People who don’t see little green men behind every tree like it.

Contrary the naive opinion of people who don’t know how networks are put together, infrastructure costs are never fully paid off. This is a system in which squirrels eat wires, nodes have to be split to accommodate traffic, and electronics have a useful life of five years or less.

To upgrade their networks for DOCSIS 3, the cable companies had to install a new $100,000 CMTS for each 250 – 300 homes, new fiber capacity behind the CMTS, increased volume-based transit bills, updated routers, new modems for each D3 household, and in some cases new home gateways. You don’t increase network capacity by four times for $75 a home, and the traffic-related costs are ongoing.

The NAF estimates only count the modems, apparently on the belief that all that other stuff is free. Even if you assume that CMTS’s are going to replaced anyhow and the new ones cost no more than the old ones did, you’re stuck with the admission that the network needs constant expenditures. We’re not talking tin cans and string, you see: there’s more to a broadband network than wire, and even on the wire front, the US is installing fiber today at a rate that’s 15% faster than all of Europe.

In addition to those costs, you have customer acquisition at $1000 a pop, as well as service and support because customers are always going to have viruses and other problems. The costs on the peering and transit end never stop mounting up, and there’s the labor cost of running a NOC and dealing with the never-ending stream of problems caused by botnets and freaks pulling DOS attacks. Simply running any kind of Internet service is expensive because there is so much hands-on manual labor involved. The protocols are poorly designed and 35 years old, after all.

Any semi-honest and thoughtful analysis takes these things into account when trying to understand how the 95% gross margin gets pared down to 2% at the bottom line of the companies’ SEC filings.

The NAF complaint about cable company profitability is nothing but a hasty and shabby response to the ITIF report. It’s meant to appeal to bloggers who are too lazy to read 76 pages of hard data from OECD, ITU, World Bank, and Akamai.

Deal with it, you’re busted.

It’s also a great way to test out your brand shiny new data meter that other providers have so often gotten fouled up before you start billing your “A” Grade customers overlimit fees for usage they never racked up.

Those price-resistant to broadband have some options today without penalizing everyone else:

1) Slower speed tiers of 3-5Mbps available from most providers for around $20-25 a month;
2) FreedomPop which offers wireless service in limited buckets ranging from free to under $20 a month for a few gigabytes.
3) Providers’ discount Internet plans for families qualifying for food stamps or other aid programs.

AT&T’s DSL “giveaway” is a temporary offer in certain areas. If your area is served by U-verse, they stop selling DSL and make you pay an outrageous $41 a month for 3Mbps U-verse service before equipment fees. (http://www.att.com/shop/internet.html?gnLinkId=s2004#fbid=xwzilZ_YcKF)

“Marketed as “Essentials Internet,” the company offers a $5 discount on a $45 broadband plan for a package capped at 5 GB of data per month. To put the data usage in perspective, in 2012 the FCC reported the median cable broadband subscriber uses about 28 GB per month. Thus, for a modest 11 percent discount, an individual must reduce his or her data consumption by 82 percent compared to the median cable user. Is this “fair” pricing by anyone’s definition?”

Would a median user buy this plan? Obviously not, this is a starter deal that’s aimed at getting non-users online. There are 30 million non-broadband homes in America that the cablecos and telcos would love to sign up. That’s the reason for these sweet starter deals.

Where I live, AT&T offers DSL for a starter price of $16, practically giving it away.

The networks Bennett says need the extra money to cover costs were largely paid off years and years ago — especially the cablecos. Broadband was an ancillary product introduced on infrastructure with capacity to spare. The ongoing march to digital on cable systems has made even more bandwidth available for cheap.

Telephone companies won rate increases and deregulation in part because they promised to use the money to construct fiber broadband. Instead, they spent the money on high profit wireless networks instead. Now Verizon has ended its FiOS expansion and AT&T’s U-verse platform is already proving unable to keep up with cable. AT&T got what it paid for.

Broadband has been, is, and will remain a license to print money. Somehow, the industry bought “research” ignores the actual financial reports these companies produce which largely show the same thing quarter after quarter: the costs to deliver broadband continue to drop (along with CapEx/investment) even as companies continue to raise prices because they can.

Companies borrow money for incremental upgrades because there are tax and accounting advantages and interest rates are dirt cheap. It isn’t because they don’t have the money.

Usage caps and consumption billing are just one more way to monetize broadband usage, not to cover the costs of providing the service, but delivering the endless demand for higher revenue Wall Street demands.

Phillip Dampier
Stop the Cap!
http://stopthecap.com

The tax breaks and subsidies for broadband suppliers are much higher the seven nations with marginally faster services that the U. S., there there aren’t any subsidies to speak of outside of rural areas.

DSL tops out at 100 Mbps. The “fiber” systems in East Asia typically employ DSL over copper for the last thousand feet, so it’s not the bad guy.

America has a lot of junk facts floating around about broadband, and is probably the world leader in whiny analysts.

We don’t have cable TV, but we rely heavily on Netflix/Amazon/individual network’s streaming. This is a family of 4 watching TV probably 6 days a week. Last month I think my router reported I used 150 GB of data.

Here’s a nice article from 2006

http://www.niemanwatchdog.org/index.cfm?fuseaction=ask_this.view&askthisid=186

>Through tax breaks and increased service fees, Verizon and the old Bells reaped an estimated $200 billion since the early 1990s to improve subscriber lines in the United States. And what have American consumers received? The most common DSL Service over the old copper networks tops out at 768 Kbps in most areas—a hundred times slower than routine connections in other countries. (There are faster, more expensive versions of DSL, but most have a top speed of 1-3 mbps in one direction, and it varies based on how far a person lives from a network hub.)

Looks like we already paid for most of it, didn’t we?