WEBVTT - What does a gigabyte of internet access really cost?

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<v Speaker 1>Welcome to Brainstuff from house Stuff works dot com where

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<v Speaker 1>smart happens. Hi, I'm Mars brain. With today's question, what

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<v Speaker 1>is a gigabyte of Internet service really cost? With Internet

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<v Speaker 1>service providers or i sps in Canada and the United

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<v Speaker 1>States planning to impose monthly bandwidth caps on us and

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<v Speaker 1>with extra fees being planned for people who exceed those caps,

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<v Speaker 1>for example one dollar per gigabyte, it brings up a

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<v Speaker 1>great question how much does it really cost to provide

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<v Speaker 1>internet access to somebody. We can get a sense of

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<v Speaker 1>that by looking at some of the most expensive bandwidth

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<v Speaker 1>in the world, the bandwidth being provided to Africa. There's

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<v Speaker 1>an article that appeared a couple of weeks ago that

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<v Speaker 1>describes this and provides some really interesting data. According to

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<v Speaker 1>the article entitled massive undersea cable connects Africa, there are

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<v Speaker 1>several interesting facts that we can glean. First, there is

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<v Speaker 1>a cable being placed from Europe to Africa at a

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<v Speaker 1>cost of six hundred and fifty million dollars. This is

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<v Speaker 1>an undersea cable that's being laid and not to go

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<v Speaker 1>into service any day now. This cable provides five point

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<v Speaker 1>one terra bits per second of data or five thousand,

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<v Speaker 1>one hundred twenty gigabits per second of data. That cable

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<v Speaker 1>provides fifteen access points along the coast of Africa. And

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<v Speaker 1>that cable is incredibly long. It's fourteen thousand kilometers or

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<v Speaker 1>eight thousand, seven hundred miles. It could go from Los

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<v Speaker 1>Angeles to New York, then back to l A and

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<v Speaker 1>then back to New York. It's an immensely long cable

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<v Speaker 1>and that's why it costs six hundred fifty million dollars. Now,

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<v Speaker 1>let's make several assumptions about this cable that they're installing. First,

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<v Speaker 1>the cable will need to be maintained, so let's round

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<v Speaker 1>that six d fifty million dollar price tag up to

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<v Speaker 1>one billion dollars to cover that expense for maintenance. Second,

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<v Speaker 1>the cable will eventually become obsolete, so let's imagine that

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<v Speaker 1>this is going to happen on a really aggressive schedule

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<v Speaker 1>of ten years. So ten years from now, let's just

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<v Speaker 1>assume that that cable is completely obsolete and it's abandoned

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<v Speaker 1>on the ocean floor, so it will never be used again. Third,

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<v Speaker 1>the people who put this cable in place wish to

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<v Speaker 1>make a profit on their investment, so let's assume a

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<v Speaker 1>two percent return on investment or per year. So after

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<v Speaker 1>investing a billion dollars, the operators wish to receive three

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<v Speaker 1>billion dollars, they get two billion dollars in profit. Given

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<v Speaker 1>that cost structure and the fact that the cable can

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<v Speaker 1>handle in round numbers, five terra bits per second or

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<v Speaker 1>five hundred gigabytes per second, how much does a gigabyte

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<v Speaker 1>cost in this system? We can say that each year

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<v Speaker 1>the system is going to cost three hundred million dollars.

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<v Speaker 1>That's three billion dollars divided by the ten years to

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<v Speaker 1>obsolescence that we've assumed. Second each year, the system can

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<v Speaker 1>transmit five hundred gigabytes per second times three thousand, six

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<v Speaker 1>hundred seconds per hour, times twenty four hours in a

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<v Speaker 1>day times three hundred sixty five days in a year,

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<v Speaker 1>which means there are fifteen point seven billion gigabytes to

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<v Speaker 1>go around, and that three hundred million dollars divided by

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<v Speaker 1>fifteen point seven billion gigabytes works out to one point

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<v Speaker 1>nine cents per gigabyte. One point nine cents. That one

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<v Speaker 1>point nine cents per gigabyte is the rate on the

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<v Speaker 1>most expensive system we can possibly imagine. That's an immensely

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<v Speaker 1>long and expensive cable they're laying to Africa. Remember that

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<v Speaker 1>we've already baked in a two percent profit margin. But

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<v Speaker 1>even if you want to get greedy and mark that

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<v Speaker 1>up in additional a hundred percent, it's only three point

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<v Speaker 1>eight cents per gigabyte this cable. In other words, bandwidth

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<v Speaker 1>by the gigabyte is incredibly inexpensive. Even on the most

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<v Speaker 1>expensive system we can imagine, it's pennies per gigabyte. The

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<v Speaker 1>question we have to ask, however, is this, does that

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<v Speaker 1>number one point nine cents per gigabyte represent the true

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<v Speaker 1>cost of the bandwidth, And the answer to that question

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<v Speaker 1>is no, because of congestion and the way that the

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<v Speaker 1>Internet is used throughout the day. Note that people tend

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<v Speaker 1>not to use bandwidth evenly throughout the normal day. If

