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Flatrate models usually means that a large majority of users actually covers the costs for a the minority high consumers. It is true that the marginal cost for

Flatrate models usually means that a large majority of users actually covers the costs for a the minority high consumers. It is true that the marginal cost for more transmitted data is almost zero, but the overhead costs of running (and expanding) networks are certainly not. Cost has to be covered and you could very well argue that it makes sense that the large consumers pay more.

KingMachiavelli 6y ago
Besides maybe above the 98th percentile, data peering costs are very low that the physical infrastructure dominates the cost of service for residential users. Since residential connects are over subscribed anyway, it is trivial to make users throttle during peak demand based on their current/historical usage. If you use Cloudflare's costs and peering:transit ration from 2014 (which is almost certainly cheaper now); 1Mbps/month costs $8. [1] 1 Mbps/month is ~329GBytes. A 1TB data cap would be just ~3.1 Mbps/month costing $24.8. I'd estimate that a last mile ISP could probably get an effective rate of half or less since connecting to end users/consumers is an advantage. And in a lot of cases, the same ISP offering residential service is also selling transit to other networks so in a way the data is already paid for by the time it reaches your local ISP. [1] https://blog.cloudflare.com/the-relative-cost-of-bandwidth-around-the-world/ https://blog.cloudflare.com/the-relative-cost-of-bandwidth-a...
lazerpants 6y ago
I checked Comcast's 10k report and their margin for the segment including broadband is over 40%, which is crazy but about what you would expect from a de facto monopoly. I don't think forcing them to invest in capex to benefit customers is asking so much when they are making those kinds of margins.
- SpaethCo 6y ago
  Those margins are misleading because they're _multi_ service operators, and accounting standards require that you can only list direct costs. Revenue is easy: how much did you take in for video? phone? Internet access? Costs are harder because you can only include business line direct costs. Since the cable plant is used by voice, video and data services it's not a direct cost of any of them. Same thing with the service vehicle fleet, call centers, etc. Most things get saddled in "administration" categories and obscure the true cost of providing the service. As a company overall, their margins been hovering around 8-12%.
  - lazerpants 6y ago
    That was margin derived from operating revenue, it includes SG&A for the entire division. Do you have a source stating otherwise?
  - maxerickson 6y ago
    They report all of the services using the cable as a single segment of their business. Of course they are attributing operating costs to that segment. Like 40% of the segment cost is "programming" (TV), so the internet part of the service likely has even better operating margin than the segment overall (basically, slightly higher revenue than TV with considerably lower costs).
betterunix2 6y ago
Does the cost of running a network depend on network utilization? Does a network that is more heavily used require more maintenance?
- toast0 6y ago
  Yes. If the network is more heavily used, it will require more capacity where it connects to other parts of the network or other networks. More ports and more wires means more failures of ports and wires and more diagnosis of ports and wires and more replacement of ports and wires. Or, if capacity is not increased to meet demand, you need more people at the callcenter to ignore customer complaints.
  - betterunix2 6y ago
    That sounds like a fixed cost to build the network, not the cost of running the network. I agree, building a higher capacity network is more expensive, but how does the cost of running a network change with utilization? If a network is underutilized does it somehow cost less to operate?
    - toast0 6y ago
      More capacity is more things to break and fix. If it's underutilized, you can save money by delaying replacement. Let's keep things simple and say in one interconnect you'e got 4x 10G ports. If your utilization peaks at 5 Gbps, you way overbuilt that connection, but if one port breaks, you don't need to fix it until another port breaks; you can wait until three out of four ports are broken if you feel lucky. That delays hardware replacement and eliminates service trips and probably reduces technician time. If that connection peaks at 35 Gbps, you should fix any issues ASAP. (And start planning for capacity increases). Of course, if the connection is to another network, they may bill for usage too; although I'm pretty sure US dominant ISPs are not paying for usage on most of their connections.
    - supertrope 6y ago
      When a link reaches 50% it's time to upgrade. Heavier utilization and faster traffic growth means shorter intervals between capital expenditures. $10 per 50GB is a monopoly windfall but it does theoretically hold down demand. People don't BitTorrent 24/7 or leave video chat running while they sleep if there's punitive overage fees.

