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Backbone Bandwidth Prices Keep Falling

The price large corporations and ISPs pay for Internet access has been cut in half over the past year, according to new data from the research firm TeleGeography Inc. But that won't necessarily crush carrier revenues.

The average price that the companies pay for STM-1 (155 Mbit/s) connectivity to global Internet fell by 55 percent in U.S. cities and by 49 percent in Europe over the past 12 months, TeleGeography says. In Asia, prices declined at a comparable rate, but are still twice as high as those in the U.S. and Europe.

The reason behind the price decline are twofold -- and fairly obvious, according to TeleGeography senior research analyst Alan Mauldin. First of all, the cost to provide the bandwidth is dropping, so carriers can charge less. Second, there's the sheer abundance of service providers. “There’s a lot of competition now with so many people selling the same thing,” Mauldin says.

Prices in Asia appear to be running above declines in the U.S. and Europe mostly due to regulatory restrictions, Mauldin says, but he thinks prices will continue to stay high due to greater growth and demand there. He says Internet traffic may grow fast enough to offset price declines for some service providers and the data indicates that traffic may have been at or below the rates that prices fell over the last 12 months.

However, despite the price declines, carriers may not be losing out on overall revenue. “Demand is growing. Demand won’t ever decline for Internet service,” Mauldin says. He also points out that consolidation in the industry may eventually hold up prices.

Last year, prices in Hong Kong fell by 50 percent, but that was offset by international Internet traffic growth of more than 350 percent there, TeleGeography data shows. “You can have some price declines, but revenue won’t be devastated,” Mauldin says.

— Jenny Spitz, special to Light Reading

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dwdm2 12/5/2012 | 1:16:40 AM
re: Backbone Bandwidth Prices Keep Falling On the face of it, this is a good news because one would expect a natural consequence of lowering price for the ISPs is a lower price for consumers. But not so fast! End user's monthly bill is actually going up. If the end users do not benifit from a low price for the ISPs and large corporations, does it make much difference?
instigator 12/5/2012 | 1:16:32 AM
re: Backbone Bandwidth Prices Keep Falling The decreased cost to providers will hopefully continue to fuel the R&D that keeps driving down the prices and rolling out new technology -- even if that cost savings is not passed on to the consumer. I don't think savings are based on the cost from the provider but rather competition to the provider will create lower prices.
fkittred 12/5/2012 | 1:16:30 AM
re: Backbone Bandwidth Prices Keep Falling >On the face of it, this is a good news because one would >expect a natural consequence of lowering price for the ISPs is a >lower price for consumers. But not so fast! End user's monthly >bill is actually going up. If the end users do not benifit from a >low price for the ISPs and large corporations, does it make >much difference?

What market are you in? In the US, the consumer's monthly price for bandwidth is in free fall.

regards,
fletcher
dwdm2 12/5/2012 | 1:16:08 AM
re: Backbone Bandwidth Prices Keep Falling "What market are you in? In the US, the consumer's monthly price for bandwidth is in free fall.

regards,
fletcher"

Fletcher, would be nice to see some data...

Regards
arch_1 12/5/2012 | 1:16:07 AM
re: Backbone Bandwidth Prices Keep Falling Read the article, not the title. The article is about fast ACCESS links, not long-haul backbone links. Fast access links (OC-3) link the internet backbone to large businesses, medium-sized ISPs, co-location facilities, and Internet content providers. The price in the US appears to be $7500/mo for an OC-3. An ISP probably has an OC-3 for every 3000 subscribers, so that's about $2.50/mo per subscriber. If the cost dropped to zero and the ISP pased the entire saving on to the customer, it would not be noticable. The end-user cost is driven, as always, by the blood-sucking monopolies in the last mile.

Note that that the cost of the access line that is paid by the ISP must basically pay for the ISP's portion of the entire internet backbone (long-haul links, core routers, brick and mortar, and all the other OPEX and CAPEX for the internet.) That's essentially the only mechanism whereby a portion of the end-users' monthly ISP charge is used to pay for the backbone.
Frank 12/5/2012 | 1:16:06 AM
re: Backbone Bandwidth Prices Keep Falling Good observation, arch_1, but let's take it a step further. Not only is the article's title [backbone] in conflict with much of the its true focus [access], but then there is the graphic depicting transit costs, something when viewed semantically is different from either of the former two. You get another stripe for that one, arch. And while we're on this topic, where is A. Odlyzko when you need him? ;)

[email protected]
fkittred 12/5/2012 | 1:16:02 AM
re: Backbone Bandwidth Prices Keep Falling I wrote:

"What market are you in? In the US, the consumer's monthly
price for bandwidth is in free fall.

You replies:

"Fletcher, would be nice to see some data..."

For data, listen/read ads in any public medium: newspaper, web
site, radio, direct mail, TV.