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<v Speaker 1>they did use it evenly, then the cost per gigabyte

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<v Speaker 1>truly would be one point nine cents per gigabyte on

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<v Speaker 1>this system. However, at four am this undersea cable is

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<v Speaker 1>likely to be very underutilized. At other times during the day,

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<v Speaker 1>demand could be high. The big uproar right now is

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<v Speaker 1>the problem that Netflix and Hulu are causing. These online

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<v Speaker 1>streaming services use a lot of bandwidth, relatively speaking, and

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<v Speaker 1>usage tends to concentrate in the evening hours. So let's

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<v Speaker 1>look at the very worst case scenario that Netflix and

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<v Speaker 1>Hulu could cause. Worst case, imagine that every customer on

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<v Speaker 1>that African cable wants to watch Netflix every night at

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<v Speaker 1>exactly the same time. And let's make it even worse.

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<v Speaker 1>Let's imagine that a household has multiple people in it

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<v Speaker 1>and there are three simultaneous Netflix feeds going to each customer. Now,

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<v Speaker 1>we need approximately ten megabits per second for each household

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<v Speaker 1>that's connected to the cable during a three or four

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<v Speaker 1>hour window every night. The demand caused by this Netflix

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<v Speaker 1>loading caps the number of Internet accounts that we can

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<v Speaker 1>give out. The undersea cable can only handle five terabits

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<v Speaker 1>per seconds, so we have at most five terabits per

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<v Speaker 1>second over ten megabits per second for the Netflix feed,

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<v Speaker 1>which equals five hundred thousand possible customers on this cable

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<v Speaker 1>with this peak loading. So we have to spread the

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<v Speaker 1>three billion dollar cost of the cable and its profit

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<v Speaker 1>over those five thousand customers. What does that work out

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<v Speaker 1>to per month in the ten years we've assumed there

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<v Speaker 1>are a hundred and twenty months, so that works out

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<v Speaker 1>to exactly fifty dollars per customer per month. Fifty dollars

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<v Speaker 1>per month is the worst case scenario. We're assuming that

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<v Speaker 1>every single customer will be watching three simultaneous high deaf

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<v Speaker 1>Netflix movies at ten megabits per second simultaneously every night.

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<v Speaker 1>The pipeline can handle that kind of worse case load

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<v Speaker 1>with a two profit margin for fifty dollars per month,

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<v Speaker 1>and that would be some of the most expensive bandwidth

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<v Speaker 1>in the world. What is the cost per gigabyte? Now,

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<v Speaker 1>if you assume that each customers allocated a true ten

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<v Speaker 1>megabits per second, and if you assume that the customer

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<v Speaker 1>is pulling that true ten megabits per second for six

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<v Speaker 1>solid hours a day, then each customer is pulling twenty

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<v Speaker 1>one gigabytes per day, or roughly six hundred gigabytes per month.

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<v Speaker 1>Fifty dollars over six hundred equals eight point three cents

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<v Speaker 1>per gigabyte, less than a dime. In other words, Internet

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<v Speaker 1>service can be provided profitably for pennies per gigabyte in

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<v Speaker 1>the absolute worst case scenario. Let's imagine that we lived

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<v Speaker 1>in a rational world where i sp s were not

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<v Speaker 1>trying to gouge customers and we were all trying to

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<v Speaker 1>utilize resources efficiently. Then we have to admit that Netflix

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<v Speaker 1>and Hulu really can increase the cost of bandwidth because

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<v Speaker 1>they create congestion in finite pipelines. There are a number

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<v Speaker 1>of things we could do working together to relieve that congestion.

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<v Speaker 1>For example, bandwidth that low usage times would be essentially free,

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<v Speaker 1>and bandwidth at eight PM might cost a dime per

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<v Speaker 1>gigabyte because many people are trying to use the pipe simultaneously.

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<v Speaker 1>If time of use pricing like that were put into place,

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<v Speaker 1>what would happen. Many activities like Internet backups, bit torrent,

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<v Speaker 1>file uploads and downloads and so on would likely move

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<v Speaker 1>to low cost hours, spreading out the load. Places like

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<v Speaker 1>Netflix and Hulu might offer customer services that pre download

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<v Speaker 1>what they want to watch tomorrow. People might voluntarily choose

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<v Speaker 1>lower bandwidth versions of shows they're watching during peak hours.

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<v Speaker 1>New applications might spring up to take advantage of essentially

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<v Speaker 1>free bandwidth and early morning hours, and so on. In

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<v Speaker 1>other words, the marketplace would take actions to spread out

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<v Speaker 1>band with usage throughout the day to make better use

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<v Speaker 1>of the resource, and the cost of bandwidth would actually

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<v Speaker 1>go down, not up. We can at least dream that

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<v Speaker 1>that would happen. That's what would happen in an ideal universe.

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<v Speaker 1>Be sure to check out our new video podcast, Stuff

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<v Speaker 1>from the Future. Join how Stuff Work staff as we

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<v Speaker 1>explore the most promising and perplexing possibilities of tomorrow. The

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<v Speaker 1>how Stuff I Find app has arrived down at it

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<v Speaker 1>today on it and s