By Art Reisman
CTO of APconnections
Makers of the plug-and-play bandwidth control and traffic shaping appliance NetEqualizer
Comcast recently settled a class action suit in the state of Pennsylvania regarding its practice of selectively blocking of P2P. So far, the first case was settled for 16 million dollars with more cases on the docket yet to come. To recap, Comcast and other large ISPs invested in technology to thwart P2P, denied involvment when first accused, got spanked by the FCC, and now Comcast is looking to settle various class action suits.
When Comcast’s practices were established, P2P usage was sky-rocketing with no end in sight and the need to block some of it was required in order to preserve reasonable speeds for all users. Given that there was no specific law or ruling on the book, it seemed like mucking with P2P to alleviate gridlock was a rational business decision. This decision made even more sense considering that DSL providers were stealing disgruntled customers. With this said, Comcast wasn’t alone in the practice — all of the larger providers were doing it, throttling P2P to some extent to ensure good response times for all of their customers.
Yet, with the lawsuits mounting, it appears on face value that things backfired a bit for Comcast. Or did they?
We can work out some very rough estimates as the final cost trade-off. Here goes:
I am going to guess that before this plays out completely, settlements will run close to $50 million or more. To put that in perspective, Comcast shows a 2008 profit of close to $3 billion. Therefore, $50 million is hardly a dent to their stock holders. But, in order to play this out, we must ask what the ramifications would have been to not blocking P2P back when all of this began and P2P was a more serious bandwidth threat (Today, while P2P has declined, YouTube and online video are now the primary bandwidth hogs).
We’ll start with the customer. The cost of getting a new customer is usually calculated at around 6 months of service or approximately $300. So, to make things simple, we’ll assume the net cost of a losing a customer is roughly $300. In addition, there are also the support costs related to congested networks that can easily run $300 per customer incident.
The other more subtle cost of P2P is that the methods used to deter P2P traffic were designed to keep traffic on the Comcast network. You see, ISPs pay for exchanging data when they hand off to other networks, and by limiting the amount of data exchanged, they can save money. I did some cursory research on the costs involved with exchanging data and did not come up with anything concrete, so I’ll assume a P2P customer can cost you $5 per month.
So, lets put the numbers together to get an idea of how much potential financial damage P2P was causing back in 2007 (again, I must qualify that these are based on estimates and not fact. Comments and corrections are welcome).
- Comcast had approximately 15 million broadband customers in 2008.
- If 1 in 100 were heavy P2P users, the exchange cost would be $7.5 million per month in exchange costs.
- Net lost customers to a competitor might be 1 in 500 a month. That would run $9 million a month.
- Support calls due to preventable congestion might run another 1 out of 500 customers or $9 million a month.
So, very conservatively for 2007 and 2008, incremental costs related to unmitigated P2P could have easily run a total of $600 million right off the bottom line.
Therefore, while these calculations are approximations, in retrospect it was likely financially well worth the risk for Comcast to mitigate the effects of unchecked P2P. Of course, the public relations costs are much harder to quantify.
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Will the Rural Broadband Initiative Create New Jobs?
March 17, 2010 — netequalizerBy Art Reisman, CTO, www.netequalizer.com
Art Reisman is a partner and co-founder of APconnections, a company that provides bandwidth control solutions (NetEqualizer) to ISPs, Universities, Wireless ISPs, Libraries, Mining Camps, and any organization where groups of users must share their Internet resources equitably.
I’m sure that most people living in rural areas are excited about the prospects of lower cost broadband. But, what will be the ultimate result of this plan? Will it be a transforming technology on the scale of previous campaigns implemented for electricity and interstate highways? Will the money borrowed see a return on investment through higher productivity and increased national wealth?
The answer is most likely “no.” Here’s why…
Here are some questions and issues to consider:
Are rural communities really starved for bandwidth?
Most rural small businesses already have access to decent broadband speeds and are not stuck on dial up. To be fair, rural broadband currently is not quite fast enough to watch unlimited YouTube, but it is certainly fast enough to allow for VoIP, E-mail, sending documents and basic communication without the plodding of dial up.
