An Attempt at Economically Rational Pricing: Time Warner Trial

Sun Jan 20 22:26:13 UTC 2008

> If we define "customer" to be an average user of the provided service,
and
> bandwidth to be transit pipe cost, then no, bandwidth is not the major
cost
> of their service.  However, if you're advertising an 'unlimited'
service
> and want to keep your promises, you can't plan your network around the
average
> user -- there will be people who will want to hold you to your
'unlimited'
> promise. 

I don't agree again. The heavy usage customer would be included in your
'average customer base', just as they were in the dialup world. Yes, the
average user was only for 20 to 30 minutes a day, but you certainly had
users who logged in once a week, and some who stayed connected 24x7.

In my experience in selling DSL, while what you count (bytes instead of
minutes) has changed, the premise has not.

> If you also call 'bandwidth cost' to include all the
> infrastructure costs required to provide that unlimited service, then
yes,
> "bandwidth cost" would be a pretty major part of that customer's cost.

I dunno about that. You have to build a network either way, in any
event. The incremental cost difference between building a network and
building a bigger network is probably lost in the noise, somewhere
around advertising, support, or your CEO going to Scores on the
corporate card.

Quickly scanning a reasonably sized MSO here in NJ, the numbers are that
the operational cost of the network (what they call "Techincal and
Operating", which likely includes support) was around 42% of revenue. 

First, I'd bet their network is not full, or anywhere near full, and
that to make their dark fiber do 10ge instead of oc48 or whatever it is
they use would be tiny. I am not saying that having an unlimited product
would not have an effect on their network, but the answer might be 'who
cares.'

> (My point of view is Australia rather than the US, but I don't think
14Mbps
> of dedicated transit is $50/month even in the US).

If it isn't, it will be. And I'd be happy to sell it.