Where does the money go?

This is just something I have been thinking... I'll post it here and see if it attracts any opinions.

In the UK we seem to be lagging behind some Western countries in internet connections beyond FTTC. FTTP/FTTB seems to have been the growth strategy for almost a decade now in Nordic countries and many others as well.

Then I thought about Hull. I just checked their progress from Thinkbroadband maps and I must say I am impressed how they have managed to go from nothing to past 75% in only a couple of years. Hyperoptic and Gigaclear seem to have a massive installation backlog, and they are growing fast. Virgin had to scale down a bit their ambitions in project lightning due to internal problems, but the project is still there. Today we have read about OR plans to install FTTP to three million premises, but their plan had several caveats attached.

In Nordic countries the business model resembles KC. There are local telcos that build infrastructure and act as ISPs. This is what Hyperoptic, Virgin and others do as well. It seems to me that this model seems to lead to more investment than the split model where OR manages infrastructure and ISPs do whatever they do.

OR blames lack of money; their share is the line rental only. But ISPs do not exactly seem to be gold mines either. So where does the money go?

How much of our monthly fees go to the "technical" part of operations, and how much is wasted on advertising and attracting new customers with gift cards etc. When I think about advertising I see I have a hunch it might be a lot. It is impossible to go anywhere in London without seeing ads from OR network based ISPs. Open your telly and there is more. Every web site even remotely related to technology carries ads from ISPs.

How much are we throwing away because of the business model where customers are expected to change their OR infrastructure based ISPs yearly? As there is no technical difference between them, an ISP that does not take part in the advertisement and gift card race will be out of business, so they all must be shovelling money to this just to keep up - without any significant, permanent growth in customer base. This month operator X hoovers customers from the others, next month it will be Y doing the same, getting back from X more or less the same amount they lost a month ago.

Or am I completely wrong and this is just a minor expense on ISP budgets?

Edited by deleted (Thu 01-Feb-18 11:16:52)

In reply to a post by hvis42:

n Nordic countries the business model resembles KC. There are local telcos that build infrastructure and act as ISPs.

Which as far as Ofcom is a NO No as their is no competition to ensure fair pricing.

In fact go back a few years and KC was a telco that people wanted to move away from and could not as they had a monopoly and no other isp etc was allowed in.

Personally I think that any infrastructure should be publicly/centrally controlled and the service side is available to anyone that wants to pay to access it.

I fully understand this, but it also seems to mean that a lot of money needs to be spent on attracting customers. Sure, there is competition, but it also means the business is haemorrhaging money to a completely unrelated business.

I do not know what could be done to avoid this in the "public ownership" model. I like it in principle, but it does seem to lead to perpetual waste, and money that could be used to upgrade infrastructure is being shovelled to advertisement agencies and free gifts to customers.

The idea is the public fund the infrastructure and any upgrades, so everyone gets the same and not a select few, due to the fact they live in a area that is going to bring in a lot of profit. The isp's then pay to access this service.

It is time that loyalty was rewarded and we stopped the whole we need to gain more customers at any cost.
But that is something that regulators & the likes of This story want. They seem to see that changing companies is good for us.....
It would be interesting to see some figures from companies quoting the number gained against the number lost and the cost of gaining these customers.

Just to give some background in the US they have many cable companies... Where I am looking at living when I move over, there is only 1 Cable Provider which yes has 300Mbps but for 25Mbps it is $60, they know they are the only provider so do not offer unlimited, but unlimited subject to 1Tb fair usage... For a router, you have to pay $11 a month gateway rental, for TV services they charge you both a HD technology fee of $9.95 and a rental fee of $10 for the HD tv box rental. That is approx $30 rental charges ontop of the package price, which including TV is over $100 anyway. After 1 year the price rises but you have no alternative.

When you look at a purely free market working, where providers can choose where to place themselves and gain a monopoly share like the US, prices are higher, there is no competition and plenty of areas are not covered. There are some areas which can only get AT&T Fiber, which often is sold as max 10Mbps due to line length.

In the absence of government intervention it seems not so good. In the UK I think we have cheap utilities and overall not a bad system, although not perfect.

