Dear InetDaemon,

Why are customers quoted different prices for 
broadband through an ISP? Why does 128kbps 
Frame Relay cost less than 256kps?
Why are leased lines and private lines so expensive? 
And what is the fee structure like for these kinds 
of services?

Isn't it all the same Internet?

Inquiring IT Manager

Built into your bill are usually things like a ‘port charge’, which is a fee to connect your line into one of the ports on their equipment.  If your Internet provider is a telephone company, they often charge a one-time installation fee. This installation fee is based on ‘cable feet’, or the number of feet of cable used to connect your building or house to the point of presence with a local line (sometimes called the ‘local loop’).  You’re not paying for the cable, you’re paying the provider to dig a ditch, lay the cable and then terminate the cable at your location.  You will have repeating charges each month which include a monthly service fee, a recurring port charge and in most countries, tarriffs (taxes).

But just because the connection is installed the same way doesn’t mean the connection is actually the same connection to the Internet–not all connections are equal.  There are different technologies used to bring the broadband to your location (copper and fiber are the most common).  There are different types of equipment used to get Internet to you as well.

Frame Relay is a shared connection, so you are only paying part of the costs that the phone company incurred getting the circuit to your local street or town and then to your house. Your connection is shared with other users whos traffic gets bundled together with yours into a trunk line.  When you buy a dedicated line (sometimes called a ‘private line’), you are effectively buying the entire trunk and you’re not sharing it with anyone else.   Also, Frame Relay is also an older technology than Private Line service and in provider terms, older means ‘the original capital investment used to build the service is paid off’, which results in a lower structure of fees.

Fiber optical technologies are the latest technology and the ISP’s and telecommunications providers are still paying off loans they took out years ago to build the initial fiber optic networks. Building the fiber optic networks required ripping out old copper wiring and old copper-based communications equipment to replace it with fiber optical cabling and equipment. This upgrade process was much more expensive than just laying new fiber optic cables.  This meant their expenses to build the fiber optic network were higher, so fees charged to use the fiber are higher.  Fiber optic equipment is also more expensive to purchase on a per-device level, but you can carry a lot more bandwidth on fiber optical systems, so you need fewer of them.  Thus, the price for fiber optic services balances out to something not too much more than the copper leased lines.

So, in the end, like everything else in a capitalist system, your fees and charges are based on the costs associated with providing the services.

– InetDaemon