Breakdown of Bandwidth Costs? 246
WCityMike asks: "What is the origin of the cost of bandwidth? For instance, if I'm being charged for an apple, I know that, theoretically, the cost of that apple is going towards the purchase of apple seeds, the land on which the apple trees are grown, the fertilizer and water that helps the trees grow, and the salaries of those who pick the apples, clean them, box them, and send them to market. When an Internet provider charges someone hundreds of dollars in bandwidth costs because they were Slashdotted (or Farked) and their bandwidth use shot up, what costs have the Internet provider incurred, and why does it cost them what it does? Is there usually any sort of markup going on along the line, or are people just passing along their own expenses down the line to the end user?" It would be interesting to note the most important factor contributing to bandwidth costs. How much of the total costs are tied to infrastructure versus the human component (technicians, sysadmins, technical support and so forth)?
Disincentive? (Score:3, Insightful)
Not So Complicated (Score:3, Insightful)
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.
Because they are "price searchers" (Score:3, Insightful)
As a few other posters have noted, ISPs are out to make money. A price searcher has a set cost that is basically unrelated to the amount of service they sell. However, they are faced with a demand curve sloping downwards: the higher they charge, the fewer customers they get. They simply match up the price/quantity demanded at that price that leads to the highest revenue and thus profit.
Re:Not So Complicated (Score:3, Insightful)
Re:Well... (Score:3, Insightful)
Integer Constraint (Score:1, Insightful)
As a mini-ISP, we face what might best be called "Integer Constraint" -- if we go over a certain threshold, we get bumped up an entire 1 Mbps tier for the month, which ain't cheap.
So, if your site gets slashdotted and takes our 95th percentile traffic from, say, 1.98Mbps, to 2.03Mbps, we see a huge difference in our bill.
Now, generally, we don't care, as we purchase an excess of bandwidth so that we're not near any particular threshold. But if various customers combined start doing things that push us near that threshold, we have to recoup the cost somehow, otherwise we'd eventually be at 0Mbps!
Of course, this only applies at certain points in the ISP world, so YMMV. Why our upstream provider charges us in 1Mbps tiers instead of just prorating it? Dunno. Maybe they suffer the same fate at the physical line level -- if we, combined with some other customers, push them over a T3 barrier, they have to get more lines (or face saturation, delays, angry admins).
Re:Peering arrangements (Score:2, Insightful)
Those in the academic community have their own networks, in addition to connections to commercial providers, and, as they are educational institutions, don't necessarily have to show a profit....
This can kind of distort your thinking if you try and see per-MB usage as a pure business function - not all those whose networks are used are for-profit organisations.
Just a thought!
Re:Some Factors (Score:3, Insightful)
Your usage costs the provider the same no matter what pricing plan you're on. Providing you with 800 minutes of service over a month taxes their equipment exactly the same way whether you've prepaid for 250, 500, 750, or 1000 minutes per month. The cell towers don't know and don't care what plan you are on.
However, when it comes to billing, the user who uses 800 minutes will get punished badly if they were on the plan that allocated only 250 minutes to them. The user who has the 750 minute plan will feel only a mild sting, and the user who's on the 1000 minute plan is likely getting the best deal.
Why do the providers work this way? Because they 1. Want to encurage users to not use the service excessively and 2. Want users to to declare their intended useage in advance.
See, those extra minutes of airtime usually cost a very small incrimental cost when you consider those minutes alone. However, somebody's minute of airtime is going to be a very expensive incrimental minute... it's the minute that causes the cell tower to hit its limit, and it means expensive network upgrades need to happen or customers are going to start getting turned away.
The provider would rather people not unexpectedly increase their usage, and instead call them and warn them that they're going to increase usage by moving to a higher usage plan. When too many users are on the higher plans, the provider then knows it's time for an upgrade.
Moving back to bandwidth, it's the same thing just on much smaller units, bits instead of minutes are the measurement unit of choice.
Unlimited pricing models are simply unnatural, because it treats very light and very heavy users as if they're one and the same. Simply put, they're not. It's highly unlikely the provider really has the equipment to provide everybody with top-speed service at the same moment. So long as they have enough equipment to provide service at the moment of highest demand, it's good enough and nobody complains. If they don't, then whenever they break the limit of the equipment, everybody slows down. The provider gets a bad reputation, and either has to quickly upgrade, or drop the "unlimited" offer.
So really, the price of bandwidth has to be based on two factors. The bandwidth that is on the table that you can possibly use, and the bandwith that you're actually going to use. If you plan on eating everything on the table, be prepared to pay much more than the person who leaves most of it behind.