There has been a lot of confusion over Usage Based Billing over the past few weeks. There has been much debate on both sides of this issue. Unfortunately, much of this debate is being had by people who do not understand the technology behind the concept. I do not claim to be an expert, but I do believe that I can help clarify some of the confusion that has been so clear over the past few weeks. Once again, I will mainly use Shaw as my example. This is only because I personally have Shaw as my provider, and I have the most experience with them. I am not trying to single Shaw out, as what I am going to talk about here is true for all Internet Service Providers. First off, nearly everyone who has talked about this story has been using the term “bandwidth cap.” I myself am included in this. Many people have been doing this because it makes it easier for most people to understand, and keeps some confusing terms and technology out of the discussion. I need to clarify two things to make the rest of what I’m saying make a little more sense.
The term “bandwidth” does not actually have anything to do with the limits being put in place by the ISP’s such as Shaw. Bandwidth is the term used to describe how fast your internet connection is. Shaw’s high speed plan provides a bandwidth of 7.5 megabits per second (Mbps). This means that a user can download files, videos, music, etc, at a maximum speed of 937 KiloBytes (KB) per second; or just under 1 MegaByte per second. The High Speed Extreme plan is twice that speed. The bandwidth that Shaw provides allows for faster downloads.
What I, and many others, have been calling the “bandwidth cap” until this point is actually a data transfer limit. This limit governs how much data you can transfer, not how fast you can download it. The limit on Shaw High Speed is 60GB per billing cycle, while for High Speed Extreme allows for 100GB per billing cycle. This data transfer limit has no bearing at all on how fast you can download that data, which is your Bandwidth.
To put it simply, data limits are how much you can download, and your available bandwidth is how fast you can download it. At the end it’s pretty simple, but it’s been misrepresented to this point. This should hopefully make my next explanation a little easier to understand.
Networks that have been built by ISP’s are very complex. Much too complex for me to really talk about in detail here. Shaw, Bell, Telus, Rogers all spend considerable amounts of money to build out and upgrade their networks. This point is fact, and it can’t be disputed. I won’t even try, because that they do spend that money for the upgrades is, in the long run, better for Canadians. This is good, and something that we want to continue.
This brings us back to the bandwidth vs. data limits discussion. What the ISP’s spend money on to upgrade their networks is mostly about the ability to increase available bandwidth. The infrastructure is upgraded to allow for faster data transfers. Now, this doesn’t mean just for you. Part of the investment is for the “backbone” network, which is where the bulk of data is carried. When you load a website based in Europe, the BBC for example, that website comes through a cable that literally runs through the bottom of the Atlantic Ocean, and then runs across North America to its destination. The upgrades that ISP’s, as well as the major “backbone” providers that most of the public has never heard of, to allow for faster transfers. Again, this is good for consumers, and is something that we want to continue to further expand what users can do on the internet. The investment that the ISP’s make have allowed for improved speed on our internet in the past 10 years.
Now we talk about data transfer. I’ll just get this out of the way first. Data transfer over that network is not free. However, it is much closer to free than most know. All large ISP’s have contracts or agreements with each other to allow traffic to flow from one ISP’s network to another. This is how someone on a Shaw or Bell computer can read this website, which is hosted by a provider in the United States. These agreements are called peering agreements, which is actually at its core a very simple thing. Taking the example of Shaw and Bell, a peering agreement is where they build a connection between their two networks that allows data to be transferred between them. If the overall data transfer is anywhere close to equal between both sides, most times no money changes hands, since the cost would end up being equal for both sides anyway. In cases where the data transfer is not equal, the party with lesser traffic may have to pay for that connectivity. However, the sheer scale of traffic that is transferred between ISP’s means that in most cases, no money does change hands.
Where money often does change hands is in an IP transit agreement. This type of agreement is where a provider such as Shaw does not have direct access to another provider’s network, i.e. one in the United Kingdom. In this case, Shaw would have to pay an IP Transit provider so traffic can get from Shaw’s network to the United Kingdom and vice-versa.
My understanding from communicating with people who do have direct knowledge on this is that the cost to deliver 1GB of data to a customer is 1-3 cents. This means that at most, on a 60GB/month plan the actual cost to deliver 60GB to the user is at most $1.80.
There is a fantastic write up that goes into more detail about peering agreements and how much it costs for data transfer here. I encourage you to read it to get a more detailed grasp on this concept.
Now, the 1-3 cents/GB does not include costs like network maintenance, labour, etc. There is a cost to that of course, and that will increase the cost per GB overall. However, this is why Shaw charges $37 or $47/month for the High Speed plan. Those costs, as well as others, are built into that price that you pay per month.
However, the simple fact that Shaw would like to charge an overage fee of $2/GB when in fact it costs them 1-3 cents is a markup of approximately 6600%. This is why they can offer the “data packs” which can give you up to 250GB for $50, which is 20 cents/GB. Even this is a significant markup (600%) on something that is as close to free as a gigabyte of data.
So If All This Data Is Free, Why Do They Want to Charge So Much For It?
I’ve heard many arguments for UBB that bandwidth is limited, and that charging for data is a way to solve that. Frankly, that is not true. Bandwidth, by its definition of being how fast a provider can serve that data to you, is limited. This is why Shaw has plans of 1, 7.5, 15, 50, and in some areas 100Mbps. That is the physical size of the “pipe” that Shaw is providing to you, and that is what is scarce. There is no scarcity on the actual amount of data that can be transferred to you. The only limiting factor is how fast you can actually get it. The cost for an ISP to provide you with 5GB of data is, in the grand scheme of things, virtually identical to how much it would cost them to provide you with 500GB of data. It doesn’t matter whether it takes a 1 hour, 1 week, or 1 month to transfer that data to you; the actual cost of the data is the same. The real cost is in how fast they can actually get that data to you.
Shaw, and many other providers would have the general public believe that the internet should be treated like utilities such as water. They say that it costs money to build the pipe to deliver the product to the user, but also for the actual product they deliver. If an area needs more water, they have to build a bigger pipe to carry more water, and there is a cost to that. This makes sense, since water is a scarce resource, and there is a finite amount of it in the world. However, this argument does not quite work for the internet. While actually building the “pipe” and expanding it from time to time does cost money, the cost of actually moving data through that pipe over time is negligible. Data, or “bits” as I like to call them, is not a finite resource, and cannot be treated as such.
The actual data transfer, which is what Bell, Shaw, and Rogers seek to limit and charge overage fees for, is actually the cheapest part of the entire equation on the internet. This is simply another way for these companies to make money where they do not have to raise their basic rates. They don’t even need the majority of their customers to go over the limits, since the current overages that they are charging are so inflated that the profit margin on those 10% of users is massive.
So when many ISP’s tell you that bandwidth is limited, remember two things. First, bandwidth actually is limited. However, in the discussion of UBB, bandwidth has absolutely nothing to do with what your ISP is charging you for overages. While an ISP would like to have you believe that they are the same, in reality, they are trying to take the most plentiful and cheapest part of their ecosystem and pass it off as a much higher cost and limited part.