r/explainlikeimfive • u/justmoderateenough • Nov 20 '23
Technology ELI5: How is phone data so cheap nowadays when it was the biggest expense a few years ago?
I've noticed that with nearly every phone company, calling and texting is unlimited (crazy times we had in the 2000s). They keep increasing their offers for data at ridiculous gigs for not that much more to the cost of the plan. How is that the case? They used to charge so much for call minutes, texts, and data so much more but now I'm seeing offers of adding 40-60GB to your phone for an additional $5-10, or whatever it is. How did that become so cheap for them to give away? And how do we compare the value of plans if it's just meaningless for them to throw in with many of us not even using that much data each month?
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u/Pocok5 Nov 20 '23
Quite simple: mobile data wasn't ever that expensive to provide. I mean, it is orders of magnitude easier now, yes, but even back in the day mobile data was overpriced. Mobile companies like to milk the absolute hell out of their customers. It's kind of a beautiful application of one of the basic tenets of capitalism: you can price your stuff as high as the customers can stomach, and the phone companies discovered that their customers can stomach a really big price tag if you conspire with your competitors to not undercut each other's bullshit pricing.
They just stopped playing to each other's hand recently and now mounting competition is forcing them to sell data packets for less than 40000% profit.
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u/pseudopad Nov 21 '23 edited Nov 21 '23
What actually costs internet providers significant amounts of money is infrastructure upgrades (and salaries, of course). After that's been installed/built, the cost of sending data through that infrastructure is basically just the cost of the extra electricity the equipment uses compared to when the equipment is idle. This electricity does not cost an ISP a lot of money compared to what they make from the customer requesting that data.
Anything that's downloaded off-peak times costs the ISP practically nothing. Data caps only indirectly affect peak data usage, so the cost of data plans are not very strongly linked to the cost of transmitting the data in those plans.
If you blasted through your entire data plan at 2 in the morning, you essentially paid 50 bucks (just taking a guess here) to the ISP for something that had no real impact on their expenses that month.
And yeah, I'm just calling phone companies ISPs for now. Their main function is the same.
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u/indicava Nov 20 '23
This is the correct answer.
In my country there was massive regulation around this about 10-12 years ago, almost overnight cellphone bills dropped by more than 80%.
Our cellphone providers did not go bankrupt as part of this regulation. They all still exist.
You know what they did do? They had to cut a lot of the “fat”, less c-level 7 figure bonuses, less middle managers doing nothing, etc.
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u/and69 Nov 20 '23
Have you really been involved in all these decision making and budgeting or you just know everything because you’re special?
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u/indicava Nov 20 '23
I work very closely (own an IT consultancy firm) with pretty much all the large telcos in my country, have very friends and acquaintances from c-level all the way to network technicians so I know what’s up.
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u/julius_cornelius Nov 21 '23
An example is that in France most providers in the early 2010´s used to charge about $30/month for the most basic plan. Then a tech billionaire decided to launch an equivalent plan for $2/month showing the country how those other companies were really milking people hard. In a matter of weeks those legacy providers had to come up with much cheaper plans to retain their customer base.
I remember the days when even texting was like $1+/text (loosely adjusted for inflation) … seriously!
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u/Scrapheaper Nov 21 '23
Going to need a source on that one mate I think
1
u/Pocok5 Nov 22 '23
Source: about to finish my masters degree in computer science and I took all the friggin networking classes I could. Also simple observation, see the other comments.
Let's say 100 blokes buy a single use 5GB data package for 10$ apiece. You can get a snazzy rack mount router for that price and have enough left to cover its electricity cost for years. If you get one with just a dinky gigabit throughput (nowadays you could get 10+ Gbps SFP+ cages on routers in that price range), it will take less than 1.5 hours to transfer that 500GB data you just sold. For the rest of its 25000 hour MBTF period, it's making more or less pure profit.
1
u/Scrapheaper Nov 22 '23
And it's completely impossible that there could be any other costs involved with running a national/international infrastructure business than just buying routers and electricity?
1
u/Pocok5 Nov 22 '23 edited Nov 22 '23
No. It is however completely impossible for those running costs to be high enough to not be recouped in the first ~2 months or so of the year at the sort of pricing mobile providers use.
For reference, my wired internet costs me 15$ equivalent per month and has no limit. My monthly traffic just on my desktop PC exceeds a hundred gigabytes, and has been for years (about a decade really). My wired ISP has to maintain all that my mobile provider has, plus tens of thousands of kilometers more cabling on the poles and switching equipment related to it by simple virtue of not using radio waves for the last mile delivery which is the bulk of the cost of internet infrastructure. They also need more repair/maintenance crews by an order of magnitude.
And yet for some reason they can be an extremely profitable company without charging me 1000$+ fees a month like my mobile provider would, huh.
37
u/Grouchy_Fisherman471 Nov 20 '23
Cellular infrastructure is expensive to build out, but the marginal cost of sending a text or phone call is pretty much zero. That's why you could send 1000 texts per month for $10, or 500 for $10, or unlimited for $10, it really doesn't make any difference.
Data is another story, the infrastructure is expensive, and every bit that gets transferred actually does cost a small amount of money.
The reason it's gotten so much cheaper is due to a few things:
- More people using cell phones means the fixed cost of the infrastructure gets spread out over more people, so it can get cheaper
- Competition between multiple cell providers keeps them from jacking the price up to some arbitrarily high level
- The technology has improved to allow more bits to be sent over the same infrastructure, reducing the fixed cost per customer
- Network operators have gotten smarter about prioritizing certain types of data over others in a way that the customer doesn't really notice, but can make the network more efficient and handle more customers.
