Speaker 1: Welcome to Brainstuff from house Stuff works dot com where
Speaker 1: smart happens. Hi, I'm Mars brain. With today's question, what
Speaker 1: is a gigabyte of Internet service really cost? With Internet
Speaker 1: service providers or i sps in Canada and the United
Speaker 1: States planning to impose monthly bandwidth caps on us and
Speaker 1: with extra fees being planned for people who exceed those caps,
Speaker 1: for example one dollar per gigabyte, it brings up a
Speaker 1: great question how much does it really cost to provide
Speaker 1: internet access to somebody. We can get a sense of
Speaker 1: that by looking at some of the most expensive bandwidth
Speaker 1: in the world, the bandwidth being provided to Africa. There's
Speaker 1: an article that appeared a couple of weeks ago that
Speaker 1: describes this and provides some really interesting data. According to
Speaker 1: the article entitled massive undersea cable connects Africa, there are
Speaker 1: several interesting facts that we can glean. First, there is
Speaker 1: a cable being placed from Europe to Africa at a
Speaker 1: cost of six hundred and fifty million dollars. This is
Speaker 1: an undersea cable that's being laid and not to go
Speaker 1: into service any day now. This cable provides five point
Speaker 1: one terra bits per second of data or five thousand,
Speaker 1: one hundred twenty gigabits per second of data. That cable
Speaker 1: provides fifteen access points along the coast of Africa. And
Speaker 1: that cable is incredibly long. It's fourteen thousand kilometers or
Speaker 1: eight thousand, seven hundred miles. It could go from Los
Speaker 1: Angeles to New York, then back to l A and
Speaker 1: then back to New York. It's an immensely long cable
Speaker 1: and that's why it costs six hundred fifty million dollars. Now,
Speaker 1: let's make several assumptions about this cable that they're installing. First,
Speaker 1: the cable will need to be maintained, so let's round
Speaker 1: that six d fifty million dollar price tag up to
Speaker 1: one billion dollars to cover that expense for maintenance. Second,
Speaker 1: the cable will eventually become obsolete, so let's imagine that
Speaker 1: this is going to happen on a really aggressive schedule
Speaker 1: of ten years. So ten years from now, let's just
Speaker 1: assume that that cable is completely obsolete and it's abandoned
Speaker 1: on the ocean floor, so it will never be used again. Third,
Speaker 1: the people who put this cable in place wish to
Speaker 1: make a profit on their investment, so let's assume a
Speaker 1: two percent return on investment or per year. So after
Speaker 1: investing a billion dollars, the operators wish to receive three
Speaker 1: billion dollars, they get two billion dollars in profit. Given
Speaker 1: that cost structure and the fact that the cable can
Speaker 1: handle in round numbers, five terra bits per second or
Speaker 1: five hundred gigabytes per second, how much does a gigabyte
Speaker 1: cost in this system? We can say that each year
Speaker 1: the system is going to cost three hundred million dollars.
Speaker 1: That's three billion dollars divided by the ten years to
Speaker 1: obsolescence that we've assumed. Second each year, the system can
Speaker 1: transmit five hundred gigabytes per second times three thousand, six
Speaker 1: hundred seconds per hour, times twenty four hours in a
Speaker 1: day times three hundred sixty five days in a year,
Speaker 1: which means there are fifteen point seven billion gigabytes to
Speaker 1: go around, and that three hundred million dollars divided by
Speaker 1: fifteen point seven billion gigabytes works out to one point
Speaker 1: nine cents per gigabyte. One point nine cents. That one
Speaker 1: point nine cents per gigabyte is the rate on the
Speaker 1: most expensive system we can possibly imagine. That's an immensely
Speaker 1: long and expensive cable they're laying to Africa. Remember that
Speaker 1: we've already baked in a two percent profit margin. But
Speaker 1: even if you want to get greedy and mark that
Speaker 1: up in additional a hundred percent, it's only three point
Speaker 1: eight cents per gigabyte this cable. In other words, bandwidth
Speaker 1: by the gigabyte is incredibly inexpensive. Even on the most
Speaker 1: expensive system we can imagine, it's pennies per gigabyte. The
Speaker 1: question we have to ask, however, is this, does that
Speaker 1: number one point nine cents per gigabyte represent the true
Speaker 1: cost of the bandwidth, And the answer to that question
Speaker 1: is no, because of congestion and the way that the
Speaker 1: Internet is used throughout the day. Note that people tend
Speaker 1: not to use bandwidth evenly throughout the normal day. If
Speaker 1: they did use it evenly, then the cost per gigabyte
Speaker 1: truly would be one point nine cents per gigabyte on
Speaker 1: this system. However, at four am this undersea cable is
Speaker 1: likely to be very underutilized. At other times during the day,
Speaker 1: demand could be high. The big uproar right now is
Speaker 1: the problem that Netflix and Hulu are causing. These online
Speaker 1: streaming services use a lot of bandwidth, relatively speaking, and
Speaker 1: usage tends to concentrate in the evening hours. So let's
Speaker 1: look at the very worst case scenario that Netflix and
Speaker 1: Hulu could cause. Worst case, imagine that every customer on
Speaker 1: that African cable wants to watch Netflix every night at
Speaker 1: exactly the same time. And let's make it even worse.
