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Frontier: Now With Prices Up To $10.80 Per Gigabyte, Limit Five GB

Phillip Dampier August 4, 2008 Competition, Frontier, Internet Overcharging 15 Comments
Your Money = Their Money

Your Money = Their Money

With the imposition of a 5GB monthly cap across their nationwide service area, consumers might find it useful to break down the cost of what different broadband services charge for service per gigabyte, and what kinds of profits companies can expect to receive from those charges.   The average cost of traffic for most national broadband providers amounts to pennies per gigabyte transferred.   But what will you pay?

Frontier offers different pricing across several promotions, ranging from $19.99-$49.99.   The lower priced tiers correspond with service contracts that require multi-year commitments, with a substantial penalty for early cancellation.   They also charge a monthly modem rental fee (MRF) of $3.99.   In some areas this fee is levied even if you wish to use your own DSL modem.   Since this fee is universally imposed in many areas, its cost has been included in the price breakdown.   Excluded from the review are additional taxes, surcharges, and fees which are imposed by various taxing authorities but are outside of Frontier’s control.

Frontier High Speed Internet Cost Review
(per  GB downloaded,  5GB per month)

Your Monthly Price      Per GB     Frontier Pays Per GB
$49.99 + $3.99 MRF      $10.80            less than 10c
$39.99 + $3.99 MRF      $ 8.80            less than 10c
$29.99 + $3.99 MRF      $ 6.00            less than 10c
$19.99 + $3.99 MRF      $ 4.00            less than 10c

The cost for watching an average 4GB high definition DVD quality movie over Frontier DSL is $43.20.   One DVD will be all you get, because any more than that puts you over the limit.  With a growing number of Americans using the Internet to access multimedia content online, exceeding 5GB of usage per month is easier than ever.

Stop the Cap! challenges Frontier to make public their own study which sources have told us show up to 40% of their existing customers already exceed 20GB of usage per month using Frontier DSL.   How does the company justify calling nearly half of their loyal customers bandwidth piggies and abusers?

Since low usage customers represent enormous profits for broadband providers, as the above chart illustrates, kneecapping the average user and beheading the high bandwidth customer with a draconian limit on monthly usage allows Frontier to vastly expand profits.   As their own financial reports to shareholders illustrate, Frontier’s investment in their network does not come close to corresponding with the massive profit taking a 5GB usage cap allows.

Cherry pick the weekend e-mailer and occasional web browser, throw everyone else under the nearest bus, and  high five one another all the way to the bank.   That’s the Frontier way.

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Currently there are 15 comments on this Article:

  1. Stephen says:

    Phil, Great data here. Of course they will have to deal with some loss of the 40% of the base at the same time. They will not need as much bandwidth or as many employees either as the customer base changes.

    I’m sure that Time Warner in Rochester is doing well with new activations now also.

  2. Excellent story, and the Talking Points are excellent.

    Visit my rant at:

    http://bartgordon.net/2008/06/17/cable-companies-suck/

  3. Solar Dave says:

    Thanks for creating a blog on this issue. I would like to include my rant on the cap issue.

    The caps will ruin the growth of video on the web, my site does some video and I would hate for people to think twice about watching one of my videos.

    Dave

  4. phil says:

    Thanks for the positive comments. Someone has asked me how we know that Frontier is paying less than 10c a gigabyte for traffic.

    One of the several sources we have at Frontier who is in a position to know about bandwidth expenses provided us with that information. Frontier, although not an enormous provider like some of the large cable MSOs, does have customers in several states with both business and residential accounts for data. The economies of scale can provide significant discounts for customers buying bulk access, making costs far lower than what even companies can contract for individually.

    This price quote covers bandwidth expenses only. Obviously, I am quite aware of the other expenses an ISP has, from customer service and billing to equipment and software expenses, marketing, etc. But Frontier’s competitors shoulder these same expenses and manage to provide access without even considering a usage cap of just 5GB per month.

    The folks that do advocate for metered broadband service actually do share a lot in common with those of us who do not – we do not want to pay up to $49.99 a month for 5GB of access.

    I am completely comfortable with the establishment of additional tiers of service with caps at significant lower prices for casual users. In fact, many broadband providers already offer these kinds of plans with usage caps and/or lower speeds than the primary service offering.

    But as anyone can attest, these budget plans are undermarketed (if marketed at all), and are this industry’s best kept secret. Frankly, the industry does not want you to sign up for their “Lite” plan. They want you to sign up for standard service… and use as little of it as possible.

    Most of the company’s considering caps WILL NOT offer an unlimited service tier at any price. In most cases, if you are a metered bandwidth advocate, you will be paying exactly the same price for Internet access that you do today, only you will see your usage capped. There are no plans for broad-based price decreases for light users, just service reductions.

    So in the end, even metered advocates save absolutely nothing, while everyone else pays substantially more for a service the company can forestall upgrading and improving because of lowered demand on it. And while some individuals may not care about a 5GB cap today, they may very well care if they start a family that gets online or discover a new application that they would enjoy accessing, but cannot because of the risk of blowing through a usage cap.

