Is Google Really Using 21x The Bandwidth It Pays For?

from the bad-math dept

Scott Cleland is a “telecom analyst” who, in reality, is actually paid a large sum of money by the telcos to slam Google. He’s become sort of a joke in DC circles. In the past, we noted his ridiculously bad math in claiming that Google fleeced taxpayers out of $7 billion, as well as his claims that “open spectrum” is somehow anti-American. His main issue, of course, is trying to dispense bogus arguments for why net neutrality is really a big scam by Google to keep its broadband bills cheap. To give Cleland credit, at least he’s not as bad as Mike McCurry, who once claimed that Google doesn’t pay a dime for broadband. McCurry, of course, has moved on from spinning for the telcos to spinning for the entertainment industry, so Cleland needed to up his game.

He’s now released a “study” claiming that Google uses 21 times as much bandwidth as it pays for. First of all, this is simply incorrect. Cleland doesn’t know how much Google actually pays for broadband, so he comes up with a small number, which is wrong for a variety of reasons.

He seems to conflate consumer broadband and Google’s broadband. This is based, in part, on the old telco argument that when you buy internet access, you’re only buying access to the middle of the internet, and you should have to pay a second time to actually reach any endpoint or other user. So, even though consumers pay for the bandwidth they use to reach Google, Cleland appears to calculate that as being Google’s responsibility, ignoring that consumers are paying plenty for the right to reach Google (and the rest of the internet). As Cord Blomquist points out, this is like pointing out that Best Buy should pay for the gas it takes for people to drive to Best Buy. Broadband Reports also does a nice job deconstructing this.

However, even if we ignore all the basic facts and information that Cleland gets wrong, if we grant his premise, his argument still doesn’t make any sense. If anything, rather than being an argument in favor of the telcos’ position, Clelands report (if true) suggests that telco execs all deserve to be fired. After all, they’re the ones who set up the business model and the billing relationship, and if they’re undercharging Google by so much, then shouldn’t they raise their prices? Of course, there’s a good reason why this doesn’t happen: because Google is paying fair market value for its bandwidth, and if anyone tried to charge them 21 times more, Google would quickly take its business elsewhere. So, based on this report, either Cleland is dead wrong in his report, or the telcos who funded it are run by morons who don’t know how to set pricing correctly. Which one is more likely?

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Companies: google

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Comments on “Is Google Really Using 21x The Bandwidth It Pays For?”

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29 Comments
Alpha Computer (user link) says:

When You're Big Like Google

When you’re big like Google, you have an ability to get away with more than the little guy. Now I am not saying that it is right, but when I look around, there are a lot more companies doing much the same. Could there be a fourth way at looking at this: maybe Google’s paying the big boys under the table and they are all laughing all the way to the bank.

Trevlac says:

Hah, when I worked a Geek Squad a lot of the customers complained that Best Buy should pay for their gas when they had to drive up and get their computers. Lots of people tend to shove responsibility onto others. Let’s face it, the society we live in today is filled with immature lazy people who don’t want to shell out any of their own effort to get what they want.

Anonymous Coward says:

“The study estimated Google’s payment to fund just the U.S. consumer broadband Internet segment to be approximately $344 million in 2008 or 0.8% of U.S. consumer’s flat-rate monthly Internet access costs of $44.0 billion. Thus Google’s 16.5% share of all 2008 U.S. consumer bandwidth usage, is ~21 times greater than Google’s 0.8% share of U.S. consumer bandwidth costs – or an implicit ~$6.9 billion subsidy of Google by U.S. consumers.”

So, why do the telcos care? It says right there that the subsidy is being paid by consumers – not the government or the telcos.

inc says:

I would like to know how he even knows how many datacenters google has in the first place to build these stats.
http://www.datacenterknowledge.com/archives/2008/03/27/google-data-center-faq/

I’m sure he’s also forgeting about peering where networks share bandwidth without having to pay a transit provider. I think it’s safe to assume that many an ISP peer directly with google so the ISP and Google do not pay for the bandwidth they exchange. This allows Google to reach customer faster and cheaper and the ISP doesn’t have to pay money to a transit provider for it’s customer’s to reach Google.
http://arstechnica.com/guides/other/peering-and-transit.ars/2

The pricing for bandwidth has been put in place by some very smart people. It seems to me that these greedy organizations are trying to fleece more money from Google, and everyone else for that matter, for themselves.

Anonymous Coward says:

Maybe he got everything right..

..except for the fact that Google is actually paying a fair market value for the bandwith.

That of course would mean that all of our home internet connections are 21 times too expensive. Which means of course that instead of $20 a month DSL, you should be only paying $1 a month for the same service!

ray says:

Telco 2.0 Business Models -- thoughts

Mike and community, I am very interested in your thoughts on this subject matter.

How do you think this Business Model will play out for the telcos? Or is it, and maybe I’m looking at things wrong? Would love to get the communities take on this!

please look at slide 31. What do you think?

http://www.slideshare.net/TYR/telco-20-introduction-to-2sided-markets-presentation?type=powerpoint

from telco2.net — which is a ‘Telco 2.0 Initiative’, “…a new industry programme focused on helping with this thorny question: “How do we (telcos, handset manufacturers, Media companies, IT players, NEPs, etc) make money in an IP-based world?”

“primary focus is on business model innovation, new products and services, new markets and disruptive technology.”

this type of business model seems to be being pushed very hard with telecom executives.

http://www.telco2.net/blog/2006/06/welcome_to_the_telco_20_blog.html

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