With Fixed Costs And Fat Margins, Comcast's Broadband Cap Justifications Are Total Bullshit
from the pay-more-for-less dept
For a while Comcast tried to pretend that its slowly-expanding usage cap “trials” were about managing network congestion. At least until leaked Comcast documents, the company’s top engineer, and the cable industry’s top lobbyist all confirmed that justification was bullshit (caps don’t really help manage congestion anyway). Since then, Comcast has veered away from any hard technical explanation for the glorified price hike, instead focusing on the ambiguous claim that these new “flexible” pricing models bring “fairness” to the broadband industry.
To sell this evolved line of horse excrement, Comcast CEO Brian Roberts recently proclaimed the company was simply trying to create a more “balanced relationship” with its customers. After all, Roberts told attendees of a recent conference, broadband is just like electricity and gasoline:
“We don?t want anybody to ever not want to stay connected on our network, but just as with every other thing in your life, if you drive 100,000 miles or 1,000 miles, you buy more gasoline. If you turn on the air conditioning to 60 vs. 72, you consume more electricity. The same is true for usage, so I think the same for a wireless device. The more bits you use, the more you pay.”
The problem with that narrative? Broadband is absolutely nothing like gasoline or electricity, because for major ISPs’ like Comcast — the price it pays for bandwidth remains relatively fixed despite usage, so whether an individual user consumes 300 GB or 400 GB doesn’t impact Comcast’s bottom line in the slightest. Meanwhile, with Comcast customers paying some of the highest prices in any developed nation, any Comcast earnings report will show you that Comcast’s broadband margins remain plump; more than capable of paying for necessary infrastructure upgrades several times over.
That there’s no financial or technical justifications for fixed-line usage caps is a point made time and time again, and really can’t be repeated often enough. As the CCG Consulting POTs and PANs blog recently noted, Comcast really faces two primary costs when it comes to providing you bandwidth: transit and raw bandwidth. And in both instances, these costs are not only immensely manageable thanks to Comcast’s huge size, but by and large remain static:
At Comcast?s size they either have a direct physical presence at each major Internet POP or they have an arrangement with some carrier who does. Due to their sheer size, I have to imagine that Comcast?s cost for transport on a per-megabit basis is lower than anybody else in the industry other than maybe AT&T, who is one of the owners of the Internet structure.
Transport can be a major cost for an ISP that operates a long distance from a major POP. I have small ISP clients that spend between $10,000 and $20,000 per month on transport, which is a lot if you only have a few thousand customers. But for Comcast this cost has to be minuscule on a per customer basis. And the cost is fixed. Once you buy transport to a market it doesn?t matter how much bandwidth you shove through the pipe. So this cost doesn?t increase due to customer usage.
The analysis goes on to note that Comcast’s other major cost, raw bandwidth, is probably around $2 per subscriber, and also remains largely fixed:
“An ISP?s total cost for an Internet port is based upon the average of the busiest times of the month. For instance, a small ISP might use 500 raw megabits of aggregate usage on most evenings, but if their customers have a few nights per month where they use 700 megabits, then the ISP pays for that larger amount for the whole month.
The interesting thing about this pricing structure is that the ISP pays the same every day of the month whether the customers are using the data or not. The cost to Comcast wouldn?t change if any one customer, or even all of the customers in a city, were to use more data, as long as that usage doesn?t create a new fastest day of the month.
Admittedly, Comcast’s costs get more complicated given it sells transit and gets paid by companies like Netflix for direct interconnection. But the point remains that, by and large, its bandwidth costs largely remain fixed, and despite significant growth, companies of Comcast’s size are paying less today for raw bandwidth than they were ten years ago. And they’re pulling in more money than ever. Despite claims of an exaflood, the revenues Comcast makes on broadband far, far exceed the money Comcast needs to spend on network infrastructure.
The bottom line is there’s simply no financial or technical justification for what Comcast is doing. The only reason Comcast is imposing usage caps is to impose glorified price hikes on noncompetitive broadband markets, to unfairly skew the playing field in favor of its own services, and to protect legacy TV revenues from Internet video. Every other excuse the company bandies around is utter and complete drivel, designed to pander to a public that believes bandwidth pours from a magical, elven spigot buried deep in the Earth.