Speaker 1: Let's imagine that a household has multiple people in it
Speaker 1: and there are three simultaneous Netflix feeds going to each customer. Now,
Speaker 1: we need approximately ten megabits per second for each household
Speaker 1: that's connected to the cable during a three or four
Speaker 1: hour window every night. The demand caused by this Netflix
Speaker 1: loading caps the number of Internet accounts that we can
Speaker 1: give out. The undersea cable can only handle five terabits
Speaker 1: per seconds, so we have at most five terabits per
Speaker 1: second over ten megabits per second for the Netflix feed,
Speaker 1: which equals five hundred thousand possible customers on this cable
Speaker 1: with this peak loading. So we have to spread the
Speaker 1: three billion dollar cost of the cable and its profit
Speaker 1: over those five thousand customers. What does that work out
Speaker 1: to per month in the ten years we've assumed there
Speaker 1: are a hundred and twenty months, so that works out
Speaker 1: to exactly fifty dollars per customer per month. Fifty dollars
Speaker 1: per month is the worst case scenario. We're assuming that
Speaker 1: every single customer will be watching three simultaneous high deaf
Speaker 1: Netflix movies at ten megabits per second simultaneously every night.
Speaker 1: The pipeline can handle that kind of worse case load
Speaker 1: with a two profit margin for fifty dollars per month,
Speaker 1: and that would be some of the most expensive bandwidth
Speaker 1: in the world. What is the cost per gigabyte? Now,
Speaker 1: if you assume that each customers allocated a true ten
Speaker 1: megabits per second, and if you assume that the customer
Speaker 1: is pulling that true ten megabits per second for six
Speaker 1: solid hours a day, then each customer is pulling twenty
Speaker 1: one gigabytes per day, or roughly six hundred gigabytes per month.
Speaker 1: Fifty dollars over six hundred equals eight point three cents
Speaker 1: per gigabyte, less than a dime. In other words, Internet
Speaker 1: service can be provided profitably for pennies per gigabyte in
Speaker 1: the absolute worst case scenario. Let's imagine that we lived
Speaker 1: in a rational world where i sp s were not
Speaker 1: trying to gouge customers and we were all trying to
Speaker 1: utilize resources efficiently. Then we have to admit that Netflix
Speaker 1: and Hulu really can increase the cost of bandwidth because
Speaker 1: they create congestion in finite pipelines. There are a number
Speaker 1: of things we could do working together to relieve that congestion.
Speaker 1: For example, bandwidth that low usage times would be essentially free,
Speaker 1: and bandwidth at eight PM might cost a dime per
Speaker 1: gigabyte because many people are trying to use the pipe simultaneously.
Speaker 1: If time of use pricing like that were put into place,
Speaker 1: what would happen. Many activities like Internet backups, bit torrent,
Speaker 1: file uploads and downloads and so on would likely move
Speaker 1: to low cost hours, spreading out the load. Places like
Speaker 1: Netflix and Hulu might offer customer services that pre download
Speaker 1: what they want to watch tomorrow. People might voluntarily choose
Speaker 1: lower bandwidth versions of shows they're watching during peak hours.
Speaker 1: New applications might spring up to take advantage of essentially
Speaker 1: free bandwidth and early morning hours, and so on. In
Speaker 1: other words, the marketplace would take actions to spread out
Speaker 1: band with usage throughout the day to make better use
Speaker 1: of the resource, and the cost of bandwidth would actually
Speaker 1: go down, not up. We can at least dream that
Speaker 1: that would happen. That's what would happen in an ideal universe.
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