+1
I totally agree with you there referring to the US, I have friends over there and they are always having issues with their ISP concerning the speed and what they pay.

Sadly their ISP is the only one that covers their area, so they have no choice and just have to pay what the ISP is asking.

And there is us lot moaning about our connections, but at least we have a choice of ISP to choose from.

Granted like you say its not perfect, but still good.

Paul

In reply to a post by hvis42:

Then I thought about Hull. I just checked their progress from Thinkbroadband maps and I must say I am impressed how they have managed to go from nothing to past 75% in only a couple of years.

KCOM were moving exceptionally slowly until 2 years ago.

What happened? Well,
a) KCOM spent 4 years to reach 50,000 premises
b) KCOM sold their national network to CityFibre for £90m
c) KCOM started to spend at a reasonable rate, and took 2 years to reach the next 100,000
d) KCOM's recent announcement to target 100% went with a total spend of about £85m

On balance, then, the money seems to have come from capital reserves, rather than from any increased income.

And that isn't a surprise: KCOM's entry-level 50/10 Lightstream package is the same price as their standard ADSL2+ package, both coming with 35GB download limits.

If KCOM are making any extra money from a line, it is only via those who upgrade packages to higher capacity. Which will come with its own backhaul costs.

I used to work with people who lived in and around Minneapolis. Several of them were serviced by a council built network. It was expensive and the top speed was poor - 20Mb/s if I remember. The council had refused to invest any more money in it and no other providers were interested in taking it over. So they were stuck.

The irony was that Minneapolis actually has extremely good internet provision (the reason the company was based there). They provided eForensics services worldwide from that base.

Edited by Andrue (Fri 02-Feb-18 09:09:46)

In reply to a post by JohnR:

The idea is the public fund the infrastructure and any upgrades, so everyone gets the same and not a select few, due to the fact they live in a area that is going to bring in a lot of profit. The isp's then pay to access this service.

So..a lot like the national road network, then?

Hmm.

Is that a road network where the roads are of different "sizes" - more rural tend to have smaller roads? And where key trunk roads are maintained more often than those in more rural areas?

In reply to a post by Andrue:

In reply to a post by JohnR:

The idea is the public fund the infrastructure and any upgrades, so everyone gets the same and not a select few, due to the fact they live in a area that is going to bring in a lot of profit. The isp's then pay to access this service.

So..a lot like the national road network, then?

Hmm.

At least roads are owned by the public purse.
Unlike the phone/water/gas/electric infrastructure. Which are all in private hands. Some not even owned by UK companies....

To be honest if the roads are an example of how broadband could be run then I think it would be no better than what we have now. Roads have not been able to keep up with increase in car usage. Investment has been very low for years with most roads improvements cancelled a long time back and failing to get them going again - like the improvements to the A27 along the south coast. Not enough budget to repair potholes with many roads getting worse each year.

So, I am not sure how them being owned by the public purse improves on the situation - the public purse is just not big enough (or targetted to) improve roads.

In reply to a post by ian72:

Is that a road network where the roads are of different "sizes" - more rural tend to have smaller roads? And where key trunk roads are maintained more often than those in more rural areas?

Yup. With potholes that are deemed 'not serious yet'. With speed limits imposed for 'public safety'. With ANPR cameras along every major route.

In reply to a post by JohnR:

In reply to a post by Andrue:

In reply to a post by JohnR:

The idea is the public fund the infrastructure and any upgrades, so everyone gets the same and not a select few, due to the fact they live in a area that is going to bring in a lot of profit. The isp's then pay to access this service.

So..a lot like the national road network, then?

Hmm.

At least roads are owned by the public purse.
Unlike the phone/water/gas/electric infrastructure. Which are all in private hands. Some not even owned by UK companies....

And the networks you mention generally run very well for most people, most of the time. The road network on the other hand.. As I wrote: 'Hmmm'.

And yes I include telephony in praise of private ownership. UK internet usage and adoption has been amongst the highest per capita in the world for a couple of decades now. For all that a small, vocal, minority like to whine and moan the truth is that broadband provision in the UK has clearly, clearly been good enough to encourage and sustain some of the highest rates of take-up globally since the last century.

