Re: cost (price!) of 1 gig GOOD POINT - and other tales of structural corruption

[David Farber <dave () farber net>]

Begin forwarded message:

From: "Bob Frankston" <Bob19-0501 () bobf frankston com>
Date: April 14, 2009 11:23:14 AM EDT
To: <dave () farber net>, "'ip'" <ip () v2 listbox com>
Cc: <tvest () eyeconomics com>, "James Seng " <james () seng sg>, "'Lauren  
Weinstein'" <lauren () vortex com>
Subject: RE: [IP] Re: cost (price!) of 1 gig GOOD POINT - and other  
tales of structural corruption

Price for gig, byte caps and other fables…

What does it cost to run 1 Gig on my home network? Why be a piker? My  
price to myself is $0.0001 but I can charge you $100 if you must go  
through my network and I can make up the accounting to prove that is  
“real” (and that effort is included in the price).

Imagine if Intel charged for computing and you paid by the minute.  
There would be no incentive to improve performance and every incentive  
to sell you applications tied to their chips. Of course would only  
work if their “competitors” did the same thing. A 1980 CPU would be  
worth millions of times the value of a 2009 CPU.

What is a "market" price for bits? There is no market here – just  
insiders making self-serving deals. It makes no sense to talk about  
costs or prices until we have an effective market structure.  Instead  
we have a system in which scarcity increases value – that’s structural  
corruption! (http://frankston.com/?Name=IPTelecomCosts).

Each company manages its own network and settles with other peers when  
transiting their network. The prices within their own networks are  
determined by their choice of how to account for their own resources.  
There is unlimited wiggle room here. The price to transit to other  
networks is just as arbitrary in deal making. Since they are trading  
they can make it as high as they want and settle it out. As noted the  
large players can set arbitrary prices as in the case of the ILEC/CLEC  
debacle. And all this justifies high prices and round and round we go.

Of course even talking about cost per bit is nonsense – caching is  
just one example. It also recalls the days when telegraph companies  
prohibited code words lest you deny them their rightful revenue by  
reducing the number of characters needed for the message. Is video  
compression cheating carriers? With byte caps the price I pay for  
video content varies by orders of magnitude depending on factors I  
don’t control and can’t even determine! Remember also that content can  
be cached on my PC – you don’t need Akamai.

But it gets weirder – with protocols likes SVC which can take  
advantage of available capacity but also scale back when necessary  
we’re talking about opportunistic protocols against a pricing scheme  
which does not permit the concept. As much as I might dislike having  
to game the price for airline seats I do understand why I get a lower  
price if I am willing to take any path available as opposed to  
requiring seat 1A on the 6AM BOS=>SFO.

Given that we have not had a fiber bubble collapse for a decade and  
there is lots of idle capacity how can we take the numbers seriously?

This is why we need fundamental reform/restructuring. If we want to  
increase capacity and reduce the price then we need a market for  
physical infrastructure that rewards increased capacity and  
availability. Infrastructure must not be comingled with the content or  
service business. To the extent such comingling seems to be required  
it is strong evidence that something is very wrong.

This is not wholesale/retail – that still creates value through  
scarcity. This is about infrastructure not services.

We have a similar problem when we talk about cutting people of from  
“The Internet” whatever that is. http://frankston.com/?name=TelecomPrison 
.

PS: Singapore would seem to be an ideal place to go for the  
infrastructure approach. After all if 100% coverage is the goal then  
why not skip over all the costs of pretending it’s a distribution  
system. 100% coverage also means wireless and trying to manage all  
those subscriptions means that you cannot take advantage of  
connectivity without requiring that every device demand a billing  
relationship for each bit. If you bring your IP radio into my house  
you may get sticker shock when you find out I’m charging you $100 US  
just to listen to a podcast. Why? Because I can.


-----Original Message-----
From: David Farber [mailto:dave () farber net]
Sent: Tuesday, April 14, 2009 10:27
To: ip
Subject: [IP] Re: cost of 1 gig GOOD POINT



Begin forwarded message:

From: tvest () eyeconomics com
Date: April 14, 2009 9:11:43 AM EDT
To: dave () farber net
Cc: "ip" <ip () v2 listbox com>
Subject: Re: [IP] Re:  cost of 1 gig GOOD POINT

Following James' more subtle response, I think that reactions have
been muted because the original calculations were so utterly
nonsensical, e.g.,

1. Explicit assertion of "transit" plus "backbone provider"
requirement in the US today.
2. Reference to highest conceivable fees, in support of the idea that
"market" pricing should be universally ratcheted upward to match the
costs borne by the smallest and/or least efficient of operators.
Related to the prima facie absurd suggestion that pricing for all IP
transport is defined in terms of T1 equivalents, regardless of the
delivery mechanism (PLC, committed transit, burst transit, protected,
unprotected, etc.) commercial arrangement (Short-term lease, long-term
lease, capital lease, IRU, co/builder, etc.) or capacity involved
(e.g., 1Gbps pricing is always equal to 647 x T1 pricing).
3. Explicit assertion that the max. conceivable cost to accommodate
the avg. 20% of traffic that passes at "peak" times should, by itself,
define pricing for 100% of all traffic -- rather than (assuming that
one accepts that costs should have any relationship to pricing) the
average of costs for all of the components of that 100%.

etc., etc., etc.

