Eli5 – How does data work and how do mobile and internet companies create it ? Can they create as much as they want ? Do they control the quota to control prices ?
In: Technology
“Data” is immaterial, like writing. Think of it like books, but the cost of printing and storing another one is incredibly tiny.
Internet companies make money from transporting data. Not by creating useful data themselves.
The mobile/internet companies don’t create the data. We do. They provide the infrastructure to transport that data to/from people who need it. That infrastructure has limited capacity (how much and how fast it can be moved).
It’s kind of like a shipping company or mail service. We create the mail and they agree to deliver it to whoever it needs to be sent to. The quota is them saying how much mail they will deliver, given how much you’re paying them each month. The monthly billing is largely because people prefer predicable billing and it’s hard to estimate how much data we will expect to send/receive.
As for pricing, that’s a complicated question. In a perfect market, it’s determined by the intersection of how much we value the service and how difficult it is to meet that demand. Almost every data transmission service, however, is also subject to regulations/subsidies/etc. (most famously cable companies in the US) which tend to hamper competition and drive prices up (because consumers may not have the choice to switch to a cheaper competitor).
By data I’m assuming you mean cellular and internet data and their respective “caps”
ISPs or Internet Service Providers and cellular carries could let you use all the data you’d want, but they do have to make money and have limited throughput (or in other words can only send so much data at one time). It’s not so much to control prices, but more so they can keep running and make a profit while they’re at it.
Think of “data” on your mobile plan as a fixed number of letters you’re allowed to send or receive.
e.g. you can send or receive 1000 letters. One letter could contain writing, an image or a short bit of a video. So to watch a YouTube video you may need to use up like 20 of your letter allowance.
What you’re paying your mobile provider for in this analogy is the postman to deliver or bring you your letters
Think of “data” as trucks. The real important thing for getting data around is the roads that those trucks drive on.
Certain roads can carry more trucks per hour than others, and some roads are more direct routes for trucks than others.
What your mobile or internet provider is doing is like providing roads from the highway to your house. The truck can then take those roads to get to your house. Without having a provider, you just don’t have a road that goes to your house. At the other end, the server is in a datacenter like a warehouse that is connected to a highway (likely right off the highway exit for faster access), so they can get stuff out to everyone who wants it faster.
The highways themselves are another level of ISP. While mobile providers or ISPs provide that last mile connectivity, there are a whole different level of ISP’s that provide linkages between cities or between continents. Those are the roads that your state/province is putting down between the cities to connect them.
‘Data’ is not something that’s created by a phone company. Telus is not creating the Netflix movie you’re streaming to your phone.
It costs money to ‘transport’ a file from one part of the internet to your cell phone. This is the service your phone company is charging you for. This is what ‘data’ is.
If you stream a movie from Netflix that requires a 1GB file transfer to watch fully, then that’s the ‘data’ your phone company is charging you for. Telus took 1GB from Netflix’s server and sent that 1GB to your cell phone, and they just subtracted 1GB off of your ‘data’ package for the month.
Data is just the code that is used to make what you do on a computer, phone, tablet, etc.. If you look at a word file it may be 52kb of data, and a song might be 5mb of data (about 1000 times as much). This “data” are the lines of code, and the song is a larger amount of data because a song is more complex than a word document. Data is what makes up all the websites, apps, social media. The internet is just getting data from a server and