The Cost of Internet Infrastructure
Last week we asked, “Why is business quality internet so much more expensive than home internet?” In part 2 of this topic, we continue to explain factors that affect the overall price of 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?
Infrastructure and Hardware:
A significant factor in the cost to deliver internet service to a customer is the quality and type of infrastructure used. Depending on the age of the building, copper infrastructure used to deliver telephone, DSL, cable internet or TV service to residential and small business customers can be up to (and sometimes over) 30 years old. Installing new/upgraded cabling infrastructure is expensive for the ISP and makes it difficult to sustain the price points required by most residential and small business customers. So, as internet technology has improved, the focus has been on improving hardware that delivers the service rather than upgrading the (expensive) copper or coax infrastructure already in place.
This strategy comes with positives and negatives. Using existing infrastructure means that it becomes easier to serve a larger population of people at a lower cost to the user. As technology has improved over the last 15 years, larger portions of towns are able to receive internet access than ever before. This is great, but as we discussed earlier, a majority of these new users are being served on infrastructure that is 30 years old. Most providers have begun the process of installing newer, more reliable, fiber optic infrastructure to communities, but the process isn’t a fast or cheap one.
In contrast, most dedicated internet access is delivered over newer, more reliable internet infrastructure like fiber optics. This infrastructure requires higher end firewall, router or switch equipment. This expensive hardware for businesses with high internet/network availability requirements is designed to run for years without interruption. In turn, this combination of high quality infrastructure and hardware creates an environment that where the internet (should) rarely go down.
In contrast to the Small Office/Home Office (SOHO) router equipment that costs you $80, dedicated access hardware is generally in the price range of a high end car or small house (http://www.cdw.com/shop/products/Cisco-ASA-5585-X-Firewall-Edition-SSP-40-bundle-security-appliance/2328546.aspx) For example, in some large businesses, one minute without internet could result in a loss of tens of thousands of dollars. These businesses (financial institutions, higher education or governments) are more than willing to pay for this level of service and hardware to prevent significant financial and productivity loss to their organization.
Because this infrastructure isn’t usually already installed directly to the business, like with copper or coax, the internet provider requires a build-out. The price for a build-out is usually determined by the length of cable that needs to be buried in the ground or installed on power poles to get from your location to the provider’s nearest peering point. The longer the length of cable required, the more expensive the build-out. Most ISPs recoup this cost through installation fees, but they also realize most businesses don’t want to pay thousands of dollars up front. As an alternative, ISPs may amortize the costs of the build-out over the life of a business’s contract with the provider. As you can imagine, this increases the monthly cost because your monthly fee now not only includes internet access but one month’s portion of the amortized build-out fee.
Ultimately, a business’s decision on the best type of internet access shouldn’t be a decision based solely on the cheapest option available. Rather, the decision should focus on what loss the business incurs when the internet goes out. If the internet goes down and you don’t lose productivity or sales revenue, you’ll probably be just fine with business level cable internet or DSL. If a minute without internet produces a negative financial and productivity impact that costs you thousands or tens of thousands of dollars a dedicated internet connection for $800/mo may sound like an attractive ‘insurance’ policy.