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