That's despite not really being needed for TV given that we've had universal satellite TV coverage for about as long for those who wanted it. Residential internet usage in the UK has a been a huge success story. I dread to think how bad it'd be if it was still owned and operated by a state-owned Post Office.

So, yes. Hurrah for private enterprise!

Edited by Andrue (Fri 02-Feb-18 14:08:08)

This history of the phone network in Hull, may yield some clues-

https://en.wikipedia.org/wiki/KCOM_Group

In reply to a post by Andrue:

And the networks you mention generally run very well for most people, most of the time. The road network on the other hand.. As I wrote: 'Hmmm'.

As do most of the roads.

The only time I have issues with the roads is at peak time, which causes congestion.... Which strangely is exactly the same issue a lot of people have with the internet.

Private enterprise strikes again...

Neither option is the best, but we have to live with what we are dealt with.

Public can lead to reduced investment to keep costs down.
Private can mean exactly the same, but has the added mix of shareholders who want to see a return on their investment.

I haven't experienced congestion on my internet connection for a long time. And if I did I'd just switch to a better ISP.

However I experience congestion on the roads every week day and I have no choice other than to put up with it.

ofcom is a pretty big barrier right now to progress.

openreach the local loop owner get less than half the line rental most consumers pay, their share is capped and regulated by ofcom.

in addition BT is bloated by pension obligations amongst other things.

We have political intervention as well, tying to have X amount of spent in rural areas everytime X amount of money is spent in urban areas.

The efficiency of rollout's is also questionable, a desire for it to be all underground, inflated costs under highways and so forth.

talktalk have claimed they have it under £500 per home passed, what is openreach's latest figure?

The gift card, changing isp annually etc. I agree is not a healthy market, we see this rubbish in other sectors as well like gas/electric. Its seen to be consumer friendly as long as people can hop every year and take up new customer offers, but many of these deals are loss leaders and not pro investment.

yes completely unregulated is definitely not perfect. Some people in america report some nasty stories isp related, and we have the likes of comcast holding content providers like Netflix to ransom under the guise "we have the customers you need to reach, we will congest your traffic to hell and back unless you pay us XXX amount of money to peer with us".

In reply to a post by Chrysalis:

we have the likes of comcast holding content providers like Netflix to ransom under the guise "we have the customers you need to reach, we will congest your traffic to hell and back unless you pay us XXX amount of money to peer with us".

But is that so unreasonable given the amount of capacity streaming services require?

The political side has changed a lot the LFFN £200m funding to date is being used by bids from distinctly urban areas and councils looking to reduce their connectivity costs while also increasing connectivity between premises.

In short most subsidies on LFFN will get spent on council anchor tenant stuff, and local business may get a side effect as in lower than existing Ethernet pricing.

Funding in rural areas is pretty much now the gainshare elements in England, Scotland is very different with large subsidy available for next phase, and Wales has more but a lot less per property.

Edited by MrSaffron (Sat 10-Feb-18 12:40:09)

The normal way is for high traffic things like this to be identified and a mutual peering arrangement arrived at, i.e. reduces transit costs while also improving service for customers. The US difference is the pay us and we will peer otherwise traffic is routed over our cheap transit option that has lots of congestion, customers aren't going to go elsewhere since they have no other option.

Imagine if BT ran half the UK, and Virgin Media the other half and that is much more the US situation.

In reply to a post by MrSaffron:

... but a lot less per premise.

Bah!

The typo you love to hate is fixed

Thanks .

In reply to a post by Michael_Chare:

In reply to a post by Chrysalis:

we have the likes of comcast holding content providers like Netflix to ransom under the guise "we have the customers you need to reach, we will congest your traffic to hell and back unless you pay us XXX amount of money to peer with us".

But is that so unreasonable given the amount of capacity streaming services require?

Yup. They are already being paid for that capacity by their end users, and it's no coincidence that most of those doing it offer their own TV services. Nothing to do with protecting their network capacity at all, they want to compensate for loss of TV revenue to OTT providers.

