American Internet service providers (ISPs) are fond of flashing graphs like the one to the left because they’re a great visual aid when you’re trying to argue in favor of bandwidth caps. Look, if you want to stream Netflix from the moment you get off work until you pass out like some gross little bandwidth piggy, you’re going to have to pay for it. We can’t just keep giving you the internet for free. If we don’t charge more, we go out of business and no internet for you! But TechCrunch pointed us towards this post from tech columnist and author Robert X. Cringely giving lie to the notion that without caps ISPs will go out of business.Even Mr. Cringely’s mom isn’t buying it:
“Most of the press coverage of this issue comes down on the side of consumers but lately the ISP publicity machine has been revved-up and we’re being told that bandwidth caps are necessary, even inevitable. This is, as my 87 year-old Mom would say, BS.”
As Mr. Cringely explains, ISPs do something called provisioning, or buying a certain “amount of Internet backbone capacity” per subscriber. For example, if you’re buying an 8 megabit-per-second connection from your ISP, they, in turn, provision you with 50 kilobits-per-second of backbone. But, he goes onto to say, “This number is always less than the amount of bandwidth we think we are buying because most of the time Internet connections aren’t used at all and ISPs count on this to keep costs under control.” In fact, “This data arbitrage is part of what makes being a broadband ISP so profitable.”
ISPs are also keeping mum about the fact that backbone costs have been decreasing for years. Rising consumption coupled with diminishing prices means, he says, means that “In terms of backbone cost per subscriber, ISP costs have been flat for years.” This is partly why ISPs in Tokyo, like Softbank BB, can afford to charge half as much as New York rates for a connection that’s four times as fast, but still be profitable.
The kinds of caps American ISPs have been proposing are 2, 4, or 5 gigabytes-per-month for wireless users and 250 gigabytes-per-month for home users. But Mr. Cringely says, “Most U. S. broadband customers don’t get anywhere near that 250 gigabyte cap.” So while ISPs are presenting bandwidth caps as a way to stave off imminent losses, with backbone costs still dropping, it may actually be about boosting long-term profits.
The caps are a built-in revenue bump that will kick-in 2-3 years from now, circumventing any existing regulatory structure for setting rates. The regulators just haven’t realized it yet. By the time they do it may be too late. . .
In time we will all bump into these caps and our Internet bills will suddenly double as a result, circumventing competition and ending a 15 year downward broadband price trend.
Better load-up on those back seasons of Mad Men while you can still afford it.