On one side of the equation is the fact that big cable companies (Time Warner Cable, Comcast, etc.) have long been ripping off consumers by pricing their services far above cost -- something they can easily do because they face so little competition. But the more interesting side of the equation is how Google can make its gigabit price so low.
Recall that Chattanooga made major waves with its gigabit service, priced then at the rock-bottom rate of $350/month. A gigabit is not available in many communities and where it is available, the price is often over $10,000 per month. We published an in-depth case study of their approach a few months ago.
But, as Milo Medin -- the head of the Google Fiber project -- is fond of saying, "No one moves bits cheaper than Google." Google has built an incredible worldwide fiber optic network. Let's call this lessons 1 and 2.
Lesson 1: Google built its own network. It isn't leasing connections or services from big telecommunications companies. Building your own network gives you more control -- both of technology and pricing.
Lesson 2: Google uses fiber-optics. These connections are reliable and have the highest capacity of any communications medium. The homes in Kansas City are connected via fiber whereas Time Warner Cable, CenturyLink, and others continue to rely on last-generation technologies because they are delaying investment in modern technology to boost their profits.Others have already followed these lessons but are not able to offer their gig for such a low prices. To understand why, let's start with some basics. I'm hypothetically starting Anytown Fiber Net in my neighborhood and I want to offer a gig. Whenever any of my Anytown subscribers want to transfer files amongst themselves, the operating cost to me approaches zero because (aside from the capital costs of building the network), the cost of transfering those files is basically the electricity it takes to pulse lasers over the fiber and keep the fans on the routers humming.
Lesson 3: Local traffic on the network is essentially free. A local gigabit is no big deal on a fiber network. (Hat tip to Lafayette Utilities System for being the first to offer local 100Mbps traffic for free.)We start talking about real operating costs when Anytown users want to connect to networks that are not on the Anytown network. When a user wants to watch a video on YouTube ordownload a patch from Microsoft, I need to interconnect with other networks that can get me there. For a small player like me, that means paying for transit. I pay Level 3 or some other major national network operator so my user can send a request to YouTube over the Level 3 network.
The arrangement between me and Level 3 is interesting. I don't pay per bit that my customers use. Instead, I "commit" to a specific capacity. The higher the capacity, the lower my per bit charge. So if I commit to 500Mbps, I may be paying $7 for each Mbps but if I commit to 2000Mbps, I may pay $5 for each Mbps (these numbers are totally invented, not unlike how actual contracts seem to be made). But the interesting part is how it is measured and its implications.
My committed rate determines my cost but not necessarily what I have access to. Let's say I commit to a 500Mbps connection to Level 3 for $7/Mbps. I have to pay for the amount of Mbps that corresponds to 95% of my peak demand. The cost comes down to how high the peaks are, not how many bits are transferred over the course of the month. So if my peak was 550 Mbps, then I have to pay for (550 * .95) * $7, or $3,657.50
On the other hand, if I allowed the combined usage of my users to hit a far higher peak, say 1,000 Mbps, my cost would be $6,650 and I would be kicking myself for not upping my committed rate. Fortunately, I can control the peak with my routers, allowing me some control (at the cost of alienating my users who will see worse performance individually).
Another thing I can do is "peer" with others. For instance, if Anytown Net can get Google to connect directly to us, traffic to Google sites (ahem, YouTube) becomes free (as Google likely wouldn't charge because it wants to encourage everyone to use its services). This is why the Open Connect Netflix announcement is so important.
Allowing users to hit popular sites without increasing the peak bandwidth saves real money. In fact, a sizable community fiber network reported to me that peering with a major source of video traffic dropped their monthly costs by tens of thousands of dollars. This brings us to Lesson 4.
Lesson 4: Scale matters. Big time. Everyone wants to interconnect with large networks and large sources of content. The larger Anytown Net is, the more others will be interested in connecting with me.
by Christopher, Community Broadband Networks | Read more:
