Internet Service Providers who use “increasing bandwidth costs” as an excuse to raise prices or implement an Internet Overcharging scheme like usage limits or usage-based billing are being dishonest.

That’s the conclusion of a new British report that found providers grossly overestimating the costs of meeting increasing usage demands of their customers.  In some cases, providers are inflating the price of usage by 1,000 percent or more over their own costs.

“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,” claims the report, commissioned by the British Broadcasting Corporation, Britain’s Channel 4, and Skype.  “Studies in Canada and in the UK put the incremental cost of fixed network traffic at around €0.01-0.03 per GB.”

That represents a cost of pennies per gigabyte, yet many providers charge anywhere from $0.20-10.00 or more to residential customers, an incredible markup.

The study further concludes ISP claims of “ballooning costs” are simply “a myth,” and points to company financial reports which clearly show “for fixed networks, traffic-related costs are low, falling on a unit basis and likely to fall overall given declines in traffic growth and on-going cost-reducing technical progress.”

In fact, most broadband providers are reporting decreasing costs and investment in their broadband product line, while enjoying unprecedented increased profits.

As broadband traffic increases, the technology to sustain that traffic has improved, and brought unit costs for broadband traffic to an all-time-low.

The report admits that costs for wireless technology are higher, primarily because of limited airwaves, a shared usage infrastructure, and initial expenses in delivering improving connectivity with cell or wireless radio towers.  But with the advent of 4G technology, providers can sustain increased speeds, traffic, and revenue from selling wireless service that can handle higher bandwidth applications.

Plum Consulting authored the new report.

Plum Consulting, which wrote the report, concluded that even in more expensive wireless service areas like the United Kingdom, smartphone data tariffs amounting to around €10 per GB are not justified on 4G networks.

“The cost to the mobile network operator is under €1 per GB,” Plum Consulting found.

Predictably, service providers are dismissive of the report’s findings.

Trefor Davies, CTO of communications provider Timico and a member of the board at the Internet Service Providers’ Association (ISPA) says bandwidth costs are a real problem, especially for smaller ISPs that rent access on a usage-based, wholesale access plan.

“Bandwidth is by far the greatest proportion of cost for an ISP,” Davies told PC Magazine. “It’s very much you pay for what you use,” he said. “If you use twice as much bandwidth, you’re going to be paying twice as much.”

[Thanks to Stop the Cap! reader Bill H. for sharing the news.]

Phillip "Wants a High Fiber Diet" Dampier

Believe it or not, there are still some people out there who believe wireless broadband, as it exists today, is the future of high bandwidth communications in North America.  Forget DSL, forget cable, forget fiber optics, they say.  Technology like 4G and WiMax are “far superior” and cheaper.

To be fair, most of the people advocating the technology Sprint is in the process of abandoning have a vested interest in stopping fiber broadband projects.  That is because while Verizon continues to sit on its hands expanding its excellent FiOS fiber-to-the-home service, some of the most aggressive fiber projects in the country are being built by your local town, city, or village government.  It’s community-owned broadband, by and for the people in your own area.  Large telecom interests that have always refused to deliver fiber service (or pretend to by using the word ‘fiber’ while not bringing a single strand to your home) have it in for potential competitors that are willing to provide the advanced fiber technology they won’t.

So why aren’t big phone and cable companies providing this level of service?  In a word, money.  Their shareholders don’t like the initial cost of deploying fiber to the home service, even though the technology is superior to what reaches your home today, is infinitely expandable without stringing new cables across town, and can support money-making applications developers and providers have not even dreamed of yet.  With a pervasive lack of competition, there is nothing to overcome Wall Street’s conclusion that fiber doesn’t deliver fast enough profits to justify the initial expense.

When you take Wall Street out of the equation, especially in the telecom sector, the math works very differently.  While the phone and cable company is probably telling you “no,” companies like Google are saying yes in Kansas City.  So are municipally-owned rural co-operative phone and cable companies.  Communities deciding broadband is too important to leave to the phone companies that deliver half their residents 1-3Mbps DSL and call it a day are saying yes to fiber optics as well.

Overseas, fiber networks are being built in countries in Eastern Europe where the economics would never make sense by Wall Street standards, yet residents (and perhaps more importantly new digital economy businesses) are now getting Internet speeds of 100Mbps or better.  The next countries that could import good-paying American jobs might be Lithuania, Latvia, Poland, Romania, and Bulgaria.

