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ISPs exaggerate the cost of data

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October 12, 2011

Internet service providers were recently exposed for grossly exaggerating the cost of prov...

Internet service providers were recently exposed for grossly exaggerating the cost of providing online data

For years, internet service providers have been raising the costs of broadband internet service due to what they call "increasing demand for service." Both fixed and mobile internet providers recently claimed that increasing demand is leading to "ballooning" costs, which made price increases necessary. They even went as far to say that companies such as the BBC should be helping to foot the bill.

All of this was brought to a halt by a study from Plum Consulting. The study, which was paid for by Yahoo, Skype, BBC and others, discovered the the cost of data is only a small fraction of the operating costs of an internet service provider. The study showed that each gigabyte of data cost approximately €0.01-0.03 to the provider. It is even claimed that 4G technologies will significantly reduce these already low costs in the near future.

On a smartphone, €10 per gigabyte is about the norm. This is a healthy profit when the data you are paying €10 for only cost the provider €.01-.03.

This statement was released by Plum Consulting after the survey: "Traffic-related costs are a small percentage of the total connectivity revenue, and despite traffic growth, this percentage is expected to stay constant or decline."

Of course there are still operating expenses such as maintaining the lines, employing a workforce, and paying for other business expenses such as office space and utilities. Until now, however, ISPs maintained that their biggest cost came from the increasing demand for data service.

It seems that the internet service providers may have their hands caught in the cookie jar - or your wallet - this time.

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14 Comments

We already knew AT&T was evil. This puts a dollar amount on it.

lugnut
12th October, 2011 @ 05:37 pm PDT

Why don't you stick to technical reporting.

Last time I checked ISP's are companies. They are in the business to make money. As much as the market is willing to pay.

I suggest you put your money where your mouth is and buy shares in the said ISP's and join in the "profiteering"

By all means, dislike the prices charged for a service but don't call it greed. If there were price controls on this industry we would still be viewing jumpy post stamp size videos as no money would be invested in network upgrades.

Paul van Dinther
12th October, 2011 @ 07:51 pm PDT

So that's how they are able to pay such high dividends!

Johnson Chad
12th October, 2011 @ 09:58 pm PDT

They believe you must be making lots of money if you have the extra time to watch the BBC network. So stick with the herd. Just pay it.

Robert DuBois
13th October, 2011 @ 12:14 am PDT

@Paul. Read the article again. This time, actually read it. Start with the title and focus specifically on the word "exaggerate". This should provide some insight on what the article is actually about and what the author is attempting to convey.

It actually isn't about corporate greed at all, it's about dishonesty. If you are charging ever increasing rates for data because that's what the market will tolerate, then just say that. Simply call it what it is. Instead, this article is calling out the fact that ISP's are attempting to explain their ballooning prices on their ballooning costs. This is a bold faced lie, which many technicians have already suspected, but is now confirmed (hence why it is directed to us).

This, I think, is significant. If these companies didn't feel like they were doing anything wrong, anything unethical or "greedy", and if this was just supply and demand economics, then why lie about? Surely even little Johnny understands that the more rare and desired something is, the more it will cost. I suppose you will say that deceit is simply a part of capitalism too....

Dan Dorazio
13th October, 2011 @ 09:07 am PDT

big surprise

though the real cost is pretty hard to determine

a GB doesn;t really cost anything

but at 'peak times' if everyone wants to send GBs around, the company either has to limit traffic, or add new equipment

that is what actually costs money

phone company has the same problem

calls are free

extra hardware to handle peak demand isn;t

how do you price that?

wle

wle
13th October, 2011 @ 09:09 am PDT

People's opinions on this vary based on whether they have alternatives. Where I live, I have only 1 option and no alternative. Historically whenever someone else pops up in my community, they get bought out by the local ISP and they keep the prices up in their monopoly. Its sick and exploitative. The customer can't play the switching game and drive the prices down where I live. It would be better if it was municipal.

Rustin Haase
13th October, 2011 @ 10:18 am PDT

The real point to this article is regulation and use of the commons.

Mr lugnut probably works for the ISPs. Oh well. One thing we are all overlooking is that the ISPs are profiteering off the commons. What are the commons? The commons are infrastructure elements that are built with taxpayer money. The internet would simply not even exist were it not for taxpayer money that built it from the ground up. Oh, and let's not forget how we gave those same corporations access to our right-of-ways so that they could lay cables along roadways free of cost. In fact, we even paid for the cables being laid. Wow, what a deal for communications firms like AT&T.

This is nothing new. The railroads of the 1800s were built that way. Taxpayer money was used to build them, then the railroad companies took over and began charging outrageous fees to people. It's predation and the openly hostile side of capitalism. And no, I'm not a simpleton. Capitalism isn't evil, but it most be regulated, otherwise it spins out of control--must like an engine without a throttle.

This is why regulations (which corporations hate) are important. Regulations protect the commons and us from corporate abuse. To say simply, 'oh corporations exist to make money' is ignorant--to say that means you know nothing about how any of this works. Yes, corporations do exist for that, but we cannot condone wholesale rape from those same corporations that profit from OUR commons. That's predation, and only governments can protect us, the taxpayers, from it. We cannot protect ourselves as individuals. We don't have the power. Have you ever tried to fight a corporation all by yourself using only your paycheck from Wal-Mart?

It's a shame we've lost sight of how this stuff is supposed to work. So many have bought into the lies of the right-wingers and Rush Limbaugh propagandists. Too many think free trade economics and Reaganomics actually works.

