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The announcement of the german ISP Deutsche Telekom to throttle flatrates in the future, with the lowest limit being 75 GB per month, caused quite a media echo in Germany.

One claim from a small router company was repeated by several media sources (e.g. Golem):

Ich würde aktuell also von realen Kosten von deutlich unter 1 Cent pro GByte ausgehen."

Roughly translated they claim that they assume that the Telekom pays significantly less than 1 cent per gigabyte for traffic.

While it doesn't sound implausible to me that any additional traffic is so cheap for an ISP, the source seems a bit suspect to me as the company Viprinet that claims this is pretty much unkown to the wider public and the whole thing looks a bit like a way to get their name into the news.

Of course the exact costs for the Telekom are probably not available, but it should be possible to find out if the cost for backbone traffic is roughly in the area that is claimed here.

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    What do you mean by "paying"? I'm not fluent in German, but doesn't "realen Kosten" mean "real costs" rather than a payment? Also, they have peering agreements, how would you count that? – vartec May 6 '13 at 11:40
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    @vartec I don't know how to count peering agreements, I tried to frame the question in a more general way as I suspect that we can't answer how much it costs the Telekom. But you're right that the Telekom is not paying someone else, but running the network themselves, as far as I undertand it. – Mad Scientist May 6 '13 at 11:46
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    Amazon sells outbound bandwidth for as low as 5 cents/gigabyte for high volume users (> 100TB/month) with presumably lower pricing for even higher volumes, but they don't publish those prices. They don't charge anything for inbound bandwidth (probably because their outbound traffic determines the size of peering links they need, so the inbound bandwidth is free to them) – Johnny May 6 '13 at 18:50
  • "realen Kosten" can mean "real cost" but might be meant to be "realistic cost" as well. As to Amazon not charging for incoming traffic, they probably include that in the charge for outgoing traffic (there's often a pretty predictable relation between the two). – jwenting May 7 '13 at 5:51
  • @jwenting: the thing with AWS is that they a) charge you for the server (which is significantly more) and b) outbound traffic seems to be throttled, I hardly ever get transfers above 500kbps from EC2 machines. – vartec May 7 '13 at 8:47
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It's not possible to easily find out the cost for backbone traffic, because it's done almost exclusively via barter, which in particular case of IP traffic is called peering. Also, typically peering isn't even formalized in any document.

Excerpt from the Survey of Characteristics of Internet Carrier Interconnection Agreements

(emphasis mine)

Informal Agreements

Of the total analyzed agreements, 698 (0.49%) were formalized in written contracts. The remaining 141,512 (99.51%) were “handshake” agreements in which the parties agreed to informal or commonly understood terms without creating a written document. The common understanding is that only routes to customer networks are exchanged, that BGP version 4 is used to communicate those routes, and that each network will exercise a reasonable duty of care in cooperating to prevent abusive or criminal misuse of the network. This huge number of informal agreements are arrived at by the “peering coordinators” or carrier-interconnection negotiation staff of the networks, often at self-organized regional or global “peering forums” that take place many times each year.

Symmetric Terms

Of the agreements we analyzed, 141,836 (99.73%) had symmetric terms, in which each party gave and received the same conditions as the other; only 374 (0.27%) had asymmetric terms, in which the parties gave and received conditions with specifically defined differences. Typical examples of asymmetric agreements are ones in which one of the parties compensates the other for routes that it would not otherwise receive (known as “paid peering”), or in which one party is required to meet terms or requirements imposed by the other (“minimum peering requirements”). In the more common symmetric relationship, the parties to the agreement simply exchange customer routes with each other, without settlements or other requirements.

Besides that, "how much does it costs to sent X GBs of data?" isn't good question, as total amount of traffic sent is just one measure, hardly ever used by higher tier operators. Peak traffic or allocated capacity are more common.

Ok, so being that being said, what it costs Deutsche Telekom to send it's clients traffic would be the cost of operating it's backbone and lower tier networks connecting to the customers. Problem is, that it's again hard to calculate what the cost would be if you get more traffic, more clients etc. Calculating these cost has been studied for example in paper "Sharing the Cost of Backbone Networks"

What contributes to the cost of a backbone? The cost of a network consists of CAPEX and OPEX for all devices and Points-of-Presence (PoPs). The CAPEX is the one-time cost paid whenever equipment is bought and installed. It depends on the amount of traffic the device must carry at a specific level of Quality-ofService (QoS). A key observation is that the capacity needed to guarantee a certain QoS depends on the peak traffic that needs to be carried. This is because for a given capacity, QoS is minimized when the traffic peaks. The OPEX corresponds to operational costs such as real estate, energy, and personnel. It also depends on the amount of traffic and the QoS; however, that dependence is more elastic. The cost sharing policies we discuss are generic enough to capture both CAPEX and OPEX with appropriate parameterization.

Why is it difficult to split cost among customers? From the above discussion, one may conclude that splitting the cost among customers is straightforward: for each device of the network each customer should pay in proportion to his contribution to the peak traffic carried by the device and then sum up over all devices. Things, however, are not that simple:

  • Accounting complications. It is difficult to know for each network device the contribution of each customer to its peak. This is because backbone operators need to measure and keep state at many points in the network, which requires costly monitoring equipments. In addition, computing traffic rates introduces the problem of identifying the appropriate time-scale for the computation owing to the limited resources of the monitoring tools.

  • Liability complications. If we were to build from scratch a new network for a fixed set of customers of known demand, then the cost attributed to each customer should be proportional to the sum of its contributions to the peaks of individual devices. Splitting costs based on the contribution to the peak is indeed exact, but only for this “offline problem”. In reality, however, networks are not built in one-shot but are rather organically grown with the addition of new customers and the ramping up of their traffic. Under this more realistic case, peak-based cost-sharing is not guaranteed to be fair. Consider for example the case in which a network is already operating at the maximum utilization allowed by QoS constraints and a small new customer triggers an expensive upgrade that leads to a new network with plentiful unallocated capacity (upgrades typically involve large jumps, e.g., 1Gbps to 2.5Gbps, to 10Gbps, etc.). Peak-based cost sharing would attribute to the new customer only a small fraction of the overall cost. Is that fair? The answer depends on what happens with the unallocated capacity. If the network can easily sell it to new or existing customers then indeed it is fair. If, however, selling this leftover capacity is not guaranteed, then the new customer should have a larger liability for the upgrade costs.

I don't have access to detailed Deutsche Telekom financial report, but from the global one you can see that in 2012 their operating expenses were 18.3 billion euros, and they've closed they year with net loss of 5.3 billion euros.

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