Is Google Really Using 21x The Bandwidth It Pays For?

from the bad-math dept

Thu, Dec 4th 2008 4:40pm — Mike Masnick

Scott Cleland is a "telecom analyst" who, in reality, is actually paid a large sum of money by the telcos to slam Google. He's become sort of a joke in DC circles. In the past, we noted his ridiculously bad math in claiming that Google fleeced taxpayers out of $7 billion, as well as his claims that "open spectrum" is somehow anti-American. His main issue, of course, is trying to dispense bogus arguments for why net neutrality is really a big scam by Google to keep its broadband bills cheap. To give Cleland credit, at least he's not as bad as Mike McCurry, who once claimed that Google doesn't pay a dime for broadband. McCurry, of course, has moved on from spinning for the telcos to spinning for the entertainment industry, so Cleland needed to up his game.

He's now released a "study" claiming that Google uses 21 times as much bandwidth as it pays for. First of all, this is simply incorrect. Cleland doesn't know how much Google actually pays for broadband, so he comes up with a small number, which is wrong for a variety of reasons.

He seems to conflate consumer broadband and Google's broadband. This is based, in part, on the old telco argument that when you buy internet access, you're only buying access to the middle of the internet, and you should have to pay a second time to actually reach any endpoint or other user. So, even though consumers pay for the bandwidth they use to reach Google, Cleland appears to calculate that as being Google's responsibility, ignoring that consumers are paying plenty for the right to reach Google (and the rest of the internet). As Cord Blomquist points out, this is like pointing out that Best Buy should pay for the gas it takes for people to drive to Best Buy. Broadband Reports also does a nice job deconstructing this.

However, even if we ignore all the basic facts and information that Cleland gets wrong, if we grant his premise, his argument still doesn't make any sense. If anything, rather than being an argument in favor of the telcos' position, Clelands report (if true) suggests that telco execs all deserve to be fired. After all, they're the ones who set up the business model and the billing relationship, and if they're undercharging Google by so much, then shouldn't they raise their prices? Of course, there's a good reason why this doesn't happen: because Google is paying fair market value for its bandwidth, and if anyone tried to charge them 21 times more, Google would quickly take its business elsewhere. So, based on this report, either Cleland is dead wrong in his report, or the telcos who funded it are run by morons who don't know how to set pricing correctly. Which one is more likely?

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Filed Under: bandwidth, net neutrality, scott cleland
Companies: google

29 Comments

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Nate, 4 Dec 2008 @ 5:28pm

Oh, Mike...
I had the URL for this article on my clipboard, ready to email to you, and 'lo, you're already well on top of it. I guess that's why you have this neat internet site and all I have is this lousy t-shirt.
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steve, 4 Dec 2008 @ 5:42pm

wow i want a t-shirt!
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Crazy Turk, 4 Dec 2008 @ 5:49pm

... interesting question
because it seems to me that both senarios are equally feasable, after all we're talking about telco execs
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DiscGo, 4 Dec 2008 @ 5:57pm

Great article. I really felt that this did a great job of simplifying the matter.
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Paul S, 4 Dec 2008 @ 6:09pm

Why is it one or the other?
Why can't the telco's be run by idiots, and the report be totally wrong?

That makes more sense to me than just trying to pick one..
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Anonymous Coward, 4 Dec 2008 @ 6:24pm

Does he write for the Onion ?
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Alpha Computer, 4 Dec 2008 @ 6:28pm

When You're Big Like Google
When you're big like Google, you have an ability to get away with more than the little guy. Now I am not saying that it is right, but when I look around, there are a lot more companies doing much the same. Could there be a fourth way at looking at this: maybe Google's paying the big boys under the table and they are all laughing all the way to the bank.
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Trevlac, 4 Dec 2008 @ 6:29pm

Hah, when I worked a Geek Squad a lot of the customers complained that Best Buy should pay for their gas when they had to drive up and get their computers. Lots of people tend to shove responsibility onto others. Let's face it, the society we live in today is filled with immature lazy people who don't want to shell out any of their own effort to get what they want.
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Rose M. Welch, 4 Dec 2008 @ 6:29pm

Re:
Me, too. Mike, maybe you should sell T-shirts as well.
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Anonymous Coward, 4 Dec 2008 @ 6:32pm

Most corporate execs are morons; just look at all of them lining up in DC with their cup of pencils to sell to congress!
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Anonymous Coward, 4 Dec 2008 @ 6:39pm

Duh! Google as a customer makes your bargaining position during peering agreements much stronger because they generate so much traffic. Anyone remember Cogent vs Sprint?
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Michael Beck, 4 Dec 2008 @ 6:52pm

Re:
No, most execs are not morons.. just the ones you hear about on the news.. There are TONS of execs that are very smart.. and smartly keeping themselves off of your radar.
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Anonymous Coward, 4 Dec 2008 @ 7:07pm

"The study estimated Google’s payment to fund just the U.S. consumer broadband Internet segment to be approximately $344 million in 2008 or 0.8% of U.S. consumer’s flat-rate monthly Internet access costs of $44.0 billion. Thus Google’s 16.5% share of all 2008 U.S. consumer bandwidth usage, is ~21 times greater than Google’s 0.8% share of U.S. consumer bandwidth costs – or an implicit ~$6.9 billion subsidy of Google by U.S. consumers."