The UK and Europe seem to manage okay but, then, we do a whole bunch of settlement free peering via both public and private connections and tend to have plenty of competition at the retail level so any operator playing games with their transit and peering will take a hammering.

That said, the odd ISP has extorted Netflix or A N Other in Europe. I fully imagine Liberty Global will do so once they've finished moving Virgin Media fully behind their Aorta network.

Indeed, the end user of the broadband should be paying for bandwidth rather than the content provider. If not then I think Google should be paying a fortune to all ISPs as I suspect a large chunk of the traffic flowing over them is Google in some shape or form (search, maps, email, youtube, etc, etc). Content providers don't generate any traffic - it is the consumer that generates the traffic by consuming their content.

yes, as comcast customers already pay comcast to use that bandwidth.

Its a bit like me paying for bandwidth from heztner for my server, and then having to pay sky on top of that for users of sky to download from my server.

exactly if someone like BT tried it here, then customers would simply leave en masse to another isp, comcast have the luxury of not having that problem.

In reply to a post by ian72:

Indeed, the end user of the broadband should be paying for bandwidth rather than the content provider. If not then I think Google should be paying a fortune to all ISPs as I suspect a large chunk of the traffic flowing over them is Google in some shape or form (search, maps, email, youtube, etc, etc). Content providers don't generate any traffic - it is the consumer that generates the traffic by consuming their content.

YouTube and Netflix combined are in the ballpark of half of all downstream traffic in the United States.

Here I'm pretty sure you take those two and add BBC iPlayer you're not going to be far off.

As you noted none of this is being sent unsolicited. The ISPs' customers request this content, they pay for access to this content and should receive it to the best ability the ISPs can provide it.

In reply to a post by Ignitionnet:

Yup. They are already being paid for that capacity by their end users, and it's no coincidence that most of those doing it offer their own TV services. Nothing to do with protecting their network capacity at all, they want to compensate for loss of TV revenue to OTT providers.

End users are paying for access via a contended pipe. The greater the amount of traffic the bigger the pipe has to be and the more it will cost. No reason why those who use it much more by streaming should not pay more by paying Netfllix who can then pay the ISP. Why should those who don't use so much subsidise those that do?

Why should those who don't use so much subsidise those that do?

So why shouldn't Microsoft and Apple be paying the ISPs for updates/apps? Why shouldn't bittorrent sites pay ISPs for their transit?

Personally I think the model is better paid for by those requesting the content than those supplying it - if I watch one hour of TV a month on streaming why should I have to pay extra to support those that watch it 8 hours a day? The argument can be had at almost any level and someone will feel they are being hard done by because they are paying for other people's "excessive" usage.

In the end the "fair" model is for each user to be charged for the bandwidth they use - but that is not a model that most consumers like (even relatively low bandwidth users) as it produces uncertainty and people over time gravitated towards unlimited bandwidth.

The likes of microsoft, google and netflix still pay for their bandwidth in some form, they dont get to just dump data on the internet without investment.

They pay for their uplink but they don't pay towards the transits used by the ISPs. It is an ongoing thorny debate around net neutrality and exactly who should pay for bandwidth in a complex infrastructure.

its not that complex.

by the time the traffic reaches someone like comcast, even if the traffic originated from netflix its technically not netflix traffic so e.g. if the traffic goes netflix -> level3 -> comcast, then its level3 traffic not netflix traffic.

providers peer with each other, might be mutual tariff free, might not be.

They only need to pay for their uplink to the backbone of the internet, at that point its job done for them, its how the internet has always worked. Of course we can see other arrangements can be made e.g. isps like sky have netflix caching servers so if a sky customer watches netflix the content may come from within sky's network via a cdn type setup.

I wonder what comcast would think if google started charging them for each youtube video uploaded, or each file uploaded to google drive, maybe microsoft should do the same with onedrive.

Edited by Chrysalis (Tue 13-Feb-18 23:31:30)

I kinda liked the old Plusnet model: unlimited usage during off-peak hours, but a monthly traffic limit otherwise. This had the right incentives for heavy users to schedule big downloads overnight.

Sadly, they got rid of it about five years ago, switching to a "normal" unlimited plan.