Telco CDN Cost Structure

Telcos from all over the world are getting into the CDN game. Many are licensing CDN platforms, while others are acquiring CDNs; and a few brave souls are trying to build their own. There seems to be an ongoing debate, about whether a Tier 1 telco has a lower bandwidth cost structure than a pure-play CDN.

So I ask the question, is the cost of bandwidth lower for a telco CDN than a pure-play CDN? Although many may argue that it is, I disagree. There are only a handful of people qualified to answer that question, such as the CFO and his team of accountants. And we may never find out those costs. Which CFO in his right mind wants to disclose his cost structure to the public and competitors?

Telco CDN Bandwidth Cost
For a telco, the cost structure of CDN bandwidth involves countless items including direct, indirect, and fixed costs. Telcos run data, voice, internet, and CDN traffic over the same fiber. The cost associated with those services must be taken into account.

What goes into the bandwidth cost structure? Here are a few cost items that come to my mind—the cost of deploying fiber in the ground, land right fees, amplifiers, fiber cut fixes, routers, phone switches, servers, monitoring software, database software, NOC to monitor traffic, office rent to house NOC and engineering, and dozens more. If the network is already in place, many of the same items apply, but now you have to take into account the long term debt that was taken out to finance the network build-out.

To me, it seems to me that it is cheaper for someone like Akamai or Limelight to buy bandwidth and resell it, rather than owning and operating your own network. When a CDN buys bandwidth from a telco, it has both a fixed cost and variable cost component. The fixed cost are kept low, via a minimum monthly commit, and bandwidth overages are a variable cost. When overages occur, that is good news for a CDN because that means that business is booming.