Re: cost of 1 gig

[David Farber <dave () farber net>]

Begin forwarded message:

From: Brett Glass <brett () lariat net>
Date: April 15, 2009 10:53:04 AM EDT
To: dave () farber net, "ip" <ip () v2 listbox com>
Subject: Re: [IP] cost of 1 gig

At 03:05 AM 4/14/2009, David Farber wrote:

> So what does it cost off peak?? djf

As I've mentioned, it doesn't make sense to talk about what it costs  
"off peak" because we, as ISPs, don't get the choice of buying  
bandwidth only for the peaks. (And if we were offered that choice, it  
wouldn't save us any money; the upstream backbone provider's economics  
dictate that it would carry a premium price at those times.) We must  
buy the bandwidth to handle the peaks at all times. So, that 1 GB at  
"rush hour" raises our costs 24x7. It does, however, make sense to  
charge a user who pushes up the peak consumption for doing so, since  
he or she is the reason our costs are increased.

Now, one might reasonably suggest that ISPs have "off peak" rates  
which are lower, or at the very least drop surcharges for higher  
consumption at those times. And this is, in fact, done by cellular  
companies, who are in a similar situation. But because the Internet is  
a different medium (one can generally only talk on one call at a time  
unless it's a conference call, and every call on your cell phone takes  
the same amount of bandwidth), the situation is more complex. It's  
easy for such a billing model to become very opaque to end users.  
What's more, there is a nonlinear feedback loop here. Billing plans  
don't just react to customer behavior, they also influence it. So,  
time-of-day-sensitive pricing could well create bandwidth crunches at  
other times. This phenomenon is, indeed, seen in the cellular world  
just as it was in the days of land line long distance. People call Mom  
as soon as the rates drop for the day or cell phone minutes become  
free. This, in turn, has caused cellular companies to push the hour  
when this happens from 6 or 7 PM (several years ago) to 9 or 9:30 PM  
today.

As I've mentioned in postings elsewhere, the difficult thing is to  
determine how to draw the pricing curve between flat rate customers  
with limited usage and "bandwidth hogs" who must be charged at cost  
plus overhead for bandwidth. The industry will (and wants to)  
interpolate on pricing models which do this.

The important thing is to let it do so, as much as possible, based on  
customer behavior rather than regulation. Regulation precludes  
innovation, and is overwhelmingly likely to steer us away from the  
best result. The Martin FCC's attempt to ban traffic shaping and  
prioritization, and to prevent ISPs from enforcing reasonable terms of  
service, was a bad move; it eliminated what was, IMHO, one of the best  
and most transparent options. It was also what caused some ISPs --  
especially those which were not Tier 1 backbone providers -- to  
implement the admittedly crude caps and overage charges we are seeing  
today. And now, one New York congressman is proposing a prohibition on  
caps and overage charges -- backing ISPs into a corner. Given both of  
these constraints, it would become impossible for an ISP to keep  
revenues in line with expenses.

--Brett Glass




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