 (DS1) has 24 DS0's, a T3(DS3) has 28 T1s, and an OC-n has n DS3's in it. Even though things have progressed to the point that circuits can dynamically provisioned, it still requires an additional VGE for every 64kbps. At some point you reach the maximum virtual-limit inside a very real fixed-size pipe. Usually these are sized so that bandwidth peaks don't get chopped. In the case of bandwidth peaking out and impacting service, that is when the costs get really high because it degrades service to other customers which is a possibly a lot more expensive than any extra circuits with the QA agreements in place.
Lastly,
A clarification:
Someone posted that they had a T1 that got flooded and didn't have to pay any more bandwidth charges... Well, that's because when you have a T1 local-loop, you've paid for the full 1.536 (24channels*64kbps/channel). Your interconnection agreement covers the cost of this bandwidth. This T1 has a fixed limit, thus you can't exceed it and can't be charged more on usage. In fact, if you're not maxing it out, you're under-utilizing your fixed cost.
Is the main determiner of bandwidth costs.
The fixed costs of telcos & cable networks are huge relativelly speaking.
That's why govt telco utility monopolies (including govt cable infrasture monopolies, as opposed to content) will always have the lowest sustainable costs long-term. There's no way Singapore would be able to provide broadband to everyone on th island at the costs they do without Singapore Telecom (a 100% govt own utility that subsidies tax-payers with dividends every year) having a cable infrastructure monopoly.
Look how universal cable is in the Netherlands, & at very low per customer costs to the provider. Going by what I was told, basically every house gets a cable connection with all the free-to-air channels on it as part of the Dutch equilivent of the British BBC TV license. So everyone gets the Dutch free to air channels, about 6 channels, including their BBC equilivents, plus they get about 3 free to air channels each from Germany, Belgium, France & the UK. Which means about 15 channels & a cable connection all on the standard national TV license (the Dutch equilivent of the Brits BBC license). The main side effect of this is is that its universal nature makes provider costs low & you don't have millions of TV antennas ruining the skyline (I spent 3 months there 2 years ago & I only saw 2 TV antennas in the whole country). If one wants pay TV they simply subsribe to whatever extra channels they want & it gets piped in on the 'free-to-air' cable with the govt getting a percentage from the pay TV content provider for providing the infrastructure. The whole country comes pre-wired by one single cable network, making things really simple if one wants a cable internet connection
The US wouldn't have the problem with broadband internet providers going bust all the time if it had a govt telco & cable Infrastructure utility monopoly. As the only way to get cheap prices for broadband sustainably is through the economies of scale of a monopoly.
Of course this goes for all utilities. Take electricity, the only state in Oz that has had Californian style problems is Victoria, the only Oz state with privatised electricity. Of course private monopolies are bad (legislation's then needed to protect the consumer), but govt utility monopolies are good - if they rise prices too much the politicians get voted out.
Really the only reason the US doesn't have govt utility monopolies is because of ideology. American capitalist ideology believe's it's bad for govts to provide commercial services. But putting ideology before pragmatism is a losers game. Pragmatism dictates that where economies of scale are king govt monopolies are the go.
Lets look at the example of Singapore again. Singapore Telecom provides billions to the govt coffers every year in dividends (there-by subsidising the tax-payers). Look at Singapore Airlines, its one of the most successful & profitable airlines in the world. Singapore also has govt owned stock broking firms that run multi-billion dollar stock portfolios in both Singapore & elseware. Plus govts have a legislative & competitive advantage which is the gain of Singapore's tax-payers too. The govt buys up & invests in firms where it helps ST or SA. The govt can legislature in favour of the companies it owns, there-by giving the tax-payer an advantage. Of course it's tough luck to anyone competing against the govt, but fair competition doesn't exist anyware on the planet anyway. The fact is the only purpose of a business is to make a profit, so businesses use every advantage they can, no matter how unfair it is to their competition, so why should govts be different when they are providing commercial services & protecting the tax-payers dividends. Of cours govts have to very circumspect & sef-controlled - go to far & they can drive away investment BTW the Singapore govt also has share portfolios managed through front companies meaning theire's many compaines arround the world, including the US, that are part owned or fully owned by the Singapore govt & they don't even know about.
Really this is the legacy of that ultimate pragmatist Lee Quan Yew. Singapore doesn't hesitate to use policies of the far-right, centre & far-left if they feel its the right policy for the problem. Letting oneself be constrained by ideology, like the US, is a mugs game. Can you imagine the stink in the US if the govt dared to provided commercial services at a profit & make billions in divendends? Look at the controversy that surrounded Carter lending Chrysler some short term cash. Really the massive growth rates in places like Taiwan, South Korea & Japan from 1950 to 1990, have all come from putting pragmatism 1st & not giving a shit about ideology.
If a site they are hosting gets /.'ed, it creates several 15-minute intervals with abnormally high traffic. This will raise the 95th percentile figure. If that goes from 100 Mbps to 105 Mbps, the hosting service gets charged an extra $1500 for the month. Of course they can avoid that by throttling themselves back at a gateway router, but then every site they are hosting will experience degraded service. Complex traffic shaping on this scale uses significant processing in a router, reducing its capacity and raising those costs. TANSTAAFL. Watching a network grow rapidly has renewed my appreciation for some of the problems of scale.
Actually, an OC-3 isn't all that much bandwidth. I know there are service providers connected to some of the big backbone networks that have multiple OC-12s. I have seen contracts in those cases where there's a sliding scale for bandwidth, so an incremental Mbps-month costs less as you use more.
I think that is a pretty rash assumtion.
Wouldn't the person who is just surfing pages use a very small amount of bandwidth? Lets say we have one or two people downloading stuff on kazaa, listening to internet radio like shoutcast, or downloading the lastest kernel.
Each one of these activities are prolonged downloads, and even infinite in the case of internet radio. How many web surfers does it take to use the same bandwidth as the one or two people mentioned above? Hundreds? Thousands?
Thats one of the inherit difficulties with the internet, its completey unpredictable.
Selling software wont make you money, selling a service will.
The cost is minimal and many ISP' will agree the greedy telcos are gangsters.
Much like phone service the infrastructure was paid for long ago and at this point everything is gravy.
Ask your self this, have you ever met a telephone company employee that was happy (current or former)?
One thing I didn't see many if any people mention is reliability and redundancy. Where we live, the historical bandwidth providers are the telcos, who have flatly had a terrible record of keeping their connections working. The FIBER might be up, but the connections to the providers the telco'suse for IP may be down. One example is that a local telco uses nothing but UUNet/Alternet for their entire IP connectivity if you buy a internet pipe from them. They have 1 link to Indianapolis, and another to St. Louis. When they've had problems in the past it goes to pot quickly, especially since if there's a UU/Alternet issue, it doesn't matter which path is 'up', there's still an issue.
:-) It does mean that customers pay for that duality of gear and network connectivity. However, the flip side is that theoretically, they shouldn't go down, unless the single piece of gear their single T1 plugs into goes down for maintenance or failure (and since you've cut the failure prone pieces of gear down to 1, and that 1 is a incredibly simple piece of gear compared to the other stuff and can be replaced in minutes if not seconds, your failure times go down). If you HAVE to be up, then get a second T1 at your location to another Provider who hopefully uses a different IP carrier, using a different fiber provider, using a different physical path, and who hopefully has his own 2 IP carriers, etc etc etc.
Other Internet providers deal with this by selling local customers a 'local' T1 or DS3 or fiber into their data center. From there, said data center will have 2, 3 or more IP carriers, all hopefully riding different fiber providers via totally different physical connection paths to the outside world, hopefully going through physically diverse pieces of network gear.
That's how we do it, for example
That's where the real cost of bandwidth can be inflated. Just having a 100 Mb/s line to the internet can be cheap. Having one that's always up, regardless of physical, fiber, or IP carrier failures may not be especially if you don't have the expertise to manage BGP and gear that supports it.
Human resources are probably the most expensive. CCIE's and JNCIE's are at least 100K a year each. Lower level engineers are less. Then you have the onsite techs and the usuall overhead people like HR, finance, marketing etc. And don't forget the taxes paid on employees like FICA and unemployment insurance. Then there are health and other benefits. A true cost of an employee is almost twice their salary.
