Saturday, October 20, 2012

100 mbps Residential Internet vs 100 mbps Business Internet..Why the Price Difference?



“Why can I pay ~$115.95 at home for 100Mbps internet download speed but 100Mbps download speed for my business is $2800 or more per month?”

This is a great question and becoming more and more popular as people look for high speed internet access.  Let’s take a look at the reasons behind it.

A view of a typical 100-500 mbps fiber cable
In residential areas, there are multiple families on a single street or in a specific block.   The local carriers will typically install a large capacity “pipe” or cable into a central location in a neighborhood and then divide the bandwidth amongst their clients.  The large capacity cable will usually be in the 500Mbps range.  The 500Mbps pipe would cost the carriers ~$4,000 in monthly expenses to install and maintain at a reasonable profit level.  (Remember, the carriers are in business to make money.)

Before we go any further, it’s important to understand the difference between “asynchronous” and “synchronous” transmission capabilities.  Synchronous transmission refers to communications where the sending and receiving speeds are exactly the same.  Asynchronous transmission has different speeds on the sending (uploading) and receiving (downloading) ends.  This is the key to understanding the costs differences we are discussing.

Now that we understand the difference between “Synchronous” and “Asynchronous” let’s continue.  At your home you may select an internet plan with “Up to 20/5 download upload speeds”.  Now exactly what does this mean?  First, understand you are NOT getting a direct link to the carrier, rather you are on a type of shared service.  The carrier will split off a portion of the large capacity pipe going down your street and put a “drop” (the drop is the connection from the pole to your home) in to give you internet access.  If you read the fine print, it will say “speeds not guaranteed”.  They can’t guarantee speeds on this type of service because they are dependent on how many users are simultaneously using the pipe in your neighborhood.   You can almost always see the difference in performance at 3:00 pm vs. late night or early morning.  Why?  Because schools get out at this time and the students are all doing their homework, using the internet.  You MIGHT get the 20mbps download and 5 upload speed at 3am when you’re the only one in the neighborhood using it, but I doubt it.   Some carriers are even offering businesses 100 mbps download, 10 mbps upload for under $500 per month.  Not guaranteed speed, but it sure sounds good.  I wouldn't want my business with 15 or more reps running applications using it though.  You'd better have a good backup program for them.  They'll have plenty of spare time waiting for the screens to move.

You can check the actual speed of you connection for free at www.speedtest.net.  Here’s the one from my home connection at 3pm on Saturday……



The carriers will also provide a residential type router (they're not very expensive, which is why the carriers are willing to send you a replacement whenever you report trouble).  How many times have you called to report a problem, only to be told to “Unplug the router for 30 seconds, then plug it back in?”.  If that doesn’t work, you’ll have to usually have to wait to have a replacement router mailed to you.

Now let’s look at your business.  With true “Business Class” a carrier dedicates a single large capacity “pipe” to one customer and will guarantee the 100mbps/100mbps speeds. (Don’t get fooled by false claims from sales people about their service being “Business Class”.  Remember asynchronous vs synchronous.  If the carrier is quoting you 100mbps/10mbps speeds, this is merely residential service masked as business class.  True business class has synchronous speeds.)    Business class service comes with a business class router which is capable of being troubleshot remotely and will rarely fail.  These routers are substantially more expensive and far more functional than the ones you get at home.

If you want a great question for the sales rep pushing business internet at 100mbps/10mbps speeds, ask them what their guaranteed MTTR is? That's "Mean Time To Repair" should you ever experience a outage.  I'd love to hear what you think of their answer?  True Business Class internet access should have a MTTR of no more than 6 hours before credits are issued.

Finally, let’s look at the pricing.  On residential service, the large capacity pipe (in this example let’s assume 500mbps) is broken down for multiple residents use.  At 20/5 speeds, with only lower speeds guaranteed (remember the fine print), they can put up to 100 customers on one pipe.  100 customers @~$115 per month equals $11,500 in access fees.  This leaves the carrier with a tidy profit.

The true Business Class pipe is typically priced in the $4,000 (based on bandwidth & distance to the central office) range per month, equaling the price we talked about earlier to provide the 500mbps capacity and maintain a reasonable profit level in the residential neighborhood.

There are certainly other factors that go into the access costs and reasons behind it but we’ve touched on the high points.  As many carriers have exited the small to medium size business markets and no longer maintain a field sales staff due to profitablility issues, be cautious when working with a field sales rep offering "Asynchronous" service as "Business Class".  It's true, it comes at a lower price, but you get what you pay for.

If you need additional info or have questions, please let me know in comments and I will try and address them.  If you want to contact me directly to discuss the options you may have for internet and/or cloud access for your business, please complete my “For more information” form or email me at Dave@davehanron.com

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