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.