Taxes to the various levels of government are another biggie. The rate is around 1/3 of revenues before deductions. Not everyone can be like Cisco and MS and not pay any taxes. Most companies will pay 10%-20% of revenues to taxes. So next time all you socialists complain about the tax breaks on business, think about who really pays business taxes. You do.
Equipment costs. Something is always getting upgraded and new stuff is always being bought. Then there are the maintenance contracts for existing equipment and software. Our Veritas Netbackup Datacenter support is $15K a year. And that is just one application.
Then other fixed costs like bandwith to higher level ISP's, elecricity, and real estate. Electricity is expensive. Say you pay $100 a month for your home and you turn of everything when not in use. Now think of an ISP with thousands of servers, routers, PC's and other junk running 24x7 with UPS's and digital quality electricity. And not to mention a special deal with the power company to be on the priority list in case of power shortages. That is some serious cash.
...Gates Brothers Rocketry is back up finally.
Who are you? The new #2 Who is #1? You are #617565. I am not a number, I am a free man! Muhahaha.
You described it well enough that I got a basic idea of your answer. I think you understand ISP bandwidth overbooking pretty well.
However, maybe you don't know the world of apples.
Burst costs can be exactly like an apple.
Normal usage: Take apple, take bite, chew, swollow. Take another bite, chew swollow. Repeat until apple is consumed. Throw out core.
Burst usage: Take apple, put in mouth. With two fingers, shove hard. Spend time calculating costs.
>
> WARNING: THIS IS THE KIND OF THING TO BE DONE
> ONLY BY PROFESSIONAL WEBSERVER ADMINS, WHEN MY
> INTENET CONNECTION IS DOWN. FOR THOSE OF YOU
> AT HOME, DO NOT, I REPEAT, DO NOT TRY THIS AT
> HOME!
>
(And actually, I'm joking about the webserver admins. Please, you guys don't try it either. I am spelling this out for you so that you do not mistake my intent).
Correct Horse Battery Staple: 72 bits of entropy. Enter "Correct H" into google. When it generates the phrase, that's
This comment is right on the money. ISP's like most other businesses need to plan for a certain level of load. They don't have infinite resources or margins. They provide 'enough' headroom to accommodate reasonable loads, but they can't afford 'too much' headroom -- if they did, they'd be wasting capital that could be used for other things. (Obviously what 'enough' and 'too much' represent are a function of their SLA's, service quality, size, etc.; a good provider won't run into trouble often.)
When they run out of gas, everything goes into panic mode. People work overtime. Unexpected capital expenditures are made (new routers, new servers, new DASD, etc.). Surcharges are tacked on from upstream vendors.
All those costs add up, and because they're unexpected, they're painful. So to an extent, the surcharge that WE receive is to discourage us from whacking the pipes too often; or, if we need it, to arrange for the capacity in advance. So if the higher costs seem disproportionate, it's because they're supposed to be. Enough of these events can drive a smaller provider out of business.
JMO
-- We all have enough strength to endure the misfortunes of other people. La Rochefoucauld
I'm amused that farkers seem to think they have the same site flooding ability as /. when linking to a web site... hate to break it to you but 5000 hits in a 24 hour peroid ain't nothing, and no one is impressed with the Geocities page that exceeded its meager bandwidth allocation for the day. 'nuff said.
-- an embarassed farker.
I think the answer probably has something to do with the fact that ISPs have to have higher bandwidth available than is used on average. Say that on average, an ISPs customer base takes up 30 megabit... To serve it's customers, the ISP could probably get away with having just one DS3. However, almost no ISP that size would have only one peer, so the ISP would most likely have 2 or even 3 DS3s to seperate peers, for redundancy in case there was a problem with one, through BGP they could just temporarily switch traffic to the other two. (say a DS3 goes down because of a DDoS attack, or some equipment fails..) They would also get this extra bandwidth to be prepared for things such as /.'ing or other bandwidth killing anolomies.
So. The ISP has 3 DS3s, but it's customer base only uses about 30 mbit of all that bandwidth on average. It probably wouldn't be fair to charge all the customers the same for their usage, because #1, there are quite a few customers that are never going to pass much traffic, and #2, if you did that, your prices would not be competitive, and you wouldn't get many customers..
Solution: the customers that DO take up more than average bandwidth get to bear the burden of helping to pay for that extra bandwidth. While Joe and Jim have colocated servers that stay right around 500kbits per second average, but Bob has a colocated server that jumps up to 10 megabit for a few days, it makes sense to get Bob to pay a higher charge for the bandwidth the ISP makes available for instances such as that. Also, as more and more customers start to take up more and more bandwidth, they're also going to be paying for the costs of adding bandwidth as it's needed. New routers, new cabling and the manpower needed for such an event, not to mention the costs of the new DS3 or OC3 or whatever are probably quite a hit at startup, financially.
If the ISP didn't have the extra bandwidth available, when something did happen, customers would get very upset about the bog down that would inevitably happen. Upset customers = losing money..
I've read a number of the comments about T1 billings and how DS0's are bundled into T1's (or E1's if you are in europe) and how these are bundled into higher speed circuits and so on.
All of these comments are 100% correct - at least the ones I read. The problem is that this misses a very important issue.
The Telco's WANT interent content because this is what they are supplying to THEIR customer base and this customer base is HIGHLY tipped in favour of the surfing public. In effect anyone running a server is providing a service to the telecomunications industry IN SPITE OF THE FACT that the marketing arm of the telcos is trying to switch this around.
Ok. Suppose we were to look at the relationship between a relatively large telecomunications company and a backbone operator. The connection takes place via a POP (point of presence) and this is typically an expensive high speed router with fiber running into it. For the priviledge of this interconnect typically the telecomunications company will have to pay the backbone operator several $100,000 per month.
Ok. Suppose we have a web server get say slashdotted and this web server is accessed via the backbone. In this case the telco will be paying fees to that backbone operator for the bandwidth that their customer base demands.
This customer base does NOT include servers that they may host mind you. That should be obvious to everyone.
On the other hand if the slashdotted server were actually located within the system the Telco is running then they will of course have to install the SAME equipment required to support their customer base but they would NOT have to pay money towards the backbone - since obviously in this senerio the backbone is not involved. In fact - with bandwidth charges they'll be able to do some billing... right?
Now - as pointed out the issues of equipment costs and peak bandwidth are at the scale of the telecommunications industry normally governed by needed capacity and not how many packets happen to fly through a router from a given server on a given day. IE. If you want an OC3 pipe to a pop it will cost so much per month whether you use it all or not.
Given this. Once packets are in a telco's system, they generally have the capacity to route them to where-ever their customers happen to be located regardless of how the packets arrive in their system.
Now - a company operating a popular server will generally be told that they need to pay. Yet if this company has a server so popular that OCx speeds are required - then that company will be able to say "Hey - we run a POP - so you guys can pay us or you guys can pay the backbone... we're a bit cheaper".
This means that not all slashdotted server operators end up getting hosed over bandwidth charges. Some - if they are big enuf to negotiate a POP style connection actually make money.
For a moment lets look at the actual costs of a connection to the big switches the telcos use. Clearly one can set up a co-location office in a suitable location. The number of servers that can be located in such an office - even if very small is quite substancial. So lets consider the cost of running say a fibre link over to the telco's switch.
I'll use the example of a 100 mb/sec link which is about 2 T3's. (28x24x64kb/sec=43mb/sec)x2...
This can be handled by a pair of allied Telesyn fiber to ethernet drivers that I priced at under $1000 USD each. The fiber itself in 6 pair cable cost under $1 USD per foot. This means that a mile of fiber would cost under $5000 bux and with installation - say under $20,000. The fiber drivers in question will handle over 50 miles.
For a total cost of under $25,000 the physical equipment can be installed that will handle 2 T3's of capacity - and I am certain that people will realise that even a lowley PC can handle the routing of a 100 base-T nic. In fact for under $100 bux we can pick up a linksys unit or a d-link that can do it. Remember that once the packets are delivered to the telco's equipment - that it is their problem. If their customers want the content then the company has to get it somewhere - right?