    Usage caps and metered broadband under the existing cap formulas are not a win for any consumer.

  5. Michael Pellegrini says:

    Great website.

    This issue is the future of the internet. Everything hangs in the balance. I’m glad to see other people taking up the fight against metered bandwidth.

    I’m sure from the cable provider’s perspective, this is a fight for their lives. Within a very short period of time, streaming and downloadable video will be widely available.

    Right now, you can buy or stream HD movies to your PS3, and I believe Xbox360 has a similar competing service. Amazon is starting to do downloads, so is Netflix. Blockbuster is supposed to be getting into the act soon. And then there’s Apple TV and iTunes.

    It won’t take long for this to impact the current packaged content services that cable provides.

    Seriously: who’s going to pay $100 a month for 300 channels when you never watch more than a dozen of them? Why not stream just those you want from the web? Potentially that’s a big cost savings to consumers. And it provides way more choice – instead of picking from 300 channels, you can pick from 3,000 or maybe 3,000,000!

    And how about renting movies? It’s a real pain sometimes to have to get in your car, drive to Blockbuster, mill around for a half hour then stand in line to rent to movies. Isn’t it much, much easier to sit on your couch, select the movie you want and then let it stream to your PS3? The price is about the same.

    I’ve watched one movie I purchased on the PS3 and it was okay. 720P with 5.1 sound. It looked, sounded and played okay. I was impressed. I’m sure other people will be similarly impressed.

    Comcast and the other ISP’s realize this and so they’ve drawn the battle lines. If they allow the internet to evolve in the way it’s going, their days as packagers of content are severely numbered. In a very short period of time, they’ll end up as the owners of big dumb pipes – and that’s all.

    So if you’re a cable provider, how do you stop this? Easy – you introduce caps and metered billing.

    Comcast’s proposed caps of 250 GB sound good on their face (way, way better than Frontier, certainly). But if you do the math, you’ll find that if you stream video and download movies, you’ll burn up your caps in no time at all.

    1080P Blu-Ray quality movies average around 25-35 GB each. That means you could watch maybe 8-10 Blu-Ray quality movies a month – and that’s about it. It says nothing at all about watching other HD quality streaming video, listening to streaming audio, buying downloadable software (say through Steam or EA Downloader) or whatever. You’ll burn up your bandwidth in no time at all – and legally (no P2P).

    The kicker is that the overage fees proposed by the ISP’s – that phase in after you hit the caps – make watching streaming or downloadable video cost-prohibitive. And that’s the beauty of the whole metered bandwidth plan. It’s so, so sneaky.

    Because right now, very few people would be pushing the caps.

    But a few years from now when there’s more internet content available and faster (20-50 MB/s) download speeds are the rule rather than the exception, 250 GB a month will be nothing. Remember when a 2 GB hard drive was considered huge? Or when 256 MB of RAM was all you’d ever need? Same thing.

    So in reality, this is a nothing more than an under-handed, pre-emptive attack by the ISP’s and cable providers to stifle the internet’s likely path of evolution: metered bandwidth makes it possible for cable providers to remain safe in their market niche as content packagers – and for the other ISP’s, it provides a nice new revenue center – a good bonus for their shareholders.

    They’ll kill the technology and innovation before it gets here. A neat, sneaky little trick.

    We need to nip the metered bandwidth movement in the bud right now. It’s the single biggest threat to the future of the internet that currently exists. If allowed, it will stifle new technology and choice – all while unfairly lining the pockets of the big ISP’s.

    I’ve written a couple blog entries about Comcast on this subject. They’re at:

    http://www.mikepellegrini.com/weblog/2008/06/metered_bandwidth_will_kill_mo.php#more

    http://www.mikepellegrini.com/weblog/2008/05/comcast_metered_billing_plan_a.php

  6. Good to see reporting looking closely at the issues. Feel free to pick up any reasonable amount of my work that’s helpful.

    Writing the DSL industries news, I’ve often reported on bandwidth costs. I’m confident that 10 cents is a reasonable and possibly high figure for the marginal cost of bandwidth That should be accurate for Frontier in Rochester and their larger centers, a majority of their customers. The total cost for bandwidth at one European carrier about twice the size of Frontier is 55 cents per user per month, and their average user does 10 gigabytes per month. These are figures for an incumbent or large wireline carrier in the developed world.

    Tony Werner, now CTO of Comcast, three years ago included cost data in a financial presentation for his then employer, UPC, the largest cable company outside the U.S. Working from hie numbers, DSL Prime reported a 10 cents per gigabyte figure. The article was factchecked before publishing by UPC. Since then Moore’s Law has reduced reduced that figure to 4-7 cents.

    Providing more bandwidth is not rocket science. Here’s the breakdown of the key factors. Incumbents except the smallest control fiber to most or all of their network, so that the primary cost of handling more bandwidth is upgrading switches, routers, and WDM gear.