So, why do the telcos care? It says right there that the subsidy is being paid by consumers - not the government or the telcos.
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Buzz, 4 Dec 2008 @ 8:18pm

I want!
Mike, start selling Techdirt T-shirts. I'll buy one. I'm dead serious.
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bigpicture, 4 Dec 2008 @ 8:20pm

One born every minute
This makes a good case for branding of the forehead (with I'm an idiot)or insertion of the proximity warning chip. (you're too close stay away) Disinformation is not only the domain of the CIA, it also comes under the name of corporate spin.
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Allen (profile), 4 Dec 2008 @ 8:45pm

These guys are forgetting that its a symbiotic relationship. The telcos need google if they want to serve their customers and google need the telcos to push their ads at consumers.

The telcos seem to think that they're getting screwed, but in reality they're getting laid.
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Anonymous Coward, 5 Dec 2008 @ 3:43am

Re: Re:
Just to add to that, even those who are on our radar probably make 100x more money than any of the readers of this blog.

So I'm sure they'll be really upset at being called stupid by blog nubs, while driving their fast cars, living in mansions and fucking super models.
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cKarlGo, 5 Dec 2008 @ 4:39am

re: Is Google Really Using 21x The Bandwidth It Pays For?
"So, based on this report, either Cleland is dead wrong in his report, or the telcos who funded it are run by morons who don't know how to set pricing correctly. Which one is more likely?"

Can't it be both?
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inc, 5 Dec 2008 @ 5:09am

I would like to know how he even knows how many datacenters google has in the first place to build these stats.
http://www.datacenterknowledge.com/archives/2008/03/27/google-data-center-faq/

I'm sure he's also forgeting about peering where networks share bandwidth without having to pay a transit provider. I think it's safe to assume that many an ISP peer directly with google so the ISP and Google do not pay for the bandwidth they exchange. This allows Google to reach customer faster and cheaper and the ISP doesn't have to pay money to a transit provider for it's customer's to reach Google.
http://arstechnica.com/guides/other/peering-and-transit.ars/2

The pricing for bandwidth has been put in place by some very smart people. It seems to me that these greedy organizations are trying to fleece more money from Google, and everyone else for that matter, for themselves.
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hegemon13, 5 Dec 2008 @ 6:30am

The middle!?
What the hell is the "middle" of the internet? Do the people making these arguments even understand how the internet works? The closest thing they could call to the "middle" would be their DNS servers, and the user can choose OpenDNS over their ISP any time.
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Anonymous Coward, 5 Dec 2008 @ 9:46am

Maybe he got everything right..
..except for the fact that Google is actually paying a fair market value for the bandwith.

That of course would mean that all of our home internet connections are 21 times too expensive. Which means of course that instead of $20 a month DSL, you should be only paying $1 a month for the same service!
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ray, 5 Dec 2008 @ 10:42am

Telco 2.0 Business Models -- thoughts
Mike and community, I am very interested in your thoughts on this subject matter.

How do you think this Business Model will play out for the telcos? Or is it, and maybe I'm looking at things wrong? Would love to get the communities take on this!

please look at slide 31. What do you think?

http://www.slideshare.net/TYR/telco-20-introduction-to-2sided-markets-presentation?type=po werpoint

from telco2.net -- which is a ‘Telco 2.0 Initiative’, "...a new industry programme focused on helping with this thorny question: “How do we (telcos, handset manufacturers, Media companies, IT players, NEPs, etc) make money in an IP-based world?”

"primary focus is on business model innovation, new products and services, new markets and disruptive technology."

this type of business model seems to be being pushed very hard with telecom executives.

http://www.telco2.net/blog/2006/06/welcome_to_the_telco_20_blog.html
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ulle, 5 Dec 2008 @ 11:27am

The techdirt t-shirt idea does sound good to me, I would buy several.
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Chuck Norris' Enemy (deceased), 5 Dec 2008 @ 12:03pm

Re: I want!
I'll buy them then mail spam them to angry dude.
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another mike, 5 Dec 2008 @ 12:35pm

Re: I want!
There's another news aggregator website that started selling t-shirts. (cough* fark.com *cough) Maybe Mike can talk to Drew's supplier? I've seen some headlines here I'd love to have on a shirt.
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Billbad, 5 Dec 2008 @ 12:39pm

Tax Dollars & Double Billing
Let's not forget that...

1) Our tax dollars laid the majority of the groundwork for the Internet as we know it.

2) These big telecom companies are billing TWICE for every Internet transaction. On each end of every bit that travels their lines is a paying customer, whether it's a Web server or a Web surfer.
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ranon, 5 Dec 2008 @ 2:27pm

or the telcos who funded it are run by morons who don't know how to set pricing correctly.

Actually, if you look at it they have set the prices well. A the big consumer like Google gets cut-throat prices, while a smaller consumer (with lesser choice) gets overcharged.
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alex, 8 Dec 2008 @ 6:31am

baloney
This is rather simple... Old, slowly dying businesses, searching for fools to pay their bills...

http://the-anti-google-baloney.blogspot.com/
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lrobbo (profile), 30 May 2012 @ 12:26pm

Any of those T-shirts left still :p
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