----------
Lets look at the billings that typically are demanded for such a link. Typically as has been pointed out in other posts the demand is in the order of $1000 bux per month for each T1 equivalent. Since 100mb/sec is in the order of 2 T3's we get 2x28=56 T1 equivalents or a charge of over $50,000 per month for a line that costs less than $25,000 to install.
Now I want to make another point here. If the telco in question has enough customers to generate a combined demand of 100 mb/sec from a server - then that telco is going to have to pay the backbone in order to get at the content the server holds. If they are willing to pay the backbone - why not strike a deal with the owners of the servers? The point is that once the packets are in the telco's system that the costs are not going to vary much regardless how they got there.
Well - the reason companies that run servers are typically not offered a deal is because (1) they typically do not understand the game and (2) they typically are not supplying huge amounts of content so (3) typically they can be convinced by the market droids (who also do not know all that much about this) that if you run a server you should be treated as a consummer instead of as a supplier.
The facts are that in most industries if a company is willing to pay one group of suppliers, then fair trade practices legisaltion reguires a similar offer be made to all suppliers. A company running a server is a suppler. Furthermore the product they are supplying (internet content) is very valuable and generates revenues in the BILLIONS per month.
So to answer the question of why bandwidth shoudl cost so much if a server gets slashdotted for instance - well - the answer is that it is because the operator of the typical server does not have enough market clout to organise a fair deal.
Before people start flaming these ideas, let me point out that I have been on the phone with the VP of content development in the telco that serves me and he freely acknowleged that servers are suppliers and that the way to approach this is to contact the telco and speak to the people that negotiate peering arrangements. The people who handle high speed digital services are typically reading from the manuals that deal with consummer communications. Servers are suppliers not consummers but if you talk to the wrong group then expect a poor deal.
Bursting.. ok so the price is basically set in the contract, including penalty fees, but that's not what the question was about.
There is no technical justification for these extra charges when you go over your allowed bandwidth/throughput. You simply "agree" to pay more if you go overboard, and it's only there to discourage bandwidth gluttony.
When you hit a penalty, does it really harm or cause some sort of increase of operation costs? Does their electric bill go up? Does it cause more wear and tear on their hardware causing more frequent fixes, upgrades, and replacements?
Has anyone ever audited the operation costs of an ISP and see what the true costs are? Dose it really save them money if they place caps on users bandwidth? Of course, if everyone was a bandwidth hog, we would be lagged to hell. So this leads me to think that the reason why they impose caps, and penalty fees, is because they KNOW their network can't handle excessive traffic. And the reason is because they overbook, which was discussed before.
It seems their systems are very keen on noticing when one over-uses their alloted bandwidth, but why don't contracts give refunds or credits when your throughput slows to a crawl? I know most contracts do this when your lose connection entirely, but even then it's not automatic. You have to call tech support and ask for a credit. Why don't their systems measure bandwidth drops and automatically credit you on your next bill? Their systems seem to have no problem jacking your bill up when you "burst" too often.
-FRAGaLOT
This way, it automatically keeps everybody happy until the customer starts overusing the service in a systematic way, which is another story.
17779 eligible voters in a district, 17779 'vote' as one. This is Russia.
bandwidth = keeping servers running, installing cables, buying land, right of ways, lawyers, installers, insurance for the installers, etc etc.
I say that soon people will find a way to supply free bandwith. It's in everyones best interest but current telcom, govenment, media. That may sound like a lot of opposition and it is. The same interests also stand against free software. Those that would continue to screw you can be defeated.
Rise up, wireles mesh!
Friends don't help friends install M$ junk.
Clamping down on bandwith is going to screw you, much to the delight of large ISPs charging you peering fees. They would rather gouge your customers than have you offer anoying competition. I don't think I'd fit into your extensive usage pattern study and I'd be unhappy with your service, espeically if you offered less than I could download via old fashion modem. (Hint, it takes about 15 days at 4kBps to download 5 gigs). Cutting off my download is sure to piss me off. Charging me four times dialup prices and then some more for the ability to download is really rude. I won't get into serving questions because you have not mentioned that and may just hand out fixed IP adresses and allow your clients to do as they please.
Friends don't help friends install M$ junk.
It all comes down to the cost of a pizza. In 1982, Judge Green Ruled on the Modified Final Judgment (MFJ), also known as the ruling that broke up the Bell Telephone Company into RBOCs. Anyway, part of the judgment was that residential users shouldn't pay more a month than the cost of a medium, one topping pizza. Its a true story. In order to do that, the commercial customer have to pick up part of the tab. That's done through connection charges. AT&T charges your RBOC for every minute that they use their lines, your RBOC turns around and charges ISP's.
With a mess of calculations, statistics, and QOS numbers it can be calculated that if you use 3 MB a month instead of 1 MB then the RBOC will incurred an increased fee from AT&T. They pass that along to the ISP. However, this will all change when Qwest gets authorization to do inter-LATA calls. They can go around AT&T and connect directly and not incurred the connection charge.
Expect big changes in the near future.
Well two things to say.
One the government should have said "Take the wire out AND pay back the taxpayer portion that went into it".
Two. The telco's will eventially lose with that reasoning. With sharing they would have a guarenteed (however small) income. But when someone else comes in and lays fiber. The telcos get nothing, and they get the competition that they was trying to avoid.
Your car can be used for maybe 1,000 miles of driving per day, but you probably do far less than that. Your phone line can be used for 24 hrs per day, but (unless you're still in middle school), you use it far less than that.
Same thing goes for your desk at work, the toilets in the bathroom, the carpet in the corner of your room, the gate on your fence, the water faucet, etc. etc. etc.
In most real-world systems, you are paying to make available a certain resource (car, phone line, desk, toilet, etc.), not paying to actually use it. Once available, the usage numbers are far below 100%.
How much of your potential disk I/O do you use in a day?
Disclaimer - I work for a big company that sells this sort of stuff, but we also sell T1s and T3s and OC48s and several different flavors of hosting, so I can be pretty neutral about technology tradeoffs
Bill Stewart
New Fast-Compression-only CPR http://preview.tinyurl.com/dy575ks
As an aside, apples that you would eat haven't grown from seed for a long time; 1000 years or more, likely more.
They've been grafting them that long. Apple varieties don't stay true, the seeds are cross pollinated and fruits from this are nasty tasting small wizened sour things. The John Appleseed guy in the US was a land speculator who planted these nasty seed-sourced trees as he thought grafts were against the will of god and also there was a law that you could claim land if you planted X numbers of fruit trees (they didn't have to be GOOD fruit trees, and he could sell them to settlers). The settlers liked them as you could use them to stake your claim and ferment the fruit as well.
Take your apple example. Why is you eating an apple out of this years harvest a cost to an economy? Well...it's because you eating an apple reduces the amount of a scarce resource (this years apples) - and you eating it means that someone else can't.
Over a short period - short enough that apple growers can't grow more apples - a perfect market economy would balance demand and supply to accurately put a number on the cost of doing this. The more desperate others are to have apples the greater the cost of you taking one away from them - and, also, the higher the price would be.
Over longer periods more apples can be grown. What are the costs then? It's no longer simply because you are taking an apple away from others - more apples can be grown to supply your extra consumption. Instead the cost is now that the extra land and man-hours needed to produce the apple are resources which are no longer available to produce other products. What you'd pay, in this mythical perfectly function economy, represents the cost to others of not having those other products because as a result of the resouces which you have used.
Now go back to bandwidth. If your bandwidth use (and I'm not counting support, etc, here) is a short term spike then that's a cost because it takes bandwidth away from others. If no-one was going to use the bandwidth anyway then it doesn't cost anybody anything at all. That'd be just like you eating an apple that would have only gone rotten anyway. If you cause congestion then is more than zero: the loss to the economy of your bandwidth use is equal to the value of the network use which your use has prevented.
If it's a long term bandwidth use - so that your provider (or their provider) has the chance to increase it's capacity - then the cost of your use is the cost using up resources (engineers, energy, raw materials, etc) in providing extra capacity which could have been used to produce something else.
Obviously no real-life economy stands a hope in hell of actually pricing these things anything like close to their true costs. And no real life firm will ever think about it's pricing this way. In priciple, though, that's where the costs come from.
I run a small wireless ISP that covers a five county area, three of them in a 700k population urban area, two rural counties that border the city.
