Fred, I’m not around here much nowadays, but let me throw in some – what I hope will be construed as “constructive” commentary.
Consumer “broadband” services are usually priced based on their peak download bit rate. A DSL service might be good for 3 Mbps, a cable modem set to 6 Mbps, and a fiber-to-the-home service rated at 50 Mbps. The ratio of peak to average rate is known as the oversubscription ratio. This ratio can be very high in practice. Today, a typical consumer’s average usage might be in the 50 kbps range. (That’s about an order of magnitude higher than the average dial-up modem user’s usage.) So the oversubscription ratio could well be over 50 or even 100 to one! That has a big impact on the retail ISP’s costs.
When the customers of an ISP were predominately dial up, then one had to distinguish between (to my thinking) front side and back side. On the front side, the oversubscription ratio was the ratio of total customers to the number of modems in your modem bank. So for example, if you were running 10:1 and had 1000 subs, you needed 100 modems. On the backside, the size of the pipe to the internet you needed to service those modems, assuming 100% utilization, was maybe 10:1 peak to average, because the modem utilization was something on the order of 3-6 kbps
So, on the backside, keeping the math simple and assume 6 kbps average and 60kbps peak (for a 56k modem) and you have a 10:1 ratio. Simple sizing would suggest that you need ½ a T1 (100 * 6kbps) for your connection to the internet. But since you've got 1000 customers @ 60 kbps peak, your “bandwidth” oversubscription without any adjustment for headroom is still 100:1 (i.e., (1000 customers * 6 kbps) / 600 kbps bandwidth = 100).
It really hasn’t changed much with dsl (because a bit is a bit is a bit). From what I can tell, (and in the ones I know) ISPs are not oversubscribing to any greater degree or lesser than in a dial-up world. Rather, the formulas are different and definitions of the terms are different. Hence I don’t think your construct of the oversubscription ratio being peak to average SPEED is necesarilly the most illuminating. In an always-on, always-connected world of dsl, we’re back to the concepts of the busy hour, and sizing the backside pipe relative to the numbers of users in the busy hour and the average utilization of those users in that time frame.
…But that’s at the backbone site. If the ISP is in an NFL city, and owns its own fiber optic plant to get to a backbone site, then that might be the whole cost. But for an ISP serving an outlying area, the path to the Internet backbone — the so-called “middle mile” — can be frightfully expensive!
The price of middle-mile capacity in the United States varies, quite literally, all over the map. On some routes, competitive providers make high-capacity circuits available at reasonable prices. Dark fiber, with huge capacity, is even available hither and yon, though it has become considerably rarer in recent years. So a smaller-market ISP with, say, a good electric-company network provider might be able to get a DS3 circuit (45 Mbps) for a few thousand dollars per month. But in some places, especially rural areas and the smallest markets, there’s nobody to turn to but the old incumbent telephone company (ILEC). And with the decline in competition over the past seven years or so, such markets are becoming more, not less, common.
The ILEC tariff for raw bit capacity (leased lines) is called Special Access. …
Just because it is called “Special Access” according to Part 32 of FCC Rules doesn’t mean it really is “access.”
Special access is what I (and I think better) describe as transport.
In my construct, there are two direct cost components of ISP service.
1. Bandwidth, which most backbone carriers call DIA (“direct internet access” or some variant) which is the port charge by pipe size at their colo or peering location.
2. Transport, which just a dumb pipe which carries your bits to the DIA port.
Bandwidth is that which does the real work. It’s the origination and termination mechanism for the customer’s packet payload.
Pricing for Special Access in rural areas is capped, with the base rate set based on 1992 tariffs. That conveniently predates the public Internet; in those days, most Special Access was used for private voice networks, a tiny fraction of today’s capacity. So ISPs are basically paying to get to the backbone at rates that are based on how many toll calls would be displaced if the capacity were used for voice! In fact, those rates don’t even reflect the economics of primitive fiber optic networks, which came to dominate local telephone networks in the 1980s. Typical Special Access rates are over $100/mile/month per DS3, atop a couple of grand in fixed charges. …
Respectfully, I think your premise is wrong here. While I’m quite ready to join with anyone in a “beat up on the ILECs” party, the reason these TRANSPORT prices haven’t come down is due to insufficient demand, not predatory pricing. Let me give you an example:
Say I’m a small rural ISP, 100 miles from the peering point serving a town of 12,000 people. Thus my addressable market at 100% penetration is 4,000 households. At 50 kbps average, to serve the town to handle 100% dsl penetration I need 200 mbps of transport and bandwidth – a little over an OC3. The bandwidth at the peering point costs me no more than the guy in the peering point city provided I can get there (say $4K a month using your numbers – and boy that’s a steal compared to 10 years ago). Looking at the ILEC rates for transport , I say to myself, “damn they’re ripping me off, I’ll build my own.” Assuming my route is pancake flat and I get cheap rights of way and can do aerial fiber, maybe I can construct the fiber portion alone for $12K a route mile. There’s $1.2 million, and maybe I can minimally light it for another $100K. Add-in another 30% for EF&I and my total all-in cost is about $1.7 million. Now let’s say this plant has a useful life of 15 years. My monthly implied cost for that upfront capital is now $9400 per month (and even assuming ZERO overhead associated with maintenance and operation). I’d still like to make a return on the upfront capital, say 10% so now I’m up to $10,500 per month.
Now $10,500 for an OC3 is almost exactly 1/3 of $100/mile/month per DS3 suggested, so you still might think you’re getting ripped off. But you’re only getting ripped off if the OC3 price is 3X the DS3 price (typically its 50-60%) and assuming they have the OC3 to sell.
But the biggest reason that you’re not getting ripped off is because you don’t need an OC-3, because you don’t start with 100% of the market. Therefore, just like it is uneconomical for you to build it yourself, it is also uneconomical for the ILEC to charge you less, UNLESS there is 100% penetration and they can immediately fully subscriber the pipe with other customers.
The problem is not greedy ILECS -- notwithstanding that they are: the problem you are describing is rural pop densities and distance. It also gets back to something you go into later in your article, that is:
…A corollary of the telephone model was overcharging for non-voice bandwidth services….
Overcharging is a pejorative phrase. Agreed, non-voice was typically provided above cost, because basic voice was provided below cost. I haven't read your book (hangs head in shame) but I hope you would agree that Theodore Vail and the Kingsbury Commitment was not complete bulls**t.
Permit me to note I have strong allegiances to the old MCI, and have its internal publication “The History of MCI: The Early Years” sitting on my desk, so I don't think of myself as a Bell apologist. |
