The O word...

What's the O word ? It's a mysterious thing that no one ever wants to disclose.  It happens all the time everywhere but good luck getting anyone to tell you about it.  It's a fact of life in our business.

Oversubscription is a fact of life for bandwidth providers everywhere.  The economics of what we do dictate that it is a requirement.
I had this conversation with a prospective customer yesterday.  It was like a revelation that a provider would admit to over-subbing... but we ALL do it.

Biggest to Smallest we ALL oversub.  When you're a small ISP you oversub because the Incumbents charge ludicrous amounts of money for small amounts of bandwidth.  Oversubbing when you're small is difficult but you MUST do it to make money.  Big ISP's oversub as much because of the cost of equipment as bandwidth.  Oversubbing is 'easier' with a larger customer base because probability starts to work in the provider's favor.

When we started in 2005 1Mbps of bandwidth cost us $240.  Yes two hundred and forty dollars.

 Well, originally it was $160, but when the incumbent realized that we were trying to start something that might in some small way impact their business the price went up by 50% for no apparent reason..... anyways we started at $240 per Megabit per second per month.  We sold 1/4 Mbps for $39/month. So we bought it for $240 and sold it for ~$160.  Not much of a business plan eh ? Enter Oversubbing.  We decided on an Oversub of ~20:1 (which looking back was pretty ugly) So for every $240 we paid out we potentially took in $800.  Hey profit... lots of it too!! Wahhoo!!! well, not really.  Tower rent, office expense, trucks, gas insurance, EI, WCB, equipment, supplies, maintenance etc etc... what looks like it should be huge gobs of pure money turns out to be not so much in reality.

But as we grew and found new sources for bandwidth the cost per Mbps dropped from $240/Mbps to $160 to under $80.... and now with some strong partnerships we're lower than that - in fact we're close to Urban-center rates in the heart of the Valley...  and in turn our customer's speeds increased all along the way.

We still follow the oversub model but we dropped from 20:1 to 18:1 to 12:1 to 10:1.  But why, if our cost is so much better do we still oversub ? - the opposite evil of high Feed costs it the Cost of the equipment required to move that amount of data through our network.  Where we could get away with a $1,200 radio ($2,400 per point to point link) to move 30Mbps we now need links above 100 Mbps and that $1,200 radio now must be replaced with a $8,000 model :-( And that $8,000 radio will only go 1/2 the distance of the cheaper one (for a bunch of different reasons) so you need twice as many of them.... So that $2,400 x 30Mbps link is now $32,000 x 300Mbps - bandwidth goes up x10 but cost of moving that bandwidth goes up by x15..... add on the fact that you need twice as many towers, and than mean twice as much rent (from $50 to $1,200 depending per tower per month) and you see where the cheap transit cost disappears quickly.

So long story short - we all oversub to some degree because we have to to make the business finacially viable - if you're being told that is not true, and that you get 'always dedicated, not shared' bandwidth at residential prices, then I'd like to talk to your ISP :-))