:-)
A single T1 from a reputeable provider (Sprint, UUNet, AT&T on good days) still costs around $1,000 in this part of the country. You can get slightly cheaper T1s from [IC]LECs ($800 or so) but if you later multihome with a tier 1 provider you'll end up lopsided. If you grow enough to need a significant fraction of a DS3 your cost per T1 equivalent can drop from the $1,000 mark to about $500.
I've posted this little equation a number of times before and I don't think its worn out yet.
one 256k full time music/movie trader == 4 channels on a T1 == (4 channels/24 total channels) * $1,000 ~= $160/mo cost to an ISP, dropping to $80/mo if they're a big ISP.
In addition to circuit costs I pay antenna site leases for building roofs, towers, and the like. I've got a small office and the debt on the equipment used in the network.
Unlike various venture capital created wireless beasts flopping around in my market, my company is 'organic' - it has financing (money used to buy equipment) but no funding (money used for operations). My partners and I all have other sources of income (consulting, equipment sales, very tolerant spouses, etc) and we won't draw paychecks until we've got the recurring revenue to support that.
We face one other wireless player in our space with a first generation bridged only network and a not so good reputation (I love you guys! Don't change a thing!). We also face a large, agressive cable company turned CLEC, DSL is widely available from the ILEC and another CLEC, and the ILEC has a fairly useable, cheap ISDN offering.
At the entry level for business we get between $75 and $130 for a connection up to 768k. We charge $250 per megabit with the assumption that anyone using that sort of speed is going to have VPN apps on the connection and they'll require additional hand holding.
In addition to the business customers we have one of the rural counties that is actively producing residential customers @ $29.95 monthly. I wouldn't miss them if they all dropped dead tomorrow, since they're mostly those that wore out their welcome at their local DSL provider and now they're Kazaaing up my network.
T1s are full duplex. Did you know this? DSL/cable users are amazed when they learn this fact. I like to explain it to them on a phone call rather than in person, so I can interrupt them while they're telling me a T1 can't be 1.5 mbit symetric. Think about it
So, I've got N T1s x 1.5 mbits of inflow and the same amount of outflow. The business customers use bandwidth from about 0700 - 1700, the residential customers from about 1500 when kids get home from school till about 2400 - basically two completely separate markets I can serve with the same inflow bandwidth. The ratio of inflow to outflow is about 5:1 with 'normal' customers.
The Kazaa thieves upset this 5:1 rule of thumb greatly and should really be counted as a wholesale symetric customer and charged accordingly. The CEO won't approve this charge plan, so I'm approaching it BOFH style, and anyone running Kazaa or similar services has just volunteered to be a victim^h^h^h^h^h^h subject in my various QoS experiments.
How did we decide how much to charge?
You need to understand that while I have an in depth understanding of what people are doing with the IP network I manage I *don't care* what they're doing, so long as they're not annoying the others trying to use it, or doing stuff that will get various three letter government agencies serving subpoenas to my office.
I happen to like playing with IP networks which makes being CTO a pretty fun job, but we could just as well have a warehouse full of various widgets that we buy for $2 and sell for $3 - its just an investment.
All networks built with more equipment than you can carry in one large RubberMaid(tm) storage container are investments. They depreciate a certain amount monthly, they have various expenses involved in operation including the next tier ISP cost, and hopefully, if you're doing things right, you're ending up with more $$$ on the 31st of December than you had January 1 of the same year.
So, there you have it. Its a *business*. Take a business class if this is all fuzzy to you, or better yet just start an ISP on your own and we'll see how long you think sharing MP3s and movies via the internet is a 'right'.
I am very easy to get along with, but I don't have time to waste being nice to people who are being stupid. -Theo
Actually I'm wondering how ATM affects a pricing model?
Bellheads vs Netheads
One of the reasons for prefering ATM was it made "billing" easier. As well as QOS. I believe that most of the back-bone providers use it because it's easier, and cheaper to overcome some technological problems that "packet-switching" presents.
On Peering and Transit - There are several different sets of definitions depending on technical subtleties, but the fundamental difference is that transit costs money, while peering is "free", but has restrictions on what you can do. In the transit model, Carrier A provides services that Customer B wants, so B pays A for them, and A transports B's packets anywhere that B wants; any restrictions are of the form "your pipe is this big" or "if you send more than X GB/month, it costs extra".
Peering is a connection between two carriers that both think that they get roughly equal value from connecting to each other, so they do some allocation of the costs of connecting their networks, don't charge each other for carrying the packets, and do some monitoring and limitation to make sure they really are getting roughly equal value. A traditional peering arrangement would be that Carrier A and Carrier B are North-America-wide carriers, and they put big "peering point" connections on the East and West Coasts, and A hands any traffic for B's customers to B at the nearest peering point and vice versa. Sometimes the peering points were "private peering", where they build a direct connection, but for smaller peering, they might just both buy pipes into MAE-West and MAE-East. The subtleties are typically about traffic to destinations other than A and B's direct customers. If A has a peering connection to Carrier C, and B doesn't, typical peering policies don't let B use its peering connections with A to reach C; it either has to peer with C, or buy transit from A or C or D to get there. (This is more common for US Tier 1 ISPs than for smaller ISPs or non-US peering points.) Also, there's typically a traffic ratio like 2:1 that defines whether the players are getting equal value from each other or not.
It's not always that simple technically, and there's often politics involved. Consider a dial ISP and a hosting center. The traffic may be very asymmetric, say 10:1 from the hosting center to the dial ISP, but it may be worthwhile for both of them to peer with each other rather than buying transit from somebody else. The dial ISP gets to offer its customers more content value, and the hosting center gets to offer its customers more eyeballs. Assuming they're near enough to each other for the peering infrastructure to be cheap, it's a win for everybody, right? But if the dial ISP is AOL and the hosting center is Joe's Garage, Joe will probably have to pay AOL for the privilege, while if the dial ISP is Joe's Garage and the hosting center is Exodus or Abovenet, Joe will probably also have to pay. During the boom, of course, the problem was often resolved by one side buying the other for stock, causing the market to overvalue the combined stock even more :-) Other examples of politics - for many private interconnection arrangements, especially in the past, the terms were often secret, because one side didn't want to admit that it had to pay somebody else to carry some of their traffic instead of using their own backbone, or one of the big carriers didn't want to admit that it *wasn't* charging money to a medium-sized ISP because being a "peer" with somebody small makes it look like you're not the 800-pound gorilla, plus it makes other medium-sized carriers think that maybe they can peer with you for free instead of paying you.
One other common definition of "peering" is "using BGP to connect to each other", which is a description of the technology rather than the cash flow. The Border Gateway Protocol is a routing protocol that's used to exchange information about who connects to what networks, and it's the main way that big ISPs talk to each other. However, it's also used for customer-to-ISP connections even if you're just buying transit, usually for customers who are buying service from two ISPs for reliability reasons. BGP is an amazingly complex protocol with a dozen or so different knobs to tweak to give you very fine-grained control over complex routing situations and different kinds of load-balancing, but if you're not a Tier 1 ISP, the amount you actually need to do to use it effectively is pretty minimal. In the past, BGP only worked on really big routers, but these days you can use even a Cisco 2600 unless you need to get full Internet routes (which burn too much memory), and you can also get Linux Zebra routers to do BGP.
Bill Stewart
New Fast-Compression-only CPR http://preview.tinyurl.com/dy575ks
Heres how I see it. It costs an ISP $X per month to provide service to all its customers. The person who owns the ISP (be it one guy in his basement or thousands of shareholders) want a profit of $Y. Therefore the ISP must take $X + $Y in a month to stay in business. Lets call this amount $Z. Bandwidth is homogenous - there is no effective difference between using the 1st Mbit of a 10 meg pipe or the 9th Mbit of the pipe (assuming all the hardware can take 10megs happily). Unless one customer can be directly seen to cost the ISP more than any other customer (with things like excessive calls to tech support, causing the ISP to have to buy an extra T-1 circuit by advertising on slashdot :P ) then all the customers cause the ISP all the costs. In the same way as manufacturing,
price per unit =
total cost (including profits)
---------------------
total number of units produced.
so, if bandwidth is sold by the Mbit, and an ISP provides 10 Mbits for $Z total costs, the only fair way to charge customers is by making the price $Z/10 (or 10% of $Z per Mbit).