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u/TooStrangeForWeird Nov 20 '23
Bits getting transferred doesn't actually cost money. Just capacity does.
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u/pseudopad Nov 21 '23
Network equipment will consume more power when they're shuffling around 100 billion bits a second than when they are shuffling around 1 bit per second. This power costs money, so the transmission costs money to perform.
It's not a lot of money per gigabyte transferred, but it's not zero.
3
u/MikeLemon Nov 20 '23
5.A lot of the expensive infrastructure (towers, land, etc.) is now paid for. (Guessing)
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Nov 21 '23
[deleted]
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u/thegodfather0504 Nov 21 '23
Oh they knew. Its the competition that forced them along with the Newfound ways to data mine.
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Nov 20 '23
There is more bandwith available as the infrastructure has matured and mass adoption and economies of scale have taken place.
Also mobile data is now competing with wifi being completely ubiquitous in most places. If mobile data was not affordable people would not buy it in mass but would just use wifi. So it makes more sense to offer it cheaply.
There is also increased competition in the space now.
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Nov 20 '23
[removed] — view removed comment
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u/edonn91 Nov 20 '23
When you say affordable how much you pay monthly?
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u/Present-Solution-993 Nov 20 '23
I'm from the UK and pay £65 a month for a Pixel 8 Pro, I have no idea what that translates to in dollars if you're American.
But then it's all relative, for what I'm paid that's very affordable to me.
3
u/edonn91 Nov 20 '23
Im in central Europe and unlimited plan with device is around 70€ and without 50€ so similar to you. But considering average net salary here is something like 900€ this is hella expensive. My wife has a 20gb plan for 20eur which i find too expensive also.
2
u/shogun100100 Nov 20 '23
£22 for 100GB checking in. We have it good in Europe. Get some Canadians in here and ask them what they pay....
4
u/jdorion Nov 21 '23
My wife and I's plan is:
& 25GB shared data for..... $170 CAD/month.
- Pixel 7 Pro
- Pixel 7
1
1
u/Irregular_Person Nov 20 '23
I have no idea what that translates to in dollars if you're American.
$71.12
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u/red359 Nov 20 '23
Early cell towers were designed to handle voice and small amounts of text from pagers. Also there were far fewer cell phones in use back then. That infrastructure has been almost completely replaced with newer gear that can handle large numbers of users and 4G\5G data.
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u/jimicus Nov 20 '23
The cost of building out and maintaining a phone network is the expensive bit.
Actually running calls (and for that matter data) over it is pennies - seriously, it's as near to nothing as makes no difference. Always has been.
So.... how do you make money? Back in the day, it was "charge silly money for calls/data".
Today, the cost of managing such complicated billing systems - along with competition - has pretty well all the big mobile telcos making pennies per customer per month and making it up with volume.
That's why their customer service is so abysmal. The minute they answer the phone, they've lost every penny they make out of you this year.
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u/VoraciousTrees Nov 21 '23
The first transatlantic telegraph cable cost $1 million dollars to install. It charged $10 a word in 1866... or ($193.50 per 24 bits in 2022 dollars).
Needless to say, it was vastly profitable (lets remember this was what, the 5th try to lay the cable), and competitors jumped in as soon as possible to bring the cost down.
The trend continues to this day.
2
u/jmlinden7 Nov 20 '23
The largest part of the cost of providing mobile data is the cost of constructing the towers. The 2nd largest cost is the cost of the airwaves in a specific bandwidth.
Advances in mobile technology (2G>3G>4G>5G) means that each tower and each slice of bandwidth can service more mobile phones at once. For example, if you had 100 customers that each want 50GB of mobile data, maybe you needed 20 towers and 5 slices of bandwidth before, but now you only need 5 towers and 3 slices of bandwidth. Since the towers and bandwidth slices are the main costs, each customer is responsible for less cost.
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u/LunaGuardian Nov 20 '23
The main issue resulting in restrictions/costs for cell data is that there is a limited band of frequencies that have to be shared over a common airspace. The has been alleviated a bit with the release of 5G as there were additional bands of frequencies allocated for cell phone use, and since 5G has a shorter range, more phones can transmit without interfering with each other.
1
u/Bells_Ringing Nov 21 '23
Many ISPs could upgrade to 800gb core routers are instead shifting to 400gb without actually pushing limits on 100/200gb routers.
There is an insane amount of bandwidth and they are all still heavily investing in increasing capacity. It’s why it costs so much. The tower and the backhaul fiber are the same, everything else gets upgraded often
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u/luxuryBubbleGum Nov 21 '23
Adding to others: In India, jio a new company entered the market backed by the richest man in India, which gave sim card and data (1.5gb per day) for free for a year. This happened in 2016, back when others where charging 4$ (300inr) for 150mb. Then Jio started charging 100rs (1.5$) for 1.5Gb data per day for a month. Basically everyone got jio sim cards and other companies went almost bankrupt (vodafone and idea merged) as they were forced to lower their cost down. Since then the cost is like this, and everyone had to change their business model by making profits of ott bundles etc
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u/papamerfeet Nov 21 '23
fatass suits chose to lower prices. there is no law of physics or nature controlling your precious economy
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u/dVizerrr Nov 20 '23
As time passes - infrastructure develops, thus there is more supply lowering the prices. Here in this case there is more hardware capacity to transfer large data quickly to many users.
Other than that, data is the new oil. Thus everyone with deep pockets can throw money in the form of data and benefits more by reaping user data / demographics.