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Canadian Caps Aren't Economically Justified
Canadian Press Realizes New UBB Pricing Is A Giant Con
by Karl Bode 10:49AM Wednesday Feb 02 2011 Tipped by sheidebrecht See Profile
You'll recall that when Time Warner Cable tried to impose low caps and high per gigabyte overages here in the States, they proclaimed the move was financially necessary because flat-rate broadband pricing wasn't sustainable. Consumer backlash to the idea of over-paying by the byte forced Time Warner Cable to back off the plan, and they've since reported several consecutive quarters of healthy profit under that supposedly unsustainable flat-rate pricing model. With the fairly low cost of DOCSIS upgrades, the dropping cost of bandwidth and broadband, and most other costs fixed or dropping (regardless of use) -- per-byte pricing was never financially necessary.

With Canadians now in an uproar over the coordinated assault on their wallet, consumers are once again asking Canadian ISPs to justify such steep price hikes. Just as we saw in the States, Canadian ISPs are falsely insisting that the move to such punitively-low caps and high per-byte pricing is a matter of financial survival. They're also falsely insisting that such pricing models are about "fairness," an argument we've also deflated time and time again. Canada's Globe and Mail is slowly figuring out that Canadian ISPs are simply making justifications up, and that any push to charge consumers between $2 and $5 per gigabyte is not based on real world economics of any kind:
To find out what is a fair price, I contacted several industry insiders. They informed me that approximately four years ago, the cost for a certain large Telco to transmit one gigabyte of data was around 12 cents. That’s after all of its operational and fixed costs were accounted for. Thanks to improved technology and more powerful machines, that number dropped to around 6 cents two years ago and is about 3 cents per gigabyte today....Assuming an inflated cost of 10 cents per gigabyte, it means that Bell, Shaw and Rogers are charging consumers between 10 and 50 times what it costs them to deliver data. This on top of their regular monthly Internet pricing!
That last bit is important to remember: namely that we're not talking about real per-use pricing, we're talking about a flat monthly rate that already well covers all costs for the ISPs (take a look at any ISP tax and earning report), with heavy overages layered on top as pure profit. To this day you'll find various policy mouthpieces for carriers and fauxcademics arguing that these kinds of pricing models are economically necessary. You'll see paid think tankers argue that critics of such models aren't looking at the big picture, that they're against companies making a profit, and other straw men. You'll see ISP executives and some employees, with a straight face, suggest that such pricing is about fairness and altruism.

What you'll never see is ISPs or their armies of hired public relations guns providing real, raw ISP congestion or financial data to actually support the supposed need for the kind of pricing models you're now seeing foisted upon Canadian consumers. That's because that data doesn't exist, and the flat rate, low cap, and high overage pricing model isn't about financial survival or congestion -- it's about cashing in on Internet video and protecting traditional TV revenues from disruption. It's also only made possible in markets that have limited to no competition, regulated by politicians whose sole objective is to look out for the financial well-being of the largest, wealthiest carriers.

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Minneapolis, MN

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reply to TheWiseGuy

Re: Covering cost vs profit

The point is that "cost per Gb" isn't a static figure; the cost goes up as utilization gets higher.

As bandwidth consumption rises, so do costs to deliver it.