So what does it take to adapt to this reality in North America?  Providers that are willing to make a long term investment in fiber broadband — one that may take a few extra years to pay back, but will generate dividends like increased employment, capacity to provide better, faster service, more reliable networks, and earning a piece of the action powering North America’s new digital economy.  If they won’t listen, tell your elected officials to support policies that promote additional competition and back community broadband expansion that can make all the difference between 3Mbps DSL and 100Mbps fiber.

[flv width=”640″ height=”372″]http://www.phillipdampier.com/video/Fiber is Better.flv[/flv]

Watch and share this video with friends and family to educate them about the infinite possibilities of fiber optic broadband and learn why it is superior to usage-capped wireless, slow speed DSL, satellite fraudband, or lopsided cable “High Speed Internet” broadband that delivers high speed in only one direction. (3 minutes)

Comcast Ventures, the venture capital affiliate of Comcast Corporation today announced it has launched a new company — CTI Towers, Inc., which will own, operate, and develop telecommunications towers throughout the United States. CTI Towers’ is launching with a portfolio of approximately 800 towers that were previously owned and operated by Comcast Cable subsidiaries. Headquartered in Boston, CTI Towers will actively lease tower space to wireless operators and other tenants, creating additional tower capacity for rapidly evolving businesses and technologies across the U.S.

“Consumers are increasingly relying on their mobile devices and consuming high bandwidth applications, such as streaming video, requiring a next generation of wireless communications infrastructure,” said Dave Zilberman, Principal at Comcast Ventures. “Newly formed CTI Towers will work with mobile operators and other service providers to improve the quality of the wireless network experience to their customers by leveraging the extensive footprint of urban and suburban towers in CTI’s portfolio. With Tony Peduto’s significant experience managing and developing towers and his deep understanding of the tower business, CTI is well positioned to aggressively support the build-out of new wireless networks.”

CTI Towers will take its place among more than a dozen other multiple tower owners as 12th largest in the country.  Its management of 800 towers pales in comparison with Crown Castle, which owns more than 22,000 towers across the United States.

But Comcast’s cable infrastructure comes with the deal, and that could be very lucrative for the venture.  Cable companies are increasingly leasing space on their cable networks to provide backhaul connections between the cell tower itself and the mobile operator.  LTE and other 4G networks require bandwidth greater than traditional telephone company circuits.  While many towers increasingly rely on fiber connections, cable companies that have room to spare on their own networks can more than meet the needs of most cell tower operations.

Courtesy: Wireless Estimator

Shamrock Museum

The city of Shamrock, Okla. may not be a city for much longer, facing unincorporation and liquidation of its remaining assets, which include the abandoned police cars that used to earn the city enough ticket revenue to keep the doors open.  But fast (and free at the local community center) Internet prevails (with competition, too) in a city with fewer than 100 remaining citizens.  It’s all thanks to a federal broadband grant and an existing Wireless ISP.

Shamrock’s unlucky predicament comes at the expense of the boom-and-bust oil business that launched dozens of small towns in rural Oklahoma, only to leave them largely abandoned when the oil dried up, or the cost to access it becomes too prohibitive.  Once a community numbering 10,000, Shamrock, located nearly halfway between Oklahoma City and Tulsa, had recently been surviving on revenue earned from writing traffic tickets in infamous speed traps set up along Highway 16.  Shamrock, along with Big Cabin, Caney, Moffett, and Stringtown, became so notorious for their dependence on traffic ticket revenue to keep the towns afloat, at one point the state government publicly designated them “speed trap towns” and banned them from writing tickets on state and federal highways. When Creek County officials learned the city was using non-commissioned officers to write tickets, they shut down the whole operation.

Soon after, residents found the city hall padlocked, with coffee cups still on the desks and police evidence lockers still stuffed with property from active criminal cases (although seized marijuana and beer has since disappeared.)

In fact, the only service now in operation at the city hall, now converted into a “community center,” is Internet access on 10 computers made possible by @Link Services LLC, an Oklahoma City-based Wireless Internet Service Provider (WISP) that provides service in rural areas, with the help of a broadband grant from the U.S. Dept. of Agriculture.

The broadband grant, amounting to $536,000, with matching funds of $134,000 kicked in by @Link, covers the costs of running the community center for two years and extending wireless access with the construction of a new wireless radio tower in Stillwater, which allows the company to reach Shamrock residents.

In addition to providing free access at the former city hall, @Link also sells Internet access to area residents (the only remaining business in town is a diner):

“This is going to be the last place anyone would provide Internet without government funding because there is no chance of turning a profit,” Kerry Conn, chief financial officer of @Link Services told The Oklahoman. “But if you don’t have Internet services, your town is going to die.”

