Why unmetered traffic is not free

It's a hot selling point for broadband.  Take the most popular sites (such as TradeMe, Stuff, TVNZondemand as examples) that people visit and let them go at it, all-you-can-eat, without having to worry what the final bill will be.  The forums here on Geekzone have plenty of discussions around ISPs offering unmetered traffic to customers.

Steve Waddington, one of the director's of Exetel (an Australian ISP), recently blogged about a customer's suggestion on adding more sites (that are external to Exetel's network) to their unmetered offerings:

I can tell you one thing; unmetered content certainly isn't 'free' to the ISP. Today, (and Exetel almost certainly can't be buying at the best price for global Internet) the past-our-border portion of the total cost to supply an Internet service is in the order of 7-8%. If other people buy better than we do, it would only mean that for them, the ratio is even lower, say 5%.

What that means is the so called 'unmetered' content, apparently 'free' to the end user, costs the ISP around 95% of the full per Mbps of global Internet access anyway.

So, you either believe your perpetual motion machine was a good deal, or, you have to accept that the unmetered content so generously offered by your ISP is paid for somewhere else in the total amount you pay.

Steve continues on about how this all came about:

Thinking back, it seems to me this is a fundamental error in the cost of service supply that was made by 'someone' years ago (around '98-'99 I suspect), and has been duplicated (or mindlessly followed, however you want to look at it) by others ever since.

In those days, global Internet access accounted for around 1/3 of the operating cost of an ISP, and domestic backhaul added another 15-20%. So by supplying traffic from a local source, such as peering or caching, was an enormous benefit to the ISP's bottom line. Ignoring the cost of peering, the proxy server cost, the engineer/sysadmin time etc, etc is easy to to, as in most case they are considered necessary anyway, or treated as sunk costs. Therefore at some point, on someone's spread sheet to financial management, that content delivery would have shown up as zero. And the marketing guy that saw that would hardly have to be a genius to realize he could be a hero by designing a promotion that offered content that cost zero to the company for 'free' to their customers.

One deception leads to another, and a decade on you have people really believing unmetered content is actually free. No wonder that word is considered the most powerful in marketing. That, and peoples unerring propensity to believe what they want to believe.

Unmetered traffic isn't free - you are still paying for it, it's just hidden as part of something else in your monthly bill.

Even though I have quoted a good chunk of Steve's blog post, I still highly recommend reading the entire thing here.  His blog is a good read for those interested in what happens behind the scenes at an ISP.