How much does each GB of bandwidth really cost, anyway?

The answer? It depends—although it's not purely "consumption based," as big cable would have us believe.

Saul Hansell of the New York Times has been pounding away at this issue for months now—especially in the wake of Time Warner Cable's still-brewing plans to dump all-you-can-eat broadband plans in favor of bandwidth caps and pricey usage fees—and on Monday he gave it another stab.

I strongly suggest that you go read his entire post (right here), but in a nutshell, he notes that ISPs face two "buckets" of expenses: "the cost of local networks that connect to people's homes, and the cost of the bandwidth that link those networks to the Internet."

Guess which bucket costs more? That's right—it's the cost of setting up, splitting, and/or upgrading the local nodes that service a given neighborhood (think 500 homes or so). Typically, each node delivers about 38Mbps of bandwidth (as Hansell details), and if you need more, you just split the node, so now instead of 500 homes sharing 38Mbps of bandwidth, you've got 250 homes sharing 38Mbps.

How much does it cost to split a local node? As Hansell notes in his story, that depends—anywhere from $2,500 to $25,000, depending on the equipment involved. Comcast, for example, recently crowed that it could split a node for just $6.85 per served household (again, according to Hansell's story).

But the larger point is that the biggest cost for ISPs is upgrading their local networks to meet peak demand—and as Hansell writes, that cost "is falling faster with new technology." (One example he cites is DOCSIS 3, a new technology that allows cable companies to effectively quadruple the amount of bandwidth delivered through a single local node.)

By the same token, bandwidth itself is not a precious commodity like gas, or gold. There's no easy way to calculate the true cost of a single gigabyte. Why? Because once you've got the infrastructure in place to deliver a set amount of bandwidth to a given area, the (ever-falling) costs are fixed, whether everyone's busy watching YouTube or not.

That reality undercuts Time Warner Cable's "what's fair is fair" argument—or, as they put it: "When you go to lunch with a friend, do you split the bill in half if he gets the steak and you have a salad?" (And isn't it interesting, as Hansell notes, that most ISPs won't allow businesses to pay only for the bandwidth they've actually used?)

Unfortunately, here's a figure that's probably tempting many ISPs to go the "consumption-based" way: 81. That’s the percentage of cable TV subscribers who (in a survey quoted by Multichannel News) labeled themselves as "not at all likely" to turn off their cable service, even in the face of rising cable bills.

And that makes sense—after all, if your neighborhood's anything like mine, you've only got one cable provider to choose from. See how that works?

Related:
The Cost of Downloading All Those Videos [NYT]