KingMachiavelli 6y ago

Besides maybe above the 98th percentile, data peering costs are very low that the physical infrastructure dominates the cost of service for residential users. Since residential connects are over subscribed anyway, it is trivial to make users throttle during peak demand based on their current/historical usage. If you use Cloudflare's costs and peering:transit ration from 2014 (which is almost certainly cheaper now); 1Mbps/month costs $8. [1] 1 Mbps/month is ~329GBytes. A 1TB data cap would be just ~3.1 Mbps/month costing $24.8. I'd estimate that a last mile ISP could probably get an effective rate of half or less since connecting to end users/consumers is an advantage. And in a lot of cases, the same ISP offering residential service is also selling transit to other networks so in a way the data is already paid for by the time it reaches your local ISP. [1] https://blog.cloudflare.com/the-relative-cost-of-bandwidth-around-the-world/ https://blog.cloudflare.com/the-relative-cost-of-bandwidth-a...

lazerpants 6y ago

I checked Comcast's 10k report and their margin for the segment including broadband is over 40%, which is crazy but about what you would expect from a de facto monopoly. I don't think forcing them to invest in capex to benefit customers is asking so much when they are making those kinds of margins.

SpaethCo 6y ago
Those margins are misleading because they're _multi_ service operators, and accounting standards require that you can only list direct costs. Revenue is easy: how much did you take in for video? phone? Internet access? Costs are harder because you can only include business line direct costs. Since the cable plant is used by voice, video and data services it's not a direct cost of any of them. Same thing with the service vehicle fleet, call centers, etc. Most things get saddled in "administration" categories and obscure the true cost of providing the service. As a company overall, their margins been hovering around 8-12%.
- lazerpants 6y ago
  That was margin derived from operating revenue, it includes SG&A for the entire division. Do you have a source stating otherwise?
- maxerickson 6y ago
  They report all of the services using the cable as a single segment of their business. Of course they are attributing operating costs to that segment. Like 40% of the segment cost is "programming" (TV), so the internet part of the service likely has even better operating margin than the segment overall (basically, slightly higher revenue than TV with considerably lower costs).

betterunix2 6y ago

Does the cost of running a network depend on network utilization? Does a network that is more heavily used require more maintenance?

toast0 6y ago
Yes. If the network is more heavily used, it will require more capacity where it connects to other parts of the network or other networks. More ports and more wires means more failures of ports and wires and more diagnosis of ports and wires and more replacement of ports and wires. Or, if capacity is not increased to meet demand, you need more people at the callcenter to ignore customer complaints.
- betterunix2 6y ago
  That sounds like a fixed cost to build the network, not the cost of running the network. I agree, building a higher capacity network is more expensive, but how does the cost of running a network change with utilization? If a network is underutilized does it somehow cost less to operate?
  - toast0 6y ago
    More capacity is more things to break and fix. If it's underutilized, you can save money by delaying replacement. Let's keep things simple and say in one interconnect you'e got 4x 10G ports. If your utilization peaks at 5 Gbps, you way overbuilt that connection, but if one port breaks, you don't need to fix it until another port breaks; you can wait until three out of four ports are broken if you feel lucky. That delays hardware replacement and eliminates service trips and probably reduces technician time. If that connection peaks at 35 Gbps, you should fix any issues ASAP. (And start planning for capacity increases). Of course, if the connection is to another network, they may bill for usage too; although I'm pretty sure US dominant ISPs are not paying for usage on most of their connections.
  - supertrope 6y ago
    When a link reaches 50% it's time to upgrade. Heavier utilization and faster traffic growth means shorter intervals between capital expenditures. $10 per 50GB is a monopoly windfall but it does theoretically hold down demand. People don't BitTorrent 24/7 or leave video chat running while they sleep if there's punitive overage fees.