Colocation centers and Dense Wavelength Division Multiplexing are to blame for most of this, along with Moore's Law making computers (and therefore routers) cheaper. A decade ago, it cost a lot of money to put fiber in the ground, and the fiber had a fixed capacity (typically 1.7gbps), and you could get some economies of scale by putting a bundle of fibers in the same trench, since the cost of the fiber was much less than the right-of-way or installation cost. DWDM lets you run many wavelengths on the same fiber. In ~1996, this meant 8 wavelengths of 2.4Gbps; today it's 80-160 wavelengths of 10 Gbps. Adding more capacity still costs you money, because you need to add repeaters in the middle and expensive electronics at the edges, but the costs of those keep dropping and repeater distances keep growing, so it makes sense to buy the edge equipment you need now and upgrade later when you need it, since the prices of the hardware are diving fast. The marginal costs on a backbone fiber aren't zero, but they're pretty close.
Colocation centers also change the economics radically, because they can buy a small number of fat pipes, which have much lower price per bit than skinny pipes, avoid paying the telcos much for access lines, because they can be located near big ISPs, can support thousands of machines in the same location, and to the extent that their customers are sending bits to each other instead of the outside world, can provide lots of bandwidth on very cheap LANs inside their buildings instead of to an ISP who charges them money. Before Exodus fell apart, there was a huge ecosystem of providers who sold services to each other inside their colo spaces, and some of the other hosting providers did that also.
A related business is carrier-neutral colo centers like Equinix or the Seattle Westin Building or LA's 1 Wilshire, which convince a bunch of telecom and ISP carriers to build connections into their buildings, rather than selling to hosting users, which lets the carriers connect to each other using cheap interconnects. So a big ISP would buy an OC48 pipe into the building from an access provider, buy a rack to put their routers on, and then use Gigabit Ether to connect to the other ISPs. Also, they can put a telco fiber into the center, so if a small customer wants a T1 to one of the carriers, they can just add the circuit onto the fiber. But how do you price bandwidth in this environment? For the colo company, it's easy; they're selling real estate and charging a flat fee for fiber patch panel connections (how they make money doing that is a different question, but at least they know their costs, so they can do prices that aren't artificial.) But for the carriers, is there any reason to run a peering connection at 100 Mbps vs. 1Gbps? Not really; their router hardware costs a bit more, but it's still a drop in the bucket.
Then there's Dark Fiber access and Dim Fiber access. It's not as common as George Gilder predicted, but there are places where it's available. The basic model is that the access provider isn't messing with routers or switches; they're acting more like a construction company, installing fiber and renting right-of-way (or conduit space) and letting the customer light it up themselves at whatever bandwidth they feel like. Sometimes this is a hybrid business - a provider might have a big lit ring around San Francisco Bay and sell wavelengths on the ring connecting to dark fiber on the last mile, or alternatively they'd have a big bundle of hundreds of fibers around the Bay and do patch panels. Some of that is technology dependent, because of distance limitations for different speeds, and therefore it's also influenced by geography - anything inside Manhattan doesn't need a a repeater, or from Manhattan to nearby parts of New Jersey where the real estate's a bit cheaper and there's less backhoe risk, but some distances in the San Francisco Bay Area are a bit too far for repeaterless operation at some speeds, and Los Angeles is really huge. Also, while fiber technology used to be just for long-haul telecom or lower-cost LANs, the Storage Area Network people have recently developed technologies like Fibre Channel for connecting disk drives to CPUs at 20km distances - there are starting to be a lot of banks and brokerages in Manhattan that have disk farms in New Jersey colo centers, and instead of their mainframes being all in the same building as the traders, they may be spread out geographically, often with primary capacity in one location and backup in another.
Bill Stewart
New Fast-Compression-only CPR http://preview.tinyurl.com/dy575ks
Also, if you are going to run colo at home or at a small office building, and if you're somewhere that you can get business cable modem service, I strongly recommend getting it to use as a backup, or otherwise see about low-end satellite service. The reason is backup connectivity - most telephone companies won't sell you T1s that are guaranteed to go down different streets and use different manholes, and if you're in a residential area it's almost totally guaranteed that if you buy two T1s, any backhoe or flooding accidents will take down both of them at once, and even if you've got ISDN dial backup it'll still all go at once. Cable modem service has technical limitations, even when they aren't deliberately imposed by the cable company to prevent people from running servers, but it's the one cheap service that has a good chance of not sharing the same physical routes as the telco circuits. It's asymmetric in the wrong direction, and you can't get BGP on it, but it's much better than nothing, and you can use DNS kluges to make up for part of it. Some of the satellite services have monthly volume caps as opposed to just speed caps, but for backup that's ok - you ideally won't be using it more than 4 hours a month except for low-level pings and SNMP monitoring. (The "4 hours" is "how long it takes a telco truck to go fix something", and hopefully you that won't happen more than once a month...)
Bill Stewart
New Fast-Compression-only CPR http://preview.tinyurl.com/dy575ks
<NITPICK>
Apples aren't grown from seeds as each seed in an apple is genetically different from the tree it came from (and from each other). This is how the apple as a species got so diverse. To reliably grow the same variety over and over, scions of the desired variety are grafted onto rootstocks.
</NITPICK>
Apologies in advance, this post is lengthy.
:)
:
The monthly fee that a user pays is based on a fair amount of items. I will try to summarize what it takes (without particular pricing) what the ISP needs to do to provide you with service. It is easier to show what infrastructure a new player would need to create so I will follow that path. I will go through what and ISP should have to provide you with reliable service. The ISP in question will be a small regional ISP, serving 25000 DialUP customers, 2000 residential DSL Customers (at 1.5 Mbps Down or 128 kps Up) as well as 500 SDSL Business customers. The ISP also provides server collocation and web hosting. The point of this post is to show that the cost providing a given user with bandwidth is not just the raw cost of the traffic.
Building Rent or Lease:
The ISP must house its equipment (and or or your collocated server) in a secure location. They must ensure that they have strong physical security as well as enough room to house all of their staff and equipment. Equipment needs to be in a climate controlled room. Industrial strength AC is not cheap, you also need to worry about multiple power sources (possibly two sources of power as well as a large a large generator and UPS). Now that generator needs to be maintained (usually via a support contract) and the UPS batteries have a limited life span. Depending on the quality of power in a given area, you may need to be running off UPS at all times. Such load on a UPS means that the UPS batteries will likely need to be replaced in a few years (36 months or less).Monthly rent is a recurring cost. While equipment such as a UPS is a capital cost, it still takes quite a while to pay it off. Some equipment (like the generator) may not be paid of for 5 years or more.
Staff:
An ISP of size above should be able to sustain itself with 20 employees. For 24 or 7 coverage of one person (sysadmin) to be available at all times, one needs 5 employees. As I write this, I had to change the size of the ISPs user base as the amount of employees needed would have likely outstripped the cost. Larger ISPs may be able to justify a SYSADMIN 24 or 7 but smaller ISPs will likely need to have a person with less skills watch the network and then page the more expensive SysAdmin.
You need someone to answer the phone (an administrative assistant) or a PBX. This PBX should be able to handle at least 2448 calls (when you service goes down, your customers will call and you'll need to offer them something better than a busy signal). You will also need to have staff to take care of the finances and sales. You will need to have a small tech support team (which can be staffed by High school or College kids at a lower cost than a full time experienced worker). At 2530K customers, 20 people may not be enough to run the entire company. You may need 30 tech support personnel alone.
Collocation Facility:
Since this ISP is to offer collocation services, they will need to build cages for customers to have access to. Being a small ISP, paying a security guard 24 or 7 is out of the question. A 24 hour NOC tech may be able to act as escort but this may not be feasible. What you will then need to do is offer 24 or 7 access (through some sort of card access system). Card Access systems are not inexpensive. Racks for customer equipment (locked such that customers cannot interfere with one another's service are more expensive than open racks). You will cable each rack with a few drops (data and voice) such that a customer can purchase both an Internet connection from you as well as possibly be able to order a T1 from the Telco). Your own customers may want to start providing dialup services of their own (or provide VOIP or calling card services). Your customers are becoming your competition.