I doubt that this will elicit many more responses. I only responded to
try to reduce the odds that someone outside of the industry might
misapprehend the apparent reference to specific numbers in the
original analysis as indicators of clarity, or credibility.

TV

On Apr 14, 2009, at 8:22 AM, David Farber wrote:

> Begin forwarded message:
>
> From: Adam Lynch <alynch () gmail com>
> Date: April 14, 2009 7:46:15 AM EDT
> To: dave () farber net
> Subject: Re: [IP] Re: cost of 1 gig
>
> I'm surprised nobody is up in arms about this one, yet, but:
>
> What about all the traffic that never goes off-net- like Akamai'd
> content, and other distributed content? Customers will then be  
charged
> for usage that *never actually leaves TW's network*?
>
> -Adam (who lives in the affected area of Rochester, NY)
>
>
> On Tue, Apr 14, 2009 at 6:13 AM, David Farber <dave () farber net>  
wrote:
>>
>>
>> Begin forwarded message:
>>
>> From: James Seng <james.seng () gmail com>
>> Date: April 14, 2009 5:26:12 AM EDT
>> To: Dave Farber <dave () farber net>
>> Cc: ip <ip () v2 listbox com>
>> Subject: Re: [IP] cost of 1 gig
>>
>> Ignoring the math aside, and I doubt time warner pays their
>> bandwidth in
>> blocks of T1, let's   use market rate of CDN as a basis, you can
>> get about
>> 20cent/GB. Larger players can get below 10cent. (Disney for one
>> gets that
>> price as far as I know).
>>
>> Of cos pricing varies depend how far you are from the exchanges but
>> CDN
>> pricing is as good estimate as you can get, bear in mind the price
>> I quote
>> above is US market rate, profitable to CDN operator.
>>
>> Sent from my iPhone
>>
>> On Apr 14, 2009, at 5:05 PM, David Farber <dave () farber net> wrote:
>>
>>> So what does it cost off peak?? djf
>>>
>>> Begin forwarded message:
>>>
>>> From: Brett Glass <brett () lariat net>
>>> Date: April 13, 2009 10:06:43 PM EDT
>>> To: "Dave Farber" <dave () farber net>
>>> Subject: P.S.
>>>
>>> See my posting regarding the incremental cost of 1 GB at
>>>
>>>
>>> http://bennett.com/blog/2009/04/pitchforks-in-austin-time-warners-bandwidth-cap/comment-page-1/#comment-427947
>>>
>>> @matthew: Time-Warner (or any ISP) isn’t just paying for transit,
>>> though
>>> that is an expensive component of their costs. They’re also  
paying a
>>> backbone provider. And since the Internet has “rush hours” (the
>>> busiest time
>>> of day is “prime time,” when people all seem to want to start
>>> streaming
>>> video or browsing at once), they have to buy and provision enough
>>> capacity
>>> to keep up with the peaks in demand.
>>> $1/GB is actually pretty close to the incremental cost of pumping
>>> another
>>> gig of data through the system during “rush hour.” Think about it:
>>> you have
>>> an hour and a half to get that gigabyte through the pipe to the
>>> user who’s
>>> streaming the movie. That’s 8 billion bits in 90 minutes. That
>>> means that
>>> you have to add another 1.48 Mbps — about another T1 — of capacity.
>>> What does this cost? On a monthly basis, this much bandwidth costs
>>> $5.50
>>> if you are co-located at an Internet peering point. The cost is
>>> about $30 if
>>> you’re a well connected cable provider with a leased line into
>>> that peering
>>> point. It costs you$148 if (like me) you’re a rural ISP paying
>>> $100 per Mbps
>>> for bandwidth; and $450 if you’re a rural ISP in some other areas
>>> of America
>>> where the only way to get bandwidth is via expensive bonded T1
>>> lines.
>>> But back to Time Warner’s case: the $30 divided by 30 days is $1
>>> per GB —
>>> exactly what Time Warner is charging.
>>>
>>>
>>>
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>>
>>
>>
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>
>
>
> --
> Adam Lynch <alynch () gmail com>
>
>
>
>
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