Hugh Shipman
13th October, 2011 @ 10:21 am PDT

Whatever you guys are saying... You can compare all that to the prices of the public transport in Toronto. We pay them 3$ per travel one way, which is retarded and they keep claiming that they renew the TTC system, put new trains and blah-blah-blah, dah so far I've seen one new train, no new subway, no changes. Same with Rogers which is one of the biggest ISP in Canada at least. They give 7kb/s internet limited at 60GB per month for 60$!!! (what is is 1$ per 1GB 1000% income eh brilliant) without any upgrades and constant slowing down of the traffic as well as constant network crashes. So please tell me what kind of "good" company will do that hah? I've studied business in Europe, and in my understanding "good" company won't rip off the customer no matter what. It's obviously greed based business. There are few ISPs that actually provide decent service in Canada and even those are under the monopoly (greed politics) of huge ISP that can do what ever the *uck they want... And that's the reality. That's the other reason why people should resist!

Kirill Belousov
13th October, 2011 @ 10:22 am PDT

Yes, in a perfect world the "market" with its "invisible hand" would keep a lid on the prices. Except we DO NOT LIVE IN A PERFECT WORLD. Wake up and smell the corruption and unscrupulous greed wafting from every facet of big business and government.

The large providers simply collude, one will raise prices and essentially say to the others that raising their prices is ok too. Its called "price leadership". So we all end up paying more. There is hardly any real competition in the telecommunications market; when you have companies ending up with 30-50% of market share they simply dominate and takeover the competition thus further increasing their market share.

Simply put, Competitive markets are not as profitable. Thus they pull the wool over ours, and the governments and regulators eyes. Or simply buy the regulators and government. Money corrupts even the most honest of people. Even Obama.

This can be seen from banking, petrol companies,to the insurance industry and beyond. Well basically every industry still turning a profit in the face of waning consumer confidence resulting from the causes of the GFC still being un-resolved. IE desperate need for financial regulation and pushing some money from the people hoarding it (money sitting around doing nothing is actually destructive as we are now seeing), to the real economy ("main street") which employs everyone and keeps the economy ticking along.

Im just 25 but I seem to have more economic sense than the FED and the White house combined lol. Or maybe its that I haven't been "brought", just yet...

cm
13th October, 2011 @ 01:23 pm PDT

Unfortunately, this article shows exactly how much the public knows about data carriage. Have you priced a Cisco switch lately? Now go out and purchase a few thousand...Does the phrase "peering agreement" mean anything to you? If not, look it up...How about all those guys you see digging ditches laying fiber? How much did that cost? And how about the salaries of all the network engineers needed to keep a tier 1 provider up and running? Have you priced out what a cable under the ocean between Hawaii and Japan costs? How about satellite time? I kinda doubt that these things were added into the cost of a GB.

Sure, the carriers are milking it...but this stuff isn't free!!

Ed
13th October, 2011 @ 02:21 pm PDT

GREAT ARTICLE!!! In complete contrast to 'Paul', I applaud this article and GizMag's use to keep this long known - to some or many of us, at least - issue alive and well. I'd guess the only ones who wouldn't want this article have ulterior motives because if everyone remains silent like sheep as we are collectively grossly overcharge year after year after year, nothing's going to change. Nothing!

It may be that nothing will change anyway - at least in the shorter term - but if enough people (like you guys :-) keep this repugnant practice on the table, maybe it'll change at some point in the future. And hopefully the relatively near future! To compound this issue, the TelCos dramatically overcharge for data in the form of texting charges, too.

And worst, in Canada at least there's an attempt to increase these costs even more - this while the costs of data transmission have been plummeting for decades and continue to do so. Typically, something happening in one country (like an increase in charges) is used to justify the same thing happening in others, though if this ever happened in Canada it would definitely be a case of the tail wagging the dog if it impacted the States. Still, it could impact other countries and move up over time, possibly eventually impacting the States. Enough is enough!

Indeed, your article is *very* timely given the current Occupy Wall Street movement and the way it's spreading! It could reasonably be a part of that movement, but the kind of gouging done in the name of data far exceeds most gouging out there. Again, congratulations and I'd think the people with a 'view' like 'Paul' isn't held by many more people than there are corporate gougers or their employees and shareholders.

GO, GizMag!

BrettA
13th October, 2011 @ 04:00 pm PDT

Way back in the days when a 1200 baud modem was the fastest connection around, services like CompuServe charged more per minute the faster your connection was.

I always figured that was bass-ackwards. They should have charged less for faster connections because a user could connect, do whatever they were going to do in a shorter time and disconnect - freeing up a line faster for another user.

Most people with an AOL, CompuServe etc account in the pre-internet years didn't connect and stay online for hours and hours, unless they were trying to run lots of e-mail through a 110 or 300 baud modem.

The more customers with faster connections, the more they could serve. But they artificially held back on the growth in faster connections and limited their own growth by sticking it to customers that would actually be using *less* of the service providers' time.

Gregg Eshelman
17th October, 2011 @ 03:32 pm PDT

When people are using the internet for education and medical information the ISP's are lowering the standard of living and quality of life by putting costs out of range for low income citizens. It becomes pure greed that causes much grief and possibly death.

Monopolized ISP's are worse. There are no choices.

Sucking the economy dry is another by-product. Other monopolies contribute. The trillions we taxpayers pay in military costs to defend the freedom to gouge the public is reprehensible.

electric38
20th October, 2011 @ 12:49 am PDT
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