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Boom or Not, Internet Bandwidth Prices Still Falling

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Shopping for the holidays, watching your favorite television shows, listening to music, or even just playing games on your iPhone (s aapl) — it’s becoming increasingly difficult to do anything without using the Internet these days. If that isn’t enough, we need more bandwidth, and we want  faster connections.

You’d think the need for copious amounts of bandwidth would drive up prices for wholesale connectivity. But thankfully (for consumers) the price of Internet bandwidth continues to fall. Of course, you and I don’t see it , mostly because our monthly broadband bill stays pretty much the same. The price of declining bandwidth is felt at the wholesale level, and affects companies such as Level 3 Communications (s LVLT).

Prices for wholesale Internet bandwidth — the kind that is sold to content providers such as Google (s GOOG), Yahoo (s YHOO), Facebook, Netflix (s NFLX) and Internet Service Providers — are declining at a steady clip. The service provided is known as IP transit. Data released by research firm Telegeography shows that prices for IP transit are declining even as international traffic volumes are growing at more than 60 percent annually.

Although prices are declining throughout the world, both prices and the rate of decline vary sharply depending on the locale. The median GigE port price in New York City has fallen at a compounded annual rate of 22 percent between the second quarter of 2005 and the second quarter of 2010, to under $8 per Mbps — less than one-third the price of a comparable port in Hong Kong, where it has fallen only 15 percent in past five years, to $28 per Mbps.

A lot of the falling prices have to do with location and competition. In the U.S., the competition is pretty healthy, and that’s why the prices are declining. In Asia, the number of Internet bandwidth providers (and the network capacity) is limited for now, and you can see that reflected in the prices.

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9 Responses to “Boom or Not, Internet Bandwidth Prices Still Falling”

    • Curtis Carmack

      So Brett, you’re saying that in NYC the price for a Gig-E port is $800/Mbps? I don’t know where you do your shopping, but you’d have to be pretty crazy to pay that price. Even fairly small customers here don’t pay more than $40/Mbps for a fairly small commitment on a Gig-E port.

  1. Previous commenters are confused. Article clearly states “GigE ports,” from an ISP, meaning it’s for a whole 1000Mbit connection. The article isn’t clear if this is for a committed port (ie, 1000 * the price in the graph or ~$10k/month) or is a burstable price. Typically I see a commit required of at least 10% of port capacity, meaning you’d pay $1000 for the port, and $10/mbit for usage beyond the 100Mbit, based on the 95th percentile.

    This is for data center and commericial customers, not end users/homes.

  2. The key is that demand has more then kept pace with the pricing decline. In other words prices may have dropped 50% but demand has increase 200%. 50% and 200% are not the real numbers but you get the point. So although you’d think your local ISP should be able to lower prices, they actually have to pay the same and more likely more for their transit connection.

  3. The first two comments already make the mistake of comparing wholesale prices to retail prices. That’s not what this is about. International bandwidth prices are only 1-3% of the costs of delivering broadband. Why you haven’t seen this reflected in your retail offer has a very simple reason, it’s not that important for you. Most of you however have seen it reflected in some other way, the steady decline of metered broadband (though not everywhere and not always).

  4. What is the source of this data? It isn’t anything that I am experienced with. Looks skewed to make people think the US has cheap bandwidth (not true in my experience)

    1. My parents pay $10 for 56Kbps dialup in US = $179 per Mbps
    2. I pay $50 for 15Mbps = $3 per Mbps
    3. I paid $50 for 100Mbps in Japan 3 years ago = $0.5 per Mbps

  5. Transit bandwidth prices may have dropped but cable internet access has not dropped and the speed is paltry. One cable provider won’t outright tell you what their speeds are. I had to ask the customer service rep the exact upload and download.