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A Layman's Guide To Bandwidth Pricing

Posted by timothy on from the don't-grant-local-monopolies dept.

narramissic links to IT World's A Layman's Guide to Bandwidth Pricing, writing "Time Warner Cable has, for now, abandoned the tiered pricing trials that raised the ire of Congressman Eric Massa, among others. And, as some nice data points in a New York Times article reveal, it's good for us that they did. For instance, Comcast says it costs them $6.85 per home to double the internet capacity of a neighborhood. But the bit of the Times article that we should commit to memory is this: 'If all Time Warner customers decided one day not to check their e-mail or download a single movie, the company's costs would be no different than on a day when every customer was glued to the screen watching one YouTube video after another.'"

21 of 203 comments (clear)

  1. NYT quote is a bit unfair ... by xmas2003 · · Score: 5, Informative
    While it is true that most costs are fixed and therefore the costs are no different if every customers takes an Internet break one day, one has to plan to for peak capacity ... or something like a 95% threshold. No different than other utilities such as electricity, plumbing, etc.

    So the reverse is also true - if every customer decided to say, watch grass grow one day, the costs are also the same!

    This is exactly why Tony Werner, Comcast chief technical officer said they engineer for the peak hour. Having said that, it would be nice to get 160mbps for $60/month (as in Japan) ... although I always find it disappointing that almost all of these stories focus on the download speeds and ignore the upload speeds which are at least of interest to folks such as /. readers.

    --
    Hulk SMASH Celiac Disease
    1. Re:NYT quote is a bit unfair ... by DomNF15 · · Score: 5, Informative

      It is actually different from other utilities - the electric company doesn't cap how much electricity you use, neither does the water company, you can use as much as you want, or rather, as much as can flow through given the physical limitations of your electric wires/breakers and plumbing pipes. Your bandwidth, on the other hand, is capped, and is well below the theoretical limits of the coax or fiber optic medium it travels through. When Time Warner etc. design their systems, they do so with these caps in mind. So they only reason they would need to add capacity (spend money) would be to add more users (make more money).

    2. Re:NYT quote is a bit unfair ... by SatanicPuppy · · Score: 5, Insightful

      Well, upload is a niche market (though I admit, I'd love to be able to get at least a megabit...Even half a megabit would be nice).

      I think the whole lesson to be learned from TFA can be summed up with the following quote: "Why (is the 160mbit commection offered) so cheap? JCom faces more competition from other Internet providers than companies in the United States do."

      We talk a good line about capitalism, but we don't walk the walk. Competition would change the whole game.

      --
      ad logicam Claiming a proposition is false because it was presented as the conclusion of a fallacious argument.
    3. Re:NYT quote is a bit unfair ... by Mr.+Underbridge · · Score: 4, Interesting

      While it is true that most costs are fixed and therefore the costs are no different if every customers takes an Internet break one day, one has to plan to for peak capacity ... or something like a 95% threshold. No different than other utilities such as electricity, plumbing, etc.

      Exactly. This is what's so brain-dead about the argument that bandwidth is free - it's only free once you've built out infrastructure to handle capacity, but something has to pay for that. This is common, as you point out, to any industry in which one-time costs dominate per-unit costs.

      I compare it to the pharmaceutical industry - pills cost, say, $0.05 to make. Why do they cost a great deal more on the market? Because you have to price in the cost of research and development.

      I think the fairest thing is to do what many cell phone plans do; namely, metered or capped usage during peak hours, and free access off-peak. If a user is savvy enough to schedule iso downloads or watch video off-peak, it shouldn't cost him much since that traffic truly is nearly free.

    4. Re:NYT quote is a bit unfair ... by xmas2003 · · Score: 4, Interesting

      We might be disagreeing on semantics, but at least for my water bill, we have tiered pricing as I live in the Western US.

      I.e. if I use 10,000 gallons of water (ballpark numbers), I get charged a base rate per thousand gallons. However, for each thousand gallons above that, I'm charged 2x that base rate. And then for each thousand gallons above 50,000 gallons, I'm charged 5x the base rate.

      And yes, this is a "monthly load" rather than an instantaneous load ... but I think somewhat similar to tier'ed ala-carte pricing that the bandwidth providers would like to do ... so seems like a reasonable analogy (?)

      --
      Hulk SMASH Celiac Disease
    5. Re:NYT quote is a bit unfair ... by SatanicPuppy · · Score: 4, Informative

      I don't think there is anything wrong with the idea on principle, however TWC was clearly trying to restructure their internet market to protect their cable tv business. A dollar a gig is laughable.

      Any sort of tiered pricing would have to accurately reflect cost and network usage...Being charged the same for peak and non-peak is ridiculous, as we've already established that all their costs are about meeting the peak.

      Geeks being geeks, off peak usage is where the bulk of our traffic will already end up...Mom and pop will be in bed at 9:00 when the raids and the massive porn downloads begin.

      --
      ad logicam Claiming a proposition is false because it was presented as the conclusion of a fallacious argument.
    6. Re:NYT quote is a bit unfair ... by mcrbids · · Score: 5, Informative

      Except that power companies charge by the unit. So do water companies. This is fine, because it costs money to create a KwH, and the price of delivering more KwHs rises as more KwHs are delivered, as it costs real energy and money to pump water.

      Internet is flat-rate, and should be, IMHO because it represents nothing real. Although it costs something to provide infrastructure for more demand, once that infrastructure is created, the cost of delivery is very near zero.

      Here's an experiment, in case this isn't absolutely clear:

      1) Buy/borrow a 2 Kilowatt gas generator. Start it up, and run it for 1 hour with no load. Note how much gasoline it burns. This represents the energy used to overcome internal friction. Then run it for 1 hour with a 1,500 watt blow-dryer running continuously. Note how much gasoline it burns. You'll be surprised at the difference in fuel consumption!

      2) Get a Gb switching hub, 2 computers, and an amp-meter. Plug the computers into the wall, plug the switch into the amp meter. Note the power usage of the switch with no load. Then set up a load where you are using 1 Mbps of traffic between the two computers, and note the Amp load. Then try 10 Mbsp, 100 Mbps, and 1000 Mbps. You'll notice that the amperage (for most switching hubs) climbs very little as you do so, and that the total power consumption is insignificant.

      * * *

      So bandwidth usage represents nothing "real". There isn't a significant energy or material consumption per bandwidth unit. After the cost of infrastructure, and a small fixed cost for powering the equipment, the cost of delivering 1000 Mbps is only marginally higher than the near-zero cost of 1 Mbps. There *is* an infrastructure cost that needs to be amortized over the life of the connection, and this represents the vast majority of the true cost of bandwidth.

      It's just idiotic that the Nation responsible for building the Internets in the first place is so far behind other industrialized nations for using it!

      --
      I have no problem with your religion until you decide it's reason to deprive others of the truth.
    7. Re:NYT quote is a bit unfair ... by moderatorrater · · Score: 5, Interesting

      Read further into the article. The companies tell their shareholders that they're paying the same amount for the newest, fastest equipment that provides 50megabit connections as they did for the equipment for 6 megabit, but they're charging a couple times more for it than they've charged for their highest internet in the last 5 years. Their profit margins are solid but the amount they invest in the networks is falling. This at a time when youtube is drawing more and more bandwidth and sites like Hulu are becoming more popular. It's a pretty solid case of the ISPs milking their monopolies for all they're worth.

    8. Re:NYT quote is a bit unfair ... by Sycraft-fu · · Score: 4, Insightful

      While it is true that the equipment doesn't cost more to use than not use, that doesn't mean bandwidth is cost free. There are plenty of costs involved in maintaining high bandwidth lines.

      Now as it applies to consumer connections the problem is one of oversubscription. The reason they can offer you bandwidth for less is that they oversubscribe their lines. That is to say if they have a 10mbps uplink, maybe they sell 100mbps of bandwidth downstream. This works well, so long as everyone isn't trying to use their connection full blast all the time.

      It is the same theory you see in a LAN. For example at work here we have gigabit switches to our desktop machines. However, those gig switches are only connected with a gig back to the distribution switches. There are about 20 ports in the room I'm in (we are computer support so lots of computers) but only 1 gig connection out. Likewise, the distribution switches are oversubscribed. Most of them are 48 port Ciscos, nearly full, and they only have 1 gig back to the core. That then in turn only has 1 gig to the firewall, and 2 gigs to the NetApp. However, despite all this oversubscription it is very fast. It is rare for a person to use their whole connection period, and then not for long. We can all share those links without a big problem.

      However, that would break down if someone wanted to use their whole connection all the time. If someone was doing a solid gig to the NetApp without letting up, well I'd be going up and having a chat with them real fast. It would screw over everyone else.

      Same deal with ISPs. They can afford to cheaply sell you a cable line with 10-15mbps. However they don't have dedicated bandwidth for that upstream. It is oversubscribed at a number of levels, just as with our LAN. So if you use it periodically, and leave it low/idle the rest of the time, it works out fine. However if you try to torrent on it 24/7 to 100% capacity, it is a problem.

    9. Re:NYT quote is a bit unfair ... by FlyingBishop · · Score: 4, Interesting

      Not really. Water is a fixed commodity. Though there is a lot of it, there is not an infinite supply, and it is therefore subtractive. If you use 10,000 gallons of water, it inherently prevents anyone else from using that 10,000 gallons of water, and it is irrelevant when you use them.

      In the case of computers, it is entirely possible to use an amount of data in excess of what everyone else is using, and yet still not deprive anyone of their bandwidth, by using it when no one else is using it.

      They need to stop dicking around and use the sort of pricing structure that has worked excellently in the cellphone industry, where you pay by the minute during peak times (whenever that may be) and you do not pay a dime during non-peak times. I'd be happy to pay by the gigabyte during peak hours, and have an unlimited reserve otherwise.

    10. Re:NYT quote is a bit unfair ... by Wrath0fb0b · · Score: 5, Insightful

      2) Get a Gb switching hub, 2 computers, and an amp-meter. Plug the computers into the wall, plug the switch into the amp meter. Note the power usage of the switch with no load. Then set up a load where you are using 1 Mbps of traffic between the two computers, and note the Amp load. Then try 10 Mbsp, 100 Mbps, and 1000 Mbps. You'll notice that the amperage (for most switching hubs) climbs very little as you do so, and that the total power consumption is insignificant.

      That's great, you've created an intranet and demonstrated it's pricing. Now, of course, try to get a peering agreement with a tier-1 ISP so that your bits can travel to and from the internet at large. Try one month at 10 Mbps and another at 1000 Mbps and see if your bill changes.

    11. Re:NYT quote is a bit unfair ... by SatanicPuppy · · Score: 4, Interesting

      That's where monopoly busting laws come in. That's what they were designed for...To keep capitalism from eating itself.

      Anyway, most people can't switch providers right now, since they're locked in with local monopolies, or they don't want to buy new equipment to switch between DSL and Cable...Give them more than one option where they don't have to switch their hardware, and that number will go WAY up.

      Personally I am a proud member of the 4%. I am the anti-customer: I switch every 3 months without fail. When the other company calls and offers me a sweet introductory deal I take it, and then 3 months later, I take the next one.

      It's to the point where I leave all the hardware plugged in, and just switch "live" interfaces on my firewall...AT&T fucks with me, goodbye eth1, hello eth2. Cox fucks with me, goodbye eth2, hello eth1. What's wrong with that picture? I'm like a woman with two abusive husbands! I hate this shit!

      --
      ad logicam Claiming a proposition is false because it was presented as the conclusion of a fallacious argument.
    12. Re:NYT quote is a bit unfair ... by PitaBred · · Score: 4, Insightful

      That's why a flat-rate fee makes sense, though. There are costs for maintenance, but not incremental costs. More data doesn't cost them anything more. So a flat fee to give them a profit and provide for maintenance and upgrades. Any capping or per-unit pricing is simply a cash grab by a monopoly.

      --
      My blog. Good stuff (when I remember to update it). Read it.
    13. Re:NYT quote is a bit unfair ... by Araxen · · Score: 5, Informative

      Wrong...Karl Benz from Germany invented the Automobile.

      http://en.wikipedia.org/wiki/Automobile

      "Although several other German engineers (including Gottlieb Daimler, Wilhelm Maybach, and Siegfried Marcus) were working on the problem at about the same time, Karl Benz generally is acknowledged as the inventor of the modern automobile."

  2. Why limit ourselves? by Statecraftsman · · Score: 4, Interesting

    I prefer the government installs the fiber and leases it to companies that provide billing, maintenance, and tech support services. Let competition in those areas bring prices down. Internet access is a public good and greases the wheels of the commerce. It's not something to be taxed and exploited by large monopolistic corporations.

    1. Re:Why limit ourselves? by Lord+Ender · · Score: 4, Interesting

      Yes, if we were really a capitalist society, government would maintain ownership of natural monopolies (roads, utilities) and set up competitive systems whereby businesses compete for operating (not owning) them.

      Today, we let the businesses own these natural monopolies outright. That's the opposite of capitalism; there's no competition.

      --
      A slashdotter who didn't build his own computer is like a Jedi who didn't build his own lightsaber.
    2. Re:Why limit ourselves? by MobyDisk · · Score: 4, Insightful

      You are mostly right, but it is actually worse than that.

      The natural monopoly is on the LINES, not the SERVICE. But the US government grants a monopoly for BOTH. I am okay with only having two companies providing lines to my house: cable and telephone. The problem is that there are only two companies offering service over those lines: the local cable company, and the local telephone company.

  3. I look forward to my new $13.7 by Dan667 · · Score: 4, Informative

    In the mean time, support Massa get his bill passed. If we wait, TWC will just come up with something else equally bad and US taxpayers paid for $200 billion in infrastructure so there should be limits on what Time Warner can do.
    http://blog.wired.com/business/2009/04/congressman-to.html
    Write your congressman to support this bill
    https://writerep.house.gov/writerep/welcome.shtml
    Get it passed.

  4. Not the way it works... by jcm · · Score: 4, Insightful

    Disappointed in the "research" that went into the original article. Most definitely if everyone didn't use any bandwidth for a day or two, then a cable company would likely pay less that month for the their transit bandwidth. In Time Warner Cable's case, they get their transit bandwidth from Level 3.

    I'd guess Time Warner Cable is paying about $10/mbps (or less) on the 95th percentile. So if the top 5% five-minute averages of traffic to Level is thrown out, then the top average left is what they pay for. I would bet there are a few samples each night that are in that top 5% of samples, if everyone did NOT use the Internet one night during peak, the sample that is left at the 95th percentile would likely be less and they'd pay less that month for transit charges.

  5. Could there be another reason? by FurryOne · · Score: 4, Informative

    TW announced that it was going to test market tiered broadband in Rochester and a few other cities, but just announced that they were shelving those plans. Most publications pointed to protests by TW customers as the reason. Was it? While it's true that there were protests, I think another "influence" caused them to take a second look at their plans. Here's what I think... TW right now works hard to bundle their Broadband service with their VoIP and TV services. Sure, they can hide the cost in the bundle, but they can't hide the bandwidth. Right now, they pump at 1.2MB/s, or about 10Mb/s. that sounds pretty good until you realize that some 3rd world nations provide 8 times that much for only the equivalent of $10/month! - but that's another story. So what could get TW's panties in a bunch? Let's see... Right now, my "old" iPhone is on the Edge network, which is, I think, around 750Kb/s. Not very fast, but slow & steady. The data plan for it is $20/month. No competition there for TW! How about the "newer" iPhone?... it uses 3G (HSPA) for it's data. Right now, 3G from AT&T goes at 3.6Mb/s and costs $30/month. Still no big competition, but for lots of users, it would suffice in place of TW if AT&T would allow "Tethering" - using the phone as the network connection. (Which they don't right now) What worries TW is what is coming next. AT&T and others are currently upgrading their HSPA networks to the next "bump" in speed, to 7.2Mb/s, and that's where they become direct competitors to TW's Broadband. What's even worse is that "NetBooks" from Dell, LG, and Acer are due to start shipping in the near future, and they have built-in HSPA & WiFi support. Who needs TW's cable when you can be connected almost anywhere, anytime - wirelessly. But it doesn't stop there. HSPA can be tweaked up to 14.4Kb/s, but the next phase - "HSPA+" is already proven. It requires more hardware changes though. AT&T's goal is to rollout HSPA+ by 2011, and that's 21Mb/s!! Yup, that's twice what TW is allowing right now over cable, and you'll be able to get that over the air. That's what's got TW scared shitless. The idea that you won't need a cable to get your phone, internet, or even TV shows. That makes their whole monopolistic infrastructure about worthless!! AT&T and Verizon will rollout plans for access not just for phones, but for loads of electronic goodies, from computers to cameras to game sets. The netbook idea has been tried before, but it always required a cable. What got this new paradigm started was the introduction of the iPhone - not just as another "phone", but as a "portable computer," or an extension of your office. More and more people are finding themselves using the mail, the browser, and other applications on a daily basis, and becoming dependent on a constant internet connection. Why do we need to sit at home in a room when we can be at the beach, or in a hammock, or even at a bar, and extend ourselves into the rest of the world?

  6. Bad Logic by fm6 · · Score: 4, Insightful

    If all Time Warner customers decided one day not to check their e-mail or download a single movie, the company's costs would be no different than on a day when every customer was glued to the screen watching one YouTube video after another.

    And if no tweenies show up to tonight's Miley Cyrus concert, the cost of putting it on will be pretty much the same. Does that mean that Miley should go to a flat rate, come-as-often-as-like model?

    All retail businesses are based on assumptions about normal behavior. Hypotheticals that posit unlikely behavior aren't arguments. If they were, then we could suppose that every TW customer might decide to visit YouTube at precisely the same moment, and that TW should build out its network to support that and charge accordingly. Are you ready for $1,000 a month for DSL?

    Let me anticipate the same lame point that gets made every time we have this discussion: Even if TW ripped off the government by pocketing the money they were supposed to use for expanding their infrastructure, we still have a "no free lunch" scenario. Even thieves need a sustainable business model.