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Originally Posted by towny
I know this aspect of the cost of BB in the UK has come up in this forum before, but I've never quite got my head round it. I'd read your 'proof' if you posted it.  |
I give it a go but try a more general description of the costs of providing BB into peoples homes.
The vast bulk of costs for a digital network (any digital network) are fixed sunk costs. That is the cost of digging up the road and putting the physical wires in.
There are then fixed costs for the 'boxes' at the end of the wires and typically these 'boxes' define the maximum potential data that can be sent / recieved.
Both the above are fixed costs and do not change at all with usage (upto the maximum limit defined by the boxes at the ends of the wires). Use not at all and the cost is the same as using it to it's max capacity.
With internet provision there is one cost that is incremental on usage (ie the more the thing is used the more it costs). That cost is the cost of NTL's external connectivity to the internet. There is also incremental costs for things like email and newsgroups (the more they are used the more processor/storage etc NTL have to provide) but agaion these are minimal and falling at a phenomenal rate. I am pretty much ignoring these costs for simplicities sake.
If you take a 'typical' BB residential service at say £25 pm then in very rough terms about £20 would represent 'paying back' fixed costs of the infrastructure (putting in the wires and the boxes at the ends of the wires). The remaining £5 would include all the other costs, staff, offices and incremental costs (external bandwidth, news/email servers etc) and (hopefully) profit.
You can get a kind of 'proof' for these ratios by looking at the cost of BT's wholesale products vs the retail price of the service charged to the customer. The BT Wholesale prices essentialy represent the fixed costs (and some alledgedly regulated profit for BT) and the difference between the BT wholesale cost and the retail price essential represents the cost of 'everything else' - that is staff, office and incremantal costs as well as profit for the retailer.
I do not really have the time to dig out the current BT wholesale prices for IP Stream (the product used by many ISP's to get connectivity from a customers house to the ISP/ their peering point) but they are publicaly available to those that can be bothered to search them out. If you do look at these figures and compare them to the retail price charged for such services then it's probably about the simplest 'proof' that the incremental costs of usage are a tiny fraction of the overall costs of providing BB to peoples homes.
Or to look at it another way entirely. Imagine your networking your office from scratch. The first biggest costs is the cost of laying your cat5 cable round the office. Then there is the cost of the 'boxes' at the 'ends' of the wires (NICs, hubs, switches routers etc). Lets say we spec 10mbs boxes initally. All the costs are fixed costs, with essentialy no incremantal usage costs - upto the 10mbs. If you want internet connectivty as well as LAN then there is a fixed cost for an shared external pipe as well. If external connectivity capacity becomes an issue you can upgrade the size of your internet connection without any cost implication for your internal network (you do not need to change any of the wires or boxes in your office). If internal bandwidth becomes a problem (10mbs is not enough) then you can change the boxes at the ends of the wires from 10mbs to 100mbs or 1gig (or even 10 gig now) boxes, without needing to change the cat5 wiring. Also the chances are that the new 100mbs or 1gig boxes will be cheaper that your original 10mbs boxes (moores law). Thus hopefuly from the above it is clear that 'bandwidth' or 'incremental' (on usage) costs of a digital network are zero or near zero and the vast bulk of costs are fixed costs independent of usage. Or to put it another way, once you have paid for the infrastructure the cost of 'bandwidth' is zero (upto the maximum limit of the capacity of the boxes you chose).
I hope than makes some kind of sense ?