bellsouth quote on $1 per sub cost of bandwidth

[David Farber <dave () farber net>]

________________________________________
From: Andrew C Burnette [acb () acb net]
Sent: Friday, February 15, 2008 7:16 PM
To: Dave Burstein; David Farber
Subject: Re: bellsouth quote on $1 per sub cost of bandwidth

Dave, and Dave,

Yes, his costs are indeed out of proportion by a wide margin. Perhaps
he's too far off the beaten path. (there are still populated places in
the US where no major carrier serves cell phones too).

As for the quote, ask and you'll get it :-)

http://telephonyonline.com/iptv/news/BellSouth_VOD_costs_030706/
FTA:  BellSouth’s Chief Architect Henry Kafka quoted:

Today’s average residential broadband user consumes about 2 gigbytes of
data per month, Kafka estimated, which costs the service provider about
$1. As downloading feature films becomes more popular, they might
consume an average of 9 gigabytes per month, costing carriers $4.50.....


I know some folks inside comcast, and the "bet" they placed on the table
in 2004 was that DOCSIS 3.0 would be deployed before they hit the wall,
the rational being the CxO didn't want to upgrade the cable plant twice.
The bet wasn't a winning hand in retrospect. I do have reputable sources
who let me in on this back in 2003 and again in 2005. I simply posed the
question over a brew, "so, when do I get 100Mbps symmetrical at my
house?" and out came a lot of interesting info.

The detachment from AT&T has been and is still an ongoing distraction.
Far more work than they first estimated. Stitching together 57+/- MSO's
into one autonomous system is a non trivial problem. Everything from
collisions in RFC1918 space to IP address exhaustion have taken their
toll on efforts to build out their own backbone.  Many of the cable
operators built 'organically grown' networks creating pockets here and
there, with no operational connection between them. Even Time Warner
still has email subsystems scattered about with the state's two letter
code in front of rr.com.

Twenty years ago, the cost driver to bundle the MSO's together was the
expense and licensing of satellite downlink sites. Now, it's simply
time, materials, and willingness to do so.

As most of us know all too well, none of the RBOCs had any better
individual strategies, particularly with respect to settlement free
peering arrangements, that is, until verizon bought the MCI backbone,
and little at&t bought up my old playground, the common backbone.
Essentially, they've all bought "up" into an established market.

Very interesting stuff, in any case.

Best regards, and I do enjoy your informative posts (I sub to your DSL
Prime list as well:-) )

andy burnette

Dave Burstein wrote:
> Andrew
>
> I'd love to know where BellSouth said that publicly. I have it off the
> record, but not reportable from anyone in North America. On the record,
> I have Liberty Global Cable and direct estimates based on equipment
> costs.  My off the record sources are authoritative.
>
>      I've written the problem with cable upstream is that they are still
> essentially using a 1998 design. Dave (who wrote a book on that subject)
> knows the details better than I. Both the CEO of Comcast and the CTO of
> Scientific Atlanta told me in 2006 we'd have full DOCSIS 3.0 in 2007,
> which would address the problem quickly. Unfortunately, the chips still
> aren't ready and will probably put this off until 2009.
>
>     Some thoughts from my economics training, now very rusty. Brett's
> problem actually is "cost", not "value" He really does have higher
> costs, so he and his competitors would need to charge more.  Prices are
> related to cost when there are competitive providers. The value of a
> service to most user is higher,but more suppliers drive the price closer
> to marginal cost + an "ordinary rate of profit." (Difficult issues here
> in telecom with very high fixed costs, but that doesn't change this
> argument.) The value of my broadband service to me might be $75/month,
> but competition forces Verizon to sell it for $35. When a seller
> explains a price is based on "value", that suggests there is demand but
> insufficient supply. Otherwise prices would come down. This is
> interesting because you can draw an inference competition is weak when
> prices move in a way different than cost. For example, DSL costs overall
> have been coming down, even including a generous allowance for bandwidth
> costs. (Modems are cheaper, support drops significantly when most of
> your users have been on the service over a year, scale matters, etc.)
> Therefore, when AT&T raised most DSL prices about 20% a few weeks ago, I
> took that as confirmation competition isn't working well.
>
> It is possible to run a large broadband network without traffic shaping
> like Comcast, because Verizon, AT&T, and Free.fr do it. A key Comcast
> claim in the FCC filing is that this is impossible. Source: Verizon SVP
> Tom Tauke, AT&T SVP Jim Cicconi, AT&T CEO testifying at the Senate,
> numerous technical sources.
> > > Internet growth rates per subscriber are little changed for the last
> > > five years at 35-45%, not increasing or a crisis brought on by video.
> > > Source: Odlyzko's excellent MINTS page and Comcast's filing with the
> > > 40% number for 2007
> > > Over that same period, the costs of delivering that bandwidth have
> > > gone down at a Moore's Law pace of 25-40% (switches, routers, etc.)
> > > The result is that the carrier's cost of bandwidth has been flat to
> > > down for five years. The total bandwidth cost is typically
> > > $1/month/customer. Multiple sources
> > > It's probably impossible to build a network that never degrades even
> > > in emergencies like 9/11 or Katrina. It is possible to affordably
> > > build a network that virtually never seriously degrades even
> > > demanding applications like highquality web video. Evidence: Free.fr,
> > > Verizon FIOS, AT&T U-Verse, and my home DSL line do that today, by
> > > company claim and all reports I've found.
> > > My conclusion, which allows one to be in favor or opposed to NN, is
> > > that neutral networks aren't free, but are practical at a definable
> > > price.
> > >     I respect the opinion of Dave and others that getting the
> > > government involved could create even more problems. My opinion is
> > > grounded on my research that almost any likely scenario puts the
> > > maximum cost of upgrading to a neutral network less than $1/month,
> > > and it's easy to project costs of a few dimes on a $30-50 month
> > > service. I believe that's a good tradeoff for the customer and system.
> > > Dave Burstein
> > > Editor, DSL Prime
> > > -------------------------------------------
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