Why is business quality internet so much more expensive than home internet?
I can’t help but notice that discussions on the price of internet seem to be popping up all over: blogs, tech discussion boards and with my own Bandwidth Pool customers. I think a lot of it has to do with the recent attention to broadband given by Google Fiber as well as states’ attempts to change legislation with the goal of improving internet infrastructure across the United States. Regardless of the source of the chatter, I continue to notice that a lot of people don’t seem to fully understand the core differences between residential, small business and enterprise internet service and the reason why there is a difference in price for each type.
I’ve been lucky enough to have a front row seat on this topic: having built a wireless and wireline ISP myself. Here’s a little background on why certain services are more expensive in the hopes this can help you make the best internet decision for your needs.
Let’s start by highlighting the three major types of internet access: residential, small business and dedicated access (DIA).
• Residential (pricing between $10 and $100 per month) – Commonly referred to as cable internet or DSL, these services are primarily offered by the local cable or phone company. The service is considered shared and ‘best-effort’ in terms of speed and reliability.
• Small Business (pricing between $50 and $400 per month) – Also commonly referred to as cable internet or DSL and offered by the local cable or phone company, these services are essentially the same as residential. The largest difference comes in the fact that it’s a step above ‘best-effort’ speed and reliability and includes services like a static IP, service level agreement and less oversubscribed nature of its availability. We’ll discuss these in more detail below.
• Dedicated Internet Access (DIA) (pricing at $400 and above; most often in the thousands of dollars per month) – One of the purest forms of internet access, DIA is a direct connection to the Internet Service Provider (ISP) you purchase from. Your internet access is not oversubscribed like Residential or Small Business services and comes with a 99.99%+ reliability and a suite of sophisticated features to improve business efficiency.
Now back to the question at hand… Why is business internet so much more expensive than what I purchase at home?
Oversubscription is a common practice in Internet service business for residential and small business customers. ISPs make a gamble that not all of their customers will be using the internet at the same time. It is not uncommon for an ISP to oversubscribe their residential or small business customer base 5x or 10x, although the oversubscription rate has decreased in recent years due to the increase in streaming media through platforms like Netflix.
ISPs are effectively able to manage oversubscription because of the differing daily usage patterns of residential and small business users. While you’re at work, you aren’t using the internet at home and vice versa. Here’s a chart that breaks down data transfer during peak hours:
When you purchase dedicated internet, your connection is ‘pure’ in the sense that it comes with no oversubscription. If you pay for 100Mbps / 100Mbps, you receive it, guaranteed. You pay a premium because the entire amount of bandwidth is exclusively yours to use as you’d like. DIA also comes with a Service Level Agreement (SLA) that ensures if the ISP doesn’t meet its end of the bargain, you benefit in service discounts, credits or the ability to exit your contract early, no questions asked.
Service Level Agreements (SLAs)
Another large factor in the increased price of dedicated internet access versus residential or small business internet is the Service Level Agreement (SLA). SLAs not only provide a guarantee of uptime, reliability and speed, but they also address what happens if that guarantee of reliability is not met.
No one likes it when their internet goes down, but unfortunately for residential and small business service, customer SLAs are often not included. These services are often called ‘best effort’. The primary reason is related to the quality of infrastructure and hardware used to deliver the service. In order to keep costs low for cable internet and DSL subscribers, the quality of hardware used is designed with a shorter life span. Since the overall configuration of old infrastructure and lower quality hardware is one that is more susceptible to failure, service interruption or speed fluctuations are common. The ISP is generally not willing to guarantee the service for cable internet and DSL customers in the same way they guarantee DIA services.
Depending on the service type, dedicated access is generally delivered over fiber optics. As a result, even the smallest blips in service need to be addressed and compensated for. This includes commitments for reliability, ping times, speed and expedited technician dispatches, where required. In the SLA example below, any outage over 26 seconds is eligible for a service credit.
We’ll pick up next week with two additional factors in the overall cost of internet access. Stay tuned!