| Reporters Need A Lesson in Network Economics Todd shows a stunning lack of knowledge of network economics, the history of pricing in telecommunications, and business. He's just one among many DC reporters whose sole source of support comes from the industry he reports on, and he is happy to be spun and carry water for them.
First, from an economics standpoint, there are 3 segments to a network's cost -- cap ex, op ex maintenance, and op ex transport.
The FCC's broadband team reported that in urban areas, an ISP's total cost per customer is about $8 per month on average. Of this $8, only 50 cents per month is attributed to transport cost.
Cap ex is a fixed cost, and most of their op ex is fixed. There is almost no variable cost. The typical ISP owns their fiber lines to POPs, or if they don't, they lease the line on a 95th % pricing basis; it's a fixed, not variable costs.
From an efficiency standpoint, the proper way to charge for this network is through a monthly fixed cost. It costs Comcast the same to deploy and operate a line to my house as it does to my P2P-loving neighbor's house.
The latter is an important point. The ISPs are purposely confusing congestion pricing and usage based billing. But they are not the same, not at all. Under the principle of efficiency, they should allow a "hog" to download as much as she wants, so long as she does it not during peak hours, as the variable cost and the "congestion externality cost" of her "hogging" is virtually zero (it certainly is for the Tier 1 ISPs).
But let's go back to that $8 figure. That means that if they are charging you $40 per month, they have a profit margin of 80 percent. That, under any lens, is certainly enough for them to make the occasional capacity upgrade needed to keep up with the predictable but slowing increases in bandwidth demand.
Again, none of this talk about UBB has anything to do with really controlling congestion, and all the talk about hogs paying their "fair share of the network's cost" is bunk, because those costs are fixed. |