@Link CEO Samual Curtis says their wireless Internet access sells itself.

“Broadband is a very easy sell where there is no broadband,” Curtis told the newspaper.

The only problem with that is Shamrock currently does receive service from another Wireless ISP — OnALot, a service of HDR Internet Services, Inc.  OnALot operates from 70 systems in more than 25 cities and communities across rural Oklahoma.  @Link’s arrival in town, with the assistance of a federal broadband grant, came as a surprise to some Shamrock residents who already had Internet service from OnALot.  Now those customers have two choices — both wireless — for Internet service.  OnALot, the incumbent, is often cheaper, too:

OnALot does not sell traditional speed tiers.  Instead customers share access points rated at speeds of 11 and 54Mbps.  Customers do not actually see anything close to those speeds, because they are theoretical maximums and each access point is shared by several users.  But since many residential customers do not have a firm understanding of what different speed levels represent, it has proven workable for HDR Internet to sell services based on price, not speed.

OnALot does sell dedicated, private wireless circuits to customers who don’t want to share, but they are comparatively expensive:

OnALot.com operates both standard Line-of-Sight and Near-Line-of-Sight systems on the 80' tall water tower on the west side of Shamrock.

One Oklahoman reader, Bobbi, wondered why @Link received federal grant money to provide Internet service in a community that already had access.

“Why this company didn’t do their homework before they used government money to provide a service to a town that had that service,” Bobbi asked. “Wouldn’t that be a misuse of the grant money?”

Broadband grant funding has come under criticism at times for funding projects that incumbent providers accuse of duplicating services.  A study funded by the National Cable & Telecommunications Association, the cable industry’s top lobbyist, found several instances of grants that would deliver broadband service to areas already served by other providers.

“While it may be too early for a comprehensive assessment of the [government]’s broadband programs, it is not too early to conclude that, at least in some cases, millions of dollars in grants and loans have been made in areas where a significant majority of households already have broadband coverage, and the costs per incremental home passed are therefore far higher than existing evidence suggests should be necessary,” the study says.

Thus far, much of the funding for rural Oklahoma seems to be directed towards wireless Internet access projects, which typically serve sparsely populated areas cable and phone companies have traditionally ignored.

The NCTA’s criticism, in particular, was directed against its would-be competitors.  The lobbying group suggests the price of competition was too high.

Based on the cost of the direct grants and subsidizing the loans, the NCTA study estimated that the cost per incremental home passed would be $30,104 if existing coverage by mobile broadband providers was ignored, and $349,234 if mobile broadband coverage was taken into account.

Wireless ISP operators have told Stop the Cap! many of their projects are self-financed and do not receive government assistance.  Some WISP operators have accused the government of making broadband grants to wireless operators a cumbersome, if not impossible prospect because incumbent telephone companies are often most likely to meet the government’s grant criteria.

For Shamrock residents, one piece of good news: @Link Services and OnALot both have no Internet Overcharging schemes like usage caps.  However, OnALot prohibits the use of peer-to-peer software (torrents) and @Link Services maintains the right to curtail speeds for those who create problems for other users on their shared wireless network.

OnALot’s usage policies are among the most frank (and common sense) we’ve seen, because they are up front with customers about the impact certain traffic can have on their wireless network:

1. You are paying us to download from the Internet. We do not limit you on that. You can download anything you want 24/7. Games, email, web pages, radio stations, and so on – we don’t care, downloading is what you are paying us for. That said, we would prefer that you do not leave an active game un-attended, or run a radio station continuously, as these eat up bandwidth that others could be using. When you’re done with your game, please turn it off.
2. We do have restrictions when it comes to uploading TO the Internet. P2P or Peer-to-Peer programs are NOT allowed. These limitations apply primarily to file sharing programs. We do NOT allow music or video sharing programs, bit torrent programs or other programs where outside users can extract files from your computer with or without your express consent. And seriously, do you actually WANT others to have full access to your computer? That’s what you’re giving to file sharing programs! Please call us if you are unsure if the program you are using is a file sharing program.
3. Yes, you can upload to your favorite website, send big emails, and transfer any size files that are under your control. That’s OK with us – these are intermittent in nature and under your full control. It’s the unattended uploading that sharing programs do that we do not allow.
4. If your computer has a virus and is “spewing” out onto the Internet, we expect you to have it cleaned. Causing others to become infected is wrong, and we may take steps to disable your Internet connection. We will call you first, explain what is going on and ask that you have your machine cleaned. If you decide not to do this, we will then cut you off until you do.