We support approximately 500 rural operators around the US and the world. The enabling technology for getting bandwidth to rural areas is well established using readily available line of sight back haul equipment.
For example, let’s say you want to start a broadband business 80 miles southwest of Wichita Kansas. How do you tap into the major Internet backbone? Worst case scenario is that the nearest pop to a major backbone Internet provider is in Wichita. For a few thousand dollars, you can run a microwave link from Wichita out to your town and using common backhaul technology. You could then distribute broadband access to your local community using point to multipoint technology. The technology to move broadband into rural areas is not futuristic, it is a viable and profitable industry that has evolved to meet market demands.
How much bandwidth is enough for rural business needs?
We support hundreds of businesses and their bandwidth needs. From our observations, what we have found is that unless a business is specially a content distribution or hosting company, they purchase minimal pipes, much less per capita than a consumer household.
Why? They don’t want to subsidize their employees’ YouTube and online entertainment habits. Therefore, they typically just don’t need more than a 1.5 meg for an office of 20 or so employees.
As mentioned, bandwidth in rural American towns is not quite up to the same standards as major metro areas, but the service is adequate to ensure that businesses are not at a disadvantage. Most high speed connections beyond business needs are used primarily for entertainment -watching videos, playing Xbox, etc. It’s not that these activities are bad, it’s just that they are consumer activities and not related to business productivity. Hence, considering this, I would argue that a government subsidy to bring high speed into rural areas will have little additional economic impact.
The precedent of building highways to rural areas cannot be compared to broadband.
Highways did open the country to new forms of commerce, but there was a clear geographic hurdle to overcome that no commercial entity would take on. There were farm producers in rural America, vital to our GDP, that had to get product to market efficiently.
The interstate system was necessary to open the country to commerce, and I would agree that moving goods from coast to coast via highway certainly benefits everybody. Grain and corn from the Midwest must be brought to market through a system of feeder roads connecting into the Interstate and rail sytems. And, the only way to transport goods from anyplace must include a segment of highway.
But the Internet transports data, and there is no geographic restriction on where data gets created and consumed. So, there is not an underlying need to make use of rural america for economic reasons with respect to data. Even if there was a small business building widgets in rural America, I challenge any government official to cite one instance of a business not being able function for lack of Internet conectivity. I am able to handle my e-mail on a $49 -per-month WildBlue Internet connection 20 miles from the nearest town in the middle of Kansas and my customers cannot tell the difference — and neither can I.
With broadband there is only data to transport, and unlike the geographic necessity of farm products, there is no compelling reason why it needs to be produced in rural areas. Nor is there evidence of an issue moving it from one end of the country to another, the major links between cities are already well established.
Since Europeans are far better connected than the US, we are falling behind.
This comparison is definitely effective in convincing Americans that something drastic needs to be done about the country’s broadband deficiencies, but it needs to be kept in perspective.
While it is true the average teenagar in Europe can download and play oodles more games with much more efficiency than a poor American farmhand in rural Texas, is that really setting the country back?
Second, the population densities in Western Europe make the econimics of high-speed links to everybody much more feasible than stringing lines through rural towns 40 miles apart in America’s heartland. I don’t think the Russians are trying to send gigabit lines to every village in Siberia, which would be a more realistic analogy than comparing U.S. broadband coverage to Western Europe in general.
Therefore, while the prospect of expanded broadband Internet access to rural America is appealing for many reasons, both the positive outcomes of its implementation as well as the consequences of the current broadband shortcomings must be kept in perspective. The majority of rural America is not completely bandwidth deprived. Although there are shortcomings, they are not to the extent that commerce is suffering, nor to the extent that changes will lead to a significant increase in jobs or productivity. This is not to say that rural bandwidth projects should not be undertaken, but rather that overly ambitious expectations should not be the driving force behind them.
Looks Robert Mitchell in this 2007 PC World article disagrees with me.
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