24/07/2006

My rant on broadband pricing

> >Says download in eclipse's aup. And it's 50gig between 6-11pm. And
> >they don't ban you, just rate limit you if you go over it
> What's actually the problem with ISPs letting people download things
> unlimited??? Are they just capping things to charge us more money or
> is there actually a problem they're trying to control?

Because the redicuously low margins that ISPs make don't cover the infrastructure required to support GB's of international transit.

The "Internet" is a loose collection of around 40,000+ networks that "talk" to each other. ISPs and other organisations have "peering"
agreements at places like public Internet exchanges where they agree to exchange packets. LINX in the UK is one of the bigger exchanges, anyone can connect (for a fee), but everyone connecting has to make their own agreements to exchange traffic (so ISPa and ISPb have to make their own agreements), this is even more true as security is implemented so traffic cant be diverted to the wrong place.

Exchanging traffic locally doesn't actually cost anything (generally) so UK traffic is really just local to LINX, so having (a) fat enough
connection(s) to LINX means that's the basic cost of transferring traffic.

Getting out of the UK is another matter, and there are companies that just offer "transit" connections i.e. local peering is just swapping packets between your customers and those of the other end of the peer.
Transit connections allow traffic going to other places i.e. say to non-customers in say the US or EU.

Transit traffic is metered and charged by the MB (or GB or TB or whatever), and it's measured both ways (i.e. in and out).

In order to get good connectivity ISPs will have local peering agreements and transit peering agreements. Transit agreements cost real money. The more data transferred, the more the ISP has to pay.

When connections cost a lot of money (like leased lines, early broadband or even dial-up) the transit costs could easily be absorbed. With the ever increasing speeds of broadband and the ever decreasing revenues, those transit costs become increasingly apparent.

BT Wholesale charge something like GBP 8.25 per month per end-user connection, then add the capacity of the "fat-pipe" connecting the ISP to BTW (something like 300,000 pa for a 155Mb/s connection i.e. 25K per month - when that was supporting 512K customers that allowed about 16,000 customers per pipe i.e. it costs around 1.50 per month per customer), so 8.25 + 1.5 is about 9.75 per month per customer. Companies were charging say 20 quid per month so that left (inc VAT) so there's maybe 6 quid a month to pay for everything else and make a profit. When the customers move to 2Mb/s that costs about 6.50 per month - so suddenly most of the money has gone to pay for anything else. Take that to 8Mb/s and it's costing more ... OK, the backhaul pricing has changed, but they are still ballpark figures.

LLU operators have it better (like Easynet, Bulldog, Be etc) but the margins are incredibly low (Bulldog pulled out of retail as the marketing/cost to acquire a customer would eat most if not all of their profit and they couldn't compete with all the free offers, it took them several years to get ~100,000 customers, TalkTalk got 340,000+ in 3 months).

BT Wholesale are NOT allowed by Ofcom to reduce pricing until there are 1.5m LLU customers, this sounds reasonable to stimulate the market, but it's killing current BTW resellers as their margins are feable and they have to compete with the LLU players. When BTW can reduce costs, then the LLU operators will struggle as they'll have to match BTW in order to be competetive and price wars start again, margins potentially reduce further, more fire sales and ISPs (and indeed telcos) get bought or absorbed which then reduces competetiveness as there's less players.

BTW have something like 8m+ customers (through Openworld, Demon, etc etc), NTL (inc Telewest) about 4m, AOL 1.3m etc.

AOL's now up for sale, probably going to Orange or Sky.

It's just going to get worse.

> BTW I wrote to my MP about the article I posted to the list recently,
> about the idea to start charging for different streams of internet
> usage, and realised that if we start following the Merkin system
> that's so unfair - because the corporations' arguments (why shouldn't
> we charge for the infrastructure we've built to make the internet
> work) are mainly stemming from the US, where public opinion is
> different cos internet is free for users there anyway, isn't it.

It's potentially a good thing, and also very bad. It's a net-head vs bell-head argument. In the telecoms worls (bell-heads) data has always been metered (ignoring free "local" calls and things - even they were metered, just zero rated), in telephony terms you pay per minute/second/whatever, in data terms you pay for the size of the pipe (i.e. a 2Mb/s circuit costs less than an 8Mb/s or 155Mb/s pipe). In tjings like Frame Relay (which was popular before IP came along) you paid for the pipe and data sent through it.

The Internet changed all that and made connectivity flat-rate. However the "core" networks still charge per bit, and that's where the issues arise. Core networks tend to still be run by bell-heads and will continue to do so (telcos own fibre and the core networks). Therefore consumers are consuming bandwidth at ever increasing speed (sic) and no one's really paying for the increased infrastructure required.

As voice moves over the Internet, things will likely change as businesses etc will pay for quality (to ensure your voice path isn't congested), and quality costs. So there may well be 2 Internets, one which is flat rate and one which maintains quality metrics and people will pay for the quality version. Market forces will dictate how much goes where!!!!
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