You will need to run this cable in proper cable trays and have this done by certified technicians (doing it yourself is likely out of the question unless you have staff that have done this before).
You will give each customer a 100Mbps port on a switch (you will need to figure out how you will be throttling each user to their allotted or purchased bandwidth). Every 24 ports will cost you about $2000. You will need to aggregate traffic from each switch to a higher class switch upstream (this may not be an issue if the aggregate traffic from the entire switch is under 100Mbps)
DialUP:
With 25,000 customers, lets assume that you can oversubscribe your dial in lines 10:1. This means that you need 2500 phone lines to help ensure that your users do not get busy signals (the will cancel if they get them on a regular basis). This also means that your average user must only use the connection for about an hour a day. The more customers you have, the more you can play with oversubscription of the dialup ports. You will always have a user that is connected 24 or 7 as well as a user that does not use their connection at all (or for 5 minutes a month). The ratio's of your user base's usage will vary and cannot be easily determined ahead of time.
These 2500 lines need to be purchased from the local Telco or a CLEC. In such bulk rates (four DS3's worth of voice). One may expect to pay lets say $10 per port or phone line). This equates to about $25,000 or month for just the phone lines themselves. Lets not forget about install costs for the DS3's as well as some kind of local loop charge. If you decide not to use DS3's but T1's instead, your costs are likely to be much higher per port. Now you have just bought some phone lines but now need remote access servers (like the Cisco AS5800). You will need to buy the chassis (which is bare, as well as power supplies. For the 5800 you will need to buy Modem Cards (20K for 144 modems, you will need 5 of these cards per DS3). DS3 Cards for the 5800 (two per box). Now you of course will be buying all of this new and with a support contract for 4 hour repair or replacement. Buying equipment on
Ebay (especially without a support contract) is a disaster waiting to happen.
At this point, you have a fairly empty room with a few DS3's and dial up servers. You have no content to offer your customers.
Servers:
At 25K customers, you will need a wide array of servers to suit customers needs (you thought that all you needed to provide them is internet access !!!). Lets assume that for this application, your unit cost per server is $2000 (all your servers will be rack mountable of course to maximize the use of space, you will need a KVM system to console into each server.
You will also need to invest in some mass storage arrays (few hundred GB) such that servers do not have local storage and things like web content and mail spools are accessed by the servers. If you intend to offer Usenet access, you will need a high powered server as well as a few hundred GB of storage (today's daily news feed is a few hundred GB). This news feed will likely costs you $$$ as well as eating a few megabits of transit 24 or 7 or 365. You will have a few spare drives (these will of course be hot swappable SCSI drives as IDE drives are just not built to last in an ISP environment)
3 Mail Servers (this will offer redundancy to both the residential and business users). Two mail servers are not likely to handle the load.
2 Web servers for residential users (lets assume you give each user 10 MB of web space).
5 commercial hosting servers (its amazing how much traffic a few thousand web hosting accounts can generate).
You will keep a steady supply of spares. Hopefully you have purchased these servers from a reliable vendor and not tried to build them yourself. If you built them yourself, you should have a few hot spares ready of every part (or two spare servers).
Lets not forget about another 5 misc servers (for DNS, RADIUS..)
You will also need a number of servers for your own internal uses.
DSL:
The ISP is just reselling DSL from the local ILEC or CLEC. They do not have the capital or the user base to pay for DSLAMS. Users are expected to purchase their own modems. If the ISP sells the user the modem, they will make a $25 profit per modem. Of the $40 fee that the user pays for their DSL connection. Only $8 makes its way to the ISP, the rest is given to the CLEC for interconnection. The ISP is responsible for all services (MAIL or WEB) as well as Internet connectivity as well as support.
Bandwidth:
Up to this point you are an Internet provider without Internet connectivity
To define pricing of upstream bandwidth we have to differentiate between transit and
peering. The two terms are difficult to define and their use is often abused.
Peering: is a free exchange of data (someone will need to subsidize the cost of the link between the two parties as well as the equipment at the two ends, this cost may be shared or assumed by a particular party). Some peering is paid for (at a cost that is significantly cheaper than transit.
Transit: the privilege to cross one providers network to get to another. Transit may
include a full Internet routing table (which means that the provider offering the feed is either a Tier 1 ISP with its own interconnection agreements to various networks (The Internet is nothing other a collection of many large Networks, accessible via mainly the Tier 1 providers).
Transit purchased for a Tier1 provider is priced at approximately $200600 or Megabit. The quantity in which you purchase transit will determine the price. The price of this connectivity may not include facility costs (Ethernet or OC12 from the nearest point of Interconnection of the carrier to your location). It does not include the costs of routers that can handle this type of traffic (these costs will be mentioned later).
Transit can also be purchased from an NSP (Network Service Provider) , a lower Tier
provider. This provider may still have an extensive network, but a network smaller than the Tier1. This NSP will have extensive Peering and Interconnection agreements, this NSP will still have to purchase connectivity(Transit) from a Tier 1 provider. The NSP sells connectivity at lets say a 30% discount to the Tier1. Since this NSP has extensive peering, they can send a significant portion of their traffic via cheaper peering links. If an NSP purchases transit at $200 or Megabit and its cost of peer traffic is about $40 or Megabit, the more traffic that goes via private peers, the more money the NSP makes. The NSP may even get luckier in having customers access one another's content (where the NSP is getting paid by the sender and receiver for the same traffic).
In its truest form, a peering agreement should be equally beneficial to both partiers. The two providers should be sending one another roughly the same amount of traffic. Failure to do so may mean that one party pays more than the other for sustaining the link. In order to peer with another provider one must be able to meet at a particular point and interconnect two routers. This may be done via a private facility (DS3 for example) or at an Interconnection point where providers meet. Exchange points are common in larger cities as an ISP only needs to pay for one expensive link into the exchange and will have access to many other peers. These exchange points may be free (where the cost is just that of getting there) or may charge a fee to enter the facility and or or a monthly bandwidth cost. Smaller
regional ISPs will likely have users that visit local content (if they are lucky a dialup user may be accessing a web site hosted at the collocation facility and no traffic needs to transit the peering or transit links). Sheer scale in the size of the ISP is what helps these costs saving to be realized.
An ISP of the size stated above may not be big enough to justify private peering but should look at collocating at an exchange. If no exchange is available in a given city, they may need to pay for facility to an exchange a considerable distance away (this may still work out cheaper than transit).
Now we must determine how much bandwidth this provider needs.
2500 Lines at 53Kbps (the fact that the upstream is slower is not really relevant as
asymmetrical bandwidth contracts are less common). 2500 x 53Kbps = 132.5 Mbps (lets assume that not all dialed in users are using their connections at full speed, we can cut this amount to 50-60 Mbps at peak)
2000 ADSL Lines x 1.5 Mbps (we will assume only 1 or 40th of these users will be using their connection to full capacity at any given time, we will discount all other usage at that time). 70 Mbps will be allocated to DSL users. Some may find it unusual that the dialup users use just a little more bandwidth as the dialup users. This calculation is based on the assumption that the DSL users will be on the network for short periods of time (one out of every 40 customers will be using their connection at its fullest, 1in20 at 50% , 1in10 at 25%, 1in5 at 10%). No servers are allowed (low bandwidth personal mail and web servers are tolerated).
500 SDSL Users at 1.5 Mbps (we now have to assume that 1 in 20 users may be using their connection at full speed). Many of these users may also run servers. 35 Mbps will be needed for just these users.
Web hosting (this is a very lucrative market for ISPs as many users websites have little or no traffic , very heavy oversubscription is common): 15 Mbps
Collocation: 20 Mbps
ISP Operations (corporate web space, mail servers, users web content) 10 Mbps
Sub Totals:
DialUp : 50 Mbps
Rees DSL : 70 Mbps
Bus DSL: 35 Mbps
Misc : 10 Mbps
Web Hosting or Collocation : 35 Mbps
Total Bandwidth Needed : 200 Mbps (more may be needed at peak)
One now needs to purchase 200Mbps of bandwidth.
