Why does bandwidth cost money?

August 26, 2004 11:19 AM

Why does bandwidth cost anything? Short of hosting companies finding a means to make some money, what is the actual cost justification on charging for overages, etc? Is it a racket or does traffic actually put an expense on an ISP forcing them, in turn, to charge customers? Always wondered. Thanks.
posted by Peter H to Computers & Internet (7 answers total)

It's not a racket per se, but neither is there a strict correlation between traffic and the cost of supporting it. Your hosting provider has to charge you for bandwidth because their upstream provider charges them; and so on up the chain until you get to the backbone providers, who charge for traffic because that's the only thing they can charge for, and they have to charge something to cover the costs of maintaining the backbones.
posted by jjg at 11:35 AM on August 26, 2004

Response by poster: That's helpful, thanks.

So if an account is charged overages, some of this money goes up the food chain to the backbone, or do the ISP pocket all of it?
posted by Peter H at 11:47 AM on August 26, 2004

So if an account is charged overages, some of this money goes up the food chain to the backbone, or do the ISP pocket all of it?

Well if an ISP charged too much for overages people would just move to another provider. At least the market seems to me (here in Canada) fairly competitive. Though I have read over at slashdot that if someone downloads large files mostly late at night that it's not really costing the ISP anything extra.
posted by bobo123 at 12:00 PM on August 26, 2004

Price of bandwidth is not just covering the costs of maintaining the backbones, but also the ISPs equipment.

Also, all of these different companies had to, at some point, pay a crapload of money to set up the infrastructure.

Paying for what travels through that infrastructure is paying for the infrastructure, more than the bits themselves.

Overage charges might fund future expansion, but that really depends on accounting and also on how saturated the capacity is as a result of the overages.

Think of the internet providers as any other network provider like power companies or water companies. In electric companies, it costs a great deal of money to string the wires, buy the transformers, build the power plants, etc. In water companies, it costs a great deal to lay the pipe, create the purification facilites, etc.

In all three cases, you get charged dearly for overages which may force more infrastructre to be built and help pay for it.
posted by tomierna at 12:07 PM on August 26, 2004

Overage charges, especially costly ones, are useful in keeping users from abusing the system. ISP's need to have an idea how much traffic their network will see on a given month so that they can budget their resources. Overage charges are a social engineering tool as much as anything.
posted by jpoulos at 12:44 PM on August 26, 2004

The overage charges are basically an incentive to keep you from going over your allotted bandwidth. If a host knows they have a certain number of customers who won't go over X gigs per day, they can plan their infrastructure accordingly. If you suddenly go over, you probably won't saturate their infrastructure, but if if a significant number of people went over, they would need new equipment and additional bandwidth sooner rather than later. It is, in short, a tool for keeping growth manageable and predictable, and for funding sudden growth.
posted by kindall at 1:11 PM on August 26, 2004

They also want to price them so that a few months of overages will make someone go up to the next tier. Then they get more money every month, regardless of actual bandwidh.
posted by smackfu at 1:37 PM on August 26, 2004