    Your home is connected to a DSLAM or a cable modem termination system (CMTS.) The DSL side is designed to be non-blocking, giving you full speed essentially all the time. So are most CMTS, but the shared local cable loop can be a limiting factor. Fortunately, DOCSIS 3.0 raises the cable upstream by a factor of 12-30+, probably minimizing loop issues.

    Behind the DSLAM or CMTS is the “backhaul” to the “peering point” that connects to the “Internet backbone.” Physically, this typically is 3 to 7 routers/switches/concentrators that are connected by fiber. They go from your neighborhood exchange to a district center. The district center may have a direct connection, but more often it has another hop or three within the carrier’s network. For example, Time Warner Cable has local offices through New York. They probably connect to a New York City “hub.” The New York traffic might be merged with New England at a regional center in Greenwich, then carried from there to Time Warner’s big peering point in Virginia. There are lots of variations on that, but the essential idea is the primary costs is the machines at each connection. Nearly always, they’ve designed the network with fiber in place that can be upgraded as necessary. AT&T, for example, now mostly carries 10 gigabits on a single wavelength, but is rapidly upgrading that to 40 gigabits. They are beginning trials of 100 gigabits with plans to upgrade again in a few years.

    All these upgrades cost money – billions in the case of AT&T. When calculated as a cost per gigabyte or per month per DSL customer, however, the total becomes manageable. It’s usually in the dimes per month, and almost always less than 3% of the price charged for the service. Smaller carriers, who don’t have the volume to buy gigabit connections or dark fiber, are in a totally different situation. A British carrier reported bandwidth costs dropped 80% when they moved to GigE, and if they had their own fiber – like all the incumbents – they would be lower still. Unless Frontier’s tech team is incompetent, they have fiber within Rochester and between Rochester and a point with cheap bandwidth line New York City. They will have similar in most medium and small areas as well, most already paid for with the $500M/year they collect in USF and ICC.

    At the peering point, the carrier connects to the major backbones (AT&T, Verizon/MCI, Level 3, etc.) and others. Depending on who they are, they pay either “transit” or the many times cheaper “peering” rate. Big carriers mostly peer with each other, paying predominantly the (modest) proportional costs of the secure facility loaded with switches and other gear. They don’t charge each other for transferring the traffic, expect the flow to roughly even out over time. Small carriers almost always have to pay “transit” to a big one like AT&T. That costs $8-15/megabit in medium quantity, much more if your volume is small. A large broadband carrier will typically “peer” 80-95% of their traffic. Peering isn’t free, but the rates are much lower.

    DSL and cable carriers of moderate size are generally accepted as “peers” at the lower rate. Most of the backbone bills are paid by someone sending things over the net, like eBay, Amazon, and the video web sites. They can’t “peer”, because they receive relatively little traffic. A carrier, on the other hand, has “eyeballs” – lots of customers watching and recieving things. The backbone providers are always looking for direct connections to “eyeballs,” and usually accept larger telcos and cablecos as peers.

    Backhaul and peering/transit are the primary costs of adding bandwidth. For a large company and most incumbents, peering keeps the costs down and upgrading fiber speeds is a moderate expense. The industry standard assumption is $1/month per customer. That would be right for most Frontier customers. Smaller companies can have wildly different costs. One small wireless company in Wyoming is paying 11 times as much as the typical big company. Frontier probably has some places like that, although many of even their smaller towns are on their main fiber network.

    Good luck with the site. It’s important work.
    db

  7. Kyle G says:

    You can enjoy your “free” access to espn360!

  8. rreay says:

    Well I just tried to opt out or cancel my contract without ETF.

    In order I was told:
    “It will be almost impossible to reach that cap”
    “The cap is in place to help your computer” (???)
    “There is nothing to opt out from”
    “We aren’t currently monitoring or metering usage so we can’t not apply it to you”
    “There is no one who can cancel your contract with out a fee”
    “I’ll have a supervisor call you in 24 to 48 hours”

    Sigh…

  9. Stephen says:

    “It will be almost impossible to reach that cap”

    I hope I get that one when I call and cancel after my new service is ready. All of them are actually pretty good.

    “I’ll have a supervisor call you in 24 to 48 hours”
    It will be interesting to hear if you get a call back.

  10. rreay says:

    I did not get my callback.

  11. kevin says:

    this is bullcrap. i know im going to get rid on my service as will other people. there should at least be a unlimited plan for like 10 bucks more. im going to warn people. u have started a war frontier!

  12. I can understand charging by usage when it comes to broadband over a wireless network such as Sprint, or AT&T, but there is no justifiable cause in my mind for cable, or landline phone companies who are really only connecting user homes to the internet grid, (also referred to as the last mile) and not actually supplying internet service.

    After looking for a good resource on “last mile”, I came across this site that has a very interesting concept of the community working together and sharing the cost of building their own last mile.
    http://www.pbs.org/cringely/pulpit/2006/pulpit_20060629_000351.html

    It might also be time to start writing your congressmen before the cap moves to your town.

  13. Martin says:

    And why don’t you have Digg and stuff on here so we can promote your site??? Why no petition or other action?







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