Take Verizon DSL for a example. They had been $39.95 for .786mb/sec. Now they are $29.95 for 3mb/sec (with their long
distance, $34.95 without.) Time Warner was $49.95 for ~2mb/sec and is now $49.95 for 3mb/sec. Further, they are discounting that price for the first six months to $29.95.

I would say the price of consumer bandwidth has come from about $20 per mb/sec down to about $10mb/sec.

regards,
fletcher
dwdm2 12/5/2012 | 1:16:01 AM
re: Backbone Bandwidth Prices Keep Falling fletcher, before we change the topic to whether or not BW price for end-consumers went up or down, let's be clear that my original point was "If the end users do not benifit from a low price for the ISPs and large corporations, does it make much difference?"

arch_1 explained why the consumers do not see a benefit: "Note that the cost of the access line that is paid by the ISP must basically pay for the ISP's portion of the entire internet backbone (long-haul links, core routers, brick and mortar, and all the other OPEX and CAPEX for the internet.) That's essentially the only mechanism whereby a portion of the end-users' monthly ISP charge is used to pay for the backbone."

Frank added: "Good observation, arch_1, but let's take it a step further. Not only is the article's title [backbone] in conflict with much of the its true focus [access], but then there is the graphic depicting transit costs, something when viewed semantically is different from either of the former two. You get another stripe for that one, arch."

So one can conclude that the BW price reduction for the ISPs and large corps does not translate to a savings/cost reduction for the general consumer.

As for the "data" you presented from your general observation and your monthly bill... it needs a bit more deeper observation. Those of us who were very happy to subscribe to 1400 bps modem line for $7.50 a month back in the 80s, were really happy to be able to get ISDN->DSL/CM... While $50 is a definite raise in the monthly bill over the decades admittedly for faster service, some of us still wish for better. As for a 3 mbps line, to me this is like a scam (yes you heard it right). I never saw a download more than 200-300 kbps on a 3 mbps connection! And upload speed... don't even mention it. I could go on... but the bottom line is price reduction for the ISPs and large corps is not enough. Consumers need to see some benifit, otherwise it does not make much difference.

Regards.
rjs 12/5/2012 | 1:16:00 AM
re: Backbone Bandwidth Prices Keep Falling The prices that you give may be correct,
but the speeds that you are talking about
are download speed. The figure of merit is
the "upload" speed. In almost all cases, it is
limited to about 250Kb/s. Now tell me the "value"
in that. As long as the upload speed is not
part of the equation, all this is moot.

An earlier post made a good observation about the
last mile monopolies controlling the access cost.

Remember,in access, broadcast(and hence download) is cheap. It is the upstream that is expensive.
The PON and FTTx people know this.


The markteteers can say whatever they want, but as
the old TV Burger King commercial goes ... "WHERE's THE BEEF??"


-rjs
Frank 12/5/2012 | 1:16:00 AM
re: Backbone Bandwidth Prices Keep Falling dwdm2 wrote:

"As for a 3 mbps line, to me this is like a scam (yes you heard it right). I never saw a download more than 200-300 kbps on a 3 mbps connection! And upload speed... don't even mention it. I could go on... "

As my maternal grandfather used to say to me in his inimitable Italian accent, "Pleasha, doe-na get-ta me shtarted!"

Even under best FTP conditions, in the still of the night when all are asleep on the local access platform, I doubt that you'd see full throttled 3Mbps, granted. But your download speeds are typically constrained by the properties imposed by TCP/IP, which, unlike FTP, at best don't deliver more than 0.5 to ~ 1.0 Mb/s in the downstream (with all twenty digits crossed).

While so-called DSL and cable modem speed tests that often employ FTP-like protocols during testing reveal sometimes very encouraging results ranging upwards of 1.8 Mb/s (at least here, sometimes), real world TCP ack and nack turnarounds (turns) are responsible for considerable speed degradation during day-to-day downloading from the Web, unfortunately.

I won't bother with the upstream for the purposes of this post, but you are right on that count, as well.

Peter Sevcik did a nice treatment on this subject several years ago (which is still equally relevant today) in his column in the October 2001 issue of Business Communications Review. I'll provide an excerpt here, but I highly recommend that anyone interested in this subject read the entire article.

From:

"Understanding Web Performance"
From: http://bcr.com/bcrmag/2001/10/...

Peter stated:

"Note that access bandwidth improves things dramatically as you go from 56 kbps to 384 kbps, but then the effect goes away completely by 1.5 Mbps. The reason there is still some minor benefit for the 384-kbps "Best Case" user to buy more bandwidth is that his/her network performance is good enough to take advantage of the better speed. However, there is no advantage for either the Best Case or the Typical Case user to buy more than 1.5 Mbps. In fact, the point at which no more benefit occurs is at about 512 kbps."


Frank Coluccio
[email protected]
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