Connectivity
60 Mbps from Tier 1 Provider A (Ethernet Based , $450 or Megabit) = $27,000
90 Mbps from Tier 1 Provider B (Ethernet Based , $350 or Megabit) = $31,500
45 Mbps via Private Peering Links (DS3 , $90 or Megabit) = $4050
5 Mbps Internal Traffic (Free)
Provider A = $2000 Port Charge Per month
Provider B = $3000 Port Charge Per month
DS3 = $8K month (no exchange point in vicinity)
Total Bandwidth Costs : $71,000 or Month
Routers:
A Router capable of routing this amount of traffic will cost approx $200k (well, you'll need two because of redundancy). Since you have two routers that are a little less powerful they will cost you $300K in total. Don't forget 510K per year for the service contract for you router and switches.
Am I Making Money?:
Monthly Costs:
2500 Lines From Telco = 25K
Phone lines for Business Use = 2k
Bandwidth = 71K
Utilities: 10K
Total Costs:108K or month
Revenues:
25 DialUp Users x $15 = $375,000
2000 Res DSL * 8 = $16,000
500 Bus DSL * $400 = $200,000
Web Hosting 1500 * $20 = $30,000
Collocation: $500 per half rack + $400 per megabit = $10,000 Rack Space + $8,000 = $18,000
Total Revenues = 639k or month
What's Missing?:
Initially this looks great the ISP is making a profit of $500k or month. What we have forgotten are the capital costs as well as salaries
10 Tech Support Technicians x $35k per year = 350K
10 System Admins x $50k per year = $500k
1 Network Engineer x 60K per year = 60K
5 Sales x $50K per year = $250K
3 Administrative x $30K per year = $90k
2 Executives x $80k per year = 160K
1 President (Owner) x $120K per year = 120K
Salaries = $1.5 Million or year
Equipment or Capital Costs = $3 Million for all needed equipment and build of Data Center
At this point it appears the ISP is doing well. To get here however, the ISP has spent a great deal of time and money. They had been loosing money for the first few years and their loans were accumulating interest.
Equipment costs cannot be looked at as a long term investment any more. In the three years that I worked for an ISP in the past, we changed out terminal servers 3x (from reg 33.6 Sportsters that users dialed into, to remote access servers from US Robotics to offer X2 to a highly scalable V.90 platform).
If I look at these costs, I think that my bandwidth costs may be too conservative. Users may want to use their connections a great deal more. I have also not had to price out DS3's for voice so $10 or port is just an example.
Like about 7 years ago.
Sure it was a private company when it 1st started in the post WWI era. But in 1931 Britain's Imperial Airways bought a controlling interest in QANTAS (guess who owned Imperial Airways?), IN 1947 the Oz govt bought their interest & all the remaining privatelly held shares too, making QANTAS 100% govt owned. In 1992 they put TAA, the govt's domestic airline, under QANTAS control. A year later they were officially merged under the QANTAS banner & the Oz govt sold a 25% share of the airline to British Airways. The rest of QANTAS was privatised later.
So for 45 years QANTAS was 100% govt owned.
Like about 7 years ago.
Sure it was a private company when it 1st started in the post WWI era. But in 1931 Britain's Imperial Airways bought a controlling interest in QANTAS (guess who owned Imperial Airways?), IN 1947 the Oz govt bought their interest & all the remaining privatelly held shares too, making QANTAS 100% govt owned. In 1992 they put TAA, the govt's domestic airline, under QANTAS control. A year later they were officially merged under the QANTAS banner & the Oz govt sold a 25% share of the airline to British Airways. The rest of QANTAS was privatised later.
So for 45 years QANTAS was 100% govt owned.
Because the market doesn't have the volume like the US what is happening is that everything is charged as a markup. So if the City Council charges the Telco rental on the cable pits (It happens trust me) then this is passed on in the monthly costs. Because Australia used to only have one large bandwidth wholesaler (Telstra), everyone was charged 18c per Mb to download data from the Internet. Once the other Telco's built up their own infrastructure they followed similar models and thus is the issue of most ISP's charging each other for data downloaded from their networks. In the end though whereever the data ends up that person ultimately pays.
Why does a T1 cost $500-1000 US/month?
If I were to run my own fiber pairs to wire up my town, there would be a fixed cost for time and materials. There would then be the recurrent costs to maintain.
If the next town over did the same thing we could then agree to talk to each other and connect our networks. WDYK...peering. Remember how the net used to work? friends routing to friends.
Add on the next towns on either of our sides and so on.
Each town incurs it's own cost to setup and operate. Optionally taxing the citizens to cover it. (or uses some improvement fund which would attract more people/businesses etc...)
Once the network is in place.
There would be power and maintenance costs.
There are no "bandwidth" or "metered usage" costs.
What, for existing telco's, are the true costs associated with their network. Not including ANY profit margins or marketing.
Why do you need marketing if it is a municipality run service that connects to the neighboring municipalities?
Manchester NH is embarking on a plan wire the town with fiber. Next step is to get folks to run the network and peer with the neighbor towns.
There should be no "bandwidth" charges.
comment directly in my journal
honestly... i think the questions were misinterpreted.... listen closely.... what are the REAL costs associated with internet access / hosting?
i think the bandwidth issue being handed down to us is a big pile of bull... aside from electricity and networks being laid down... what costs are there to justify me paying 700 dollars a year for my 2mbps/356 connection?
i could susteain my end of the net within my own electric bills and with my own purchasing of equipment.... I.e. Ethernet... modem... computers... leaving only the connection to the ISP... its servers and switching and forwarding... etc....
now i know my bandwidth aglomerates with all my neighbers and so by the time it runs through the lines to the local CO becomes much larger..... But even if we were all running at the full 2mbps, a couple thousand connections would amount to lets see.... 4000 mbps .... or 4 gigabit ports on a fast server/switch system.... Yes, yes i know it doesnt work EXACTLY like that... but thats the principle of it... and as expensive as switches, maintenece and serving is.... it just cant be THAT exepensive....
So what this article is searching for is how much the REAL costs are to trade data on the web.
I personaly believe you will find 90% if not more of the REAL-WORLD costs (not the money that goes into corporate pockets) goes into refreshing equipment and the actual creation of networks (laying down cable and such). Problem is often fiber is laid down and isnt even used because of its expesive supposed value.
Maybe its time us geeks start building the internet again on a p2p basis.... that is start connecting our various apartments and houses with cat5's and ieee 802.11. Problem there is a million competing DNS systems and the lack of standards that would inevitably crop up.....
sigh
--Idiots, Every single one of YOU, A flaming mass of conglomerated morons, hey wait a second, isnt that how RAID works?
Actually, I've thought of all that. After becoming frustrated with the telco's, I switched to microwave. With a redundant dish, there's very little which can go wrong. They've got redundant lines from several providers to different cities. It bursts through clouds and rain. Aside from someone coming to the office with a ladder and bashing both dishes to sheet metal, it's hard to make the connection go down. I've had 100% uptime since I made the switch half a year ago.
If ISP's can charge a certain price and make a profit, then that is the price that shall be charged. If they determine the "elasticity of demand" to be relatively inelastic (ie. if they increase the price, the quantity sold shall stay pretty much the same and conversely, if they decrease the price, the quantity sold shall stay pretty much the same) then it is likely they shall increase the price to increase profits.
If, on the other hand, they determine the elasticity of demand to be relatively elastic (ie. increase the price results in a significant decrease in quantity sold, or decreasing the price results in a significant increase in quantity sold) then it is likely the price will go down.
In an oligopoly, it is pretty much understood that if the ISP increases their price, the demand will be relatively elastic (ie. quantity sold will significantly decrease) primarily because your customers will move to a competitor (assuming they leave their price stable). On the other hand, if you decrease your price, the demand is relatively inelastic (ie. you won't sell much more) because it is likely your competitor(s) will price-match you, hence, you won't pick up many more customers.
The question of why you are charged more is a good question. However a few more details would help to give a satisfactory answer for your particular case.
With more information about the type of service purchased and the amount you paid in the first place the answers can be factual and easy to answer.
The posts to date explain that there is a cost in the order of a few thousand dollars per Mbps. Let's assume that the cost is $4K/Mbps when including routers, staff, marketing, electricty, etc.
Example 1
If you were being charged $20,000 per month for a 1:1 subscription ratio on an Internet connection at a fixed data rate (e.g. 5Mbps) then you would not expect to pay more if your site was slashdotted. Likewise, you would not expect a refund if you used no data. You were paying for a fixed price connection. Now if your link use has a duty cycle of 70% then the ISP is making about 30% margin.
Example 2
If you are only paying $20 per month (a thousand times less) then you would expect to be sharing the link with another 1000 users (1:1000) but factor in the staff required to support 1000 users then it is most likely you would be sharing with 2000 users in order to cover the costs of a connection and have humble profit margin. Then if you flatten an 5Mbps link for 2 days then the ISP is paying for 2 days exclusive use of an 5Mbps connection. This costs the ISP more than $20, so has to charge more.
The costs associated with a particular event can be different based on the usage. If the saturation of traffic came from local sources then the cost of data is low. From international sources then the data cost is high. Imagine how much it would have cost 5 years ago to have a dedicated 1Mbps connection to almost anywhere in the world. You can get this for $4000 per month! not bad.
C.Burgess - email:colvinb@airnet.com.au
When you get down it it, bandwidth costs get pretty simple:
It's about the cable... Someone in LA wants to get data to someone in New York City, you are effectively paying for a cable running from LA to NYC. As you can imagine, it's not cheap to dig up the ground for a few thousand miles.
The reality is not so much a single cable from you to whereever you're sending traffic, of course. It's much more like the roads... You would drive around your local neighborhood, streets, get onto larger 2 lane local roads, hop onto I-5 up to I-80, maybe I-25 down to I-70, and when you get to your destination you start using smaller and smaller roads until you pull up to your friends house...
Interstate roads are generally much larger than residential roads, because many people from residential areas end up getting on the freeways and you get 6 lanes of traffic, all packed...
You don't directly pay for the roads the way you pay for bandwidth though. You pay via taxes amounting up to around 40% of your income (remember sales taxes, petrol taxes, licensing fees, etc).
In the bandwidth realm, you have to directly pay for exactly what you use, like toll roads. Imagine if you were sending out a dozen cars a day to drive across the country on toll roads. You'd pay maybe $100 in tolls. Now what if all of the sudden you were sending out hundreds of cars a day... It's going to cost more, simply because you're making more use of the interstates...
If you suddenly start using 10x more bandwith, your ISP has to have resources to account for that. They probably do it similarly to how you do -- where if they use more bandwidth on their "road", they get charged more by their up-streams.
When it gets up to the interstate level, the providers have cables (roads) that are really big, that cost a whole lot of money, running between cities. At every stop, there are tens of thousands or millions of dollars worth of networking gear thathas to handle your traffic.
It all adds up...
The apple metaphore doesn't really fit, though. Think of it more like a shipping company (FedEx) or the mail. Basically, people pay to send you letters asking for a web page, and you pay to send the letter back with the web page in it. If you send out 3 letters a day, it's going to cost way less than if suddenly thousands of people were sending you postal mail asking for that information.
Your letters get picked up by a local carrier who takes them to the central post office where they get sorted out and go on trucks, perhaps to airports where they get put on airplanes, etc...
Sure, saying it's all about the cables may be an over-simplification, but it's good to remember that there have been millions of miles of cable laid so that you can send that same stupid joke about the "mouse balls" to your friend who lives tens or thousands of miles away.
Sean
Tell us the name of the "ISP" you run so that we can be sure never to give you any service.
In some towns, either the cable monopoly or the telephone monopoly has been slow to upgrade its lines for high-speed access, and the other company institutes a 3 GB cap. So if you don't patronize a high-speed web access provider that caps your account at 3 GB, then be happy with your dial-up.
Will I retire or break 10K?
You poor guy, that sucks. Here in Ottawa you can get...
Not everybody on the Internet is in North America, <catchphrase>you insensitive clod!</catchphrase> Try pricing links from the USA to New Zealand or to Africa or to Europe once.
Will I retire or break 10K?
The ranges we use it for are dependent on how much rain an area gets, which affects how much rain fade you can tolerate while still meeting 99.99% or whatever uptime SLA we're offering, and tend to be about 10 miles in Phoenix and 1-2 miles in Seattle, with San Francisco area getting about 3-5 miles depending on which microclimate you're in.
Bill Stewart
New Fast-Compression-only CPR http://preview.tinyurl.com/dy575ks
Economies of scale are important, but that doesn't mean that governments have any real advantages. They buy hardware from the same commercial vendors. They can try to hire employees from the same pools of very smart technical people and the same pools of not-so-smart grunt-workers that the free market hires from, but they've typically got much more restrictive internal rules on wages and benefits. They do have some artificial advantages - they don't have to pay taxes, unlike businesses in most countries, and they don't have to put up with clueless business regulators, but they've got the artificial disadvantage that clueless government policymakers have an easier time pushing them around.
The one real advantage they have is ability to get right-of-way, because any place that has government-run telcos has government-run highways, so negotiations for burying cable along or across highways are much much easier for them than for commercial businesses. (That's a real sore point in the San Francisco Bay Area :-) Similarly, restrictions on above-ground cables are something that commercial telcos often have to put up with that government telcos don't. Also, if the railroads are government-run, it's easier for government telcos to negotiate with them than for free-market telcos, but if the railroads are privately owned, they're on a more equal footing. Similarly for running telco along power-line routes, but that's a relatively new issue because high-speed copper-based telecom and high-voltage power don't always get along, unlike low-speed telecom and low-voltage copper.
Well-regulated private monopolies aren't much better than government-run telcos - at least in the US, they typically got to make a fixed percentage profit, so they did have incentives to grow their markets by providing better and somewhat cheaper services, and to use internal cost accounting mechanisms that let the pricing be somewhat related to the costs, and when there were social agendas like making business customers pay more to subsidize residential customers, at least they knew the actual costs that they were subsidizing. But they were still big and stupid. And they got to hire some of the best engineers and scientists in the world (shameless plug here :-) because they had more incentive to develop and deploy technology than most of the PTT-dominated telcos (with a few possible exceptions, but not most of them.)
The big advantage that competitive telecom companies over monopolies (government or not) is that having a market with competitors forces them to innovate, and to understand what their customers want, and to evaluate whether their value-for-money tradeoffs make sense compared to what the competition is offering. Most monopolies simply don't have real feedback, and many of them depend on technological innovation from other countries rather than doing their own.
The other big advantage that government telcos have over non-government telcos of all types, which they totally failed to take advantage of until cellphones gave them the technology, is the ability to use radio spectrum to build rural communications. They could have done it decades earlier, because fixed-wireless is a much simpler problem than moving-wireless, but they didn't. In the US, the radio spectrum was effectively the oligopoly of broadcasters, with exceptions like amateur radio (which had anti-free-speech provisions to prevent business use of radio) and eventually CB, and the phone companies didn't have enough incentive to develop it to make it worth getting the FCC to let them have the spectrum space. But in lots of other countries, it's different - radio-based telephony would have made sense, and with the government running the phone companies, they should have been able to get permission to use the spectrum without a problem.
Disclaimer: I work for a company that used to be a regulated monopoly, and is now partially regulated, though mostly unregulated. But these opinions are mine, not theirs.
Bill Stewart
New Fast-Compression-only CPR http://preview.tinyurl.com/dy575ks
Most of the $$ goes to:
1. ISP Executive Offshore accounts.
2. ISP "team building" golf vacations.
3. and general executive "milking" of the corporate assets.
Just look at Worldcom.
-- www.globaltics.net
Political discussion for a new world
Yup. The company I use is skypipeline. The nice thing about microwave is that not any idiot can offer the service, and so the level of support I've gotten has been excellent.
It's expensive, but you get what you pay for.
I know that, theoretically, the cost of that apple is going towards the purchase of apple seeds, ...
Repeat after me: the market price of an item or service has nothing to do with the cost of providing the item or service.
It's simple. ISP's charge whatever they can get away with. What you are asking is the basis for how they JUSTIFY their prices.
// Alan Porter
As far as telco networks are concerned, 3 companies that compete in a single market each have virtually the same fixed costs as a monopoly with 100% of the market.
Meaning that, in a simplified sense, a monopoly with 100% of the market has fixed costs per unit that are a 1/3 of those of a company with only 33% of the market.
It's the huge fixed to variable cost ratios of telcos (relative to other industries) that give monopolies a comparative advantage