Both, actually. Some companies, like large Telcos spend huge amounts of resources setting up infrastructure. These infrastructure companies then resell their infrastructure to smaller companies (like the local ISP).
However, those large companies usually have to work out contracts between each other to get things connected. The type of contract I've heard is most popular between those types of companies something like you mentione -- pay for a difference in in/out bandwidth.
I work for an ISP in MI. We have two T3's, each through a different provider. The infrastructure to our building was not in place when we moved there from my boss's garage. We paid some $8,000 to have the T3's physically placed in the ground from the nearest location that could support them to our building. Luckily, the distance was not that great, or the costs would have been much more. We also had 4 T1's placed in with them which are not yet turned on at either end.
We pay something like $24,000 per month for both T3 connections, plus our local and long distance phone calls for tech support, PC repair stuff, billing, and anything else we make calls for. Only one of the T3's is used for connections. The other is strictly for redundancy. If we had not paid for our own infrastructure for those lines, we would be paying somewhere around $36,000 per month for all that stuff. These costs are completely passed on to the customer. We charge $14.95/mo per dial-up account for unlimited access. We charge $9.85/mo for 40 hours of access each month. We have around 4,600 actively paying customer accounts on dial-up. The average amount they pay is somewhere around $13/mo. We also lease POP (point-of-presence) numbers from 123 Net. Given our total expenses for providing the dial-up, free technical support (not counting salaries), and other expenses related to maintaining dial-up accounts, we make a whopping $2 per account per month. This is not enough to cover the salaries of 9 employees. Thus, we charge a $15 setup fee, and a $10 reactivation fee if an account has been deactivated for more than 7 days for non-payment. We also charge a $2 fee for each statement a customer has physically mailed to them. We default to emailing bills because it is cheaper. We have an optional spam filter (SpamAssassin) that people can turn on for $12/yr. There is also an overusage charge on the 40 hour account of $.50 per hour over 40. This doesn't get charge very often because usually when it gets charged on an account, that person upgrades to unlimited the next month. But that is why it's there.
Now, we also have people that purchase T1 lines from us. We basically work with the Telco to provision the line wherever they want it. Then we charge a small percentage on top of what the Telco charges to cover the costs of providing them with email accounts, domain services, tech support, etc.
We also offer web hosting and PC repair services. The repair services are $47/hr, but we usually don't have charges over $47 unless they also purchase hardware, which we resell at a 15% markup from where we purchase it. Given the average length of a repair job and what we usually charge for them, our repair comes out more like $15-$20/hr. But, if they want us to go to their site to repair something, set up a network, etc., we have a $25 onsite fee, plus we charge $47/hr for every hour we are there. That is where we really make some money.
We are also in the works of setting up broadband wireless. We have about $50,000 worth of equipment sitting around for it that is not in use. Some of the customer's costs go to paying for that stuff. It is very costsly to offer broadband. But, it is also necessary. We are currently using less than half of our T3's capabilities from just dial-up. And, considering we are in profit from all the things we currently do, the wireless is just icing on the cake. We are planning on charging somewhere around $44/mo for a 128Kb connection with a $50 site survey cost, but $25 if it is installed while we are there. To do the installation, we bought a bucket truck ($25,000 for one with 100,000 miles on it). Now, we also have an Anritsu ($14,000) -- which is a hand-held cable testing device. You want to know where your money goes?...It's towards things like that. But all these expenses are covered by non-wireless customers. So, each wireless customer we get turns out to be worth about 3-4 dial-up customers. And that's not counting the reduction of tech support calls from having an always on connection. Plus, when they do call, we can tell from our office whether their "modem" has a connection with our antenna. If it does and their computer checks out fine, then it's a house-call -- which they get charged for (unless the problem turns out to be our fault). If their modem has a connection with our antenna, then it's most likely not our fault.
Given that the customer pays for use of the radio we put at their end, we also don't have the costs of the modem banks to deal with (which can run about $10,000 for 256 really good dial-in points).
So, for us, only about half of the costs that the customer is paying is for actual bandwidth. The rest is for hardware, maintainence, etc.
Well, I hope I've elaborated on some of the costs of an ISP and where your money goes...
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Both, actually. Some companies, like large Telcos spend huge amounts of resources setting up infrastructure. These infrastructure companies then resell their infrastructure to smaller companies (like the local ISP).
...It's towards things like that. But all these expenses are covered by non-wireless customers. So, each wireless customer we get turns out to be worth about 3-4 dial-up customers. And that's not counting the reduction of tech support calls from having an always on connection. Plus, when they do call, we can tell from our office whether their "modem" has a connection with our antenna. If it does and their computer checks out fine, then it's a house-call -- which they get charged for (unless the problem turns out to be our fault). If their modem has a connection with our antenna, then it's most likely not our fault.
However, those large companies usually have to work out contracts between each other to get things connected. The type of contract I've heard is most popular between those types of companies something like you mentione -- pay for a difference in in/out bandwidth.
I work for an ISP in MI. We have two T3's, each through a different provider. The infrastructure to our building was not in place when we moved there from my boss's garage. We paid some $8,000 to have the T3's physically placed in the ground from the nearest location that could support them to our building. Luckily, the distance was not that great, or the costs would have been much more. We also had 4 T1's placed in with them which are not yet turned on at either end.
We pay something like $24,000 per month for both T3 connections, plus our local and long distance phone calls for tech support, PC repair stuff, billing, and anything else we make calls for. Only one of the T3's is used for connections. The other is strictly for redundancy. If we had not paid for our own infrastructure for those lines, we would be paying somewhere around $36,000 per month for all that stuff. These costs are completely passed on to the customer. We charge $14.95/mo per dial-up account for unlimited access. We charge $9.85/mo for 40 hours of access each month. We have around 4,600 actively paying customer accounts on dial-up. The average amount they pay is somewhere around $13/mo. We also lease POP (point-of-presence) numbers from 123 Net. Given our total expenses for providing the dial-up, free technical support (not counting salaries), and other expenses related to maintaining dial-up accounts, we make a whopping $2 per account per month. This is not enough to cover the salaries of 9 employees. Thus, we charge a $15 setup fee, and a $10 reactivation fee if an account has been deactivated for more than 7 days for non-payment. We also charge a $2 fee for each statement a customer has physically mailed to them. We default to emailing bills because it is cheaper. We have an optional spam filter (SpamAssassin) that people can turn on for $12/yr. There is also an overusage charge on the 40 hour account of $.50 per hour over 40. This doesn't get charge very often because usually when it gets charged on an account, that person upgrades to unlimited the next month. But that is why it's there.
Now, we also have people that purchase T1 lines from us. We basically work with the Telco to provision the line wherever they want it. Then we charge a small percentage on top of what the Telco charges to cover the costs of providing them with email accounts, domain services, tech support, etc.
We also offer web hosting and PC repair services. The repair services are $47/hr, but we usually don't have charges over $47 unless they also purchase hardware, which we resell at a 15% markup from where we purchase it. Given the average length of a repair job and what we usually charge for them, our repair comes out more like $15-$20/hr. But, if they want us to go to their site to repair something, set up a network, etc., we have a $25 onsite fee, plus we charge $47/hr for every hour we are there. That is where we really make some money.
We are also in the works of setting up broadband wireless. We have about $50,000 worth of equipment sitting around for it that is not in use. Some of the customer's costs go to paying for that stuff. It is very costsly to offer broadband. But, it is also necessary. We are currently using less than half of our T3's capabilities from just dial-up. And, considering we are in profit from all the things we currently do, the wireless is just icing on the cake. We are planning on charging somewhere around $44/mo for a 128Kb connection with a $50 site survey cost, but $25 if it is installed while we are there. To do the installation, we bought a bucket truck ($25,000 for one with 100,000 miles on it). Now, we also have an Anritsu ($14,000) -- which is a hand-held cable testing device. You want to know where your money goes?
Given that the customer pays for use of the radio we put at their end, we also don't have the costs of the modem banks to deal with (which can run about $10,000 for 256 really good dial-in points).
So, for us, only about half of the costs that the customer is paying is for actual bandwidth. The rest is for hardware, maintainence, etc.
Well, I hope I've elaborated on some of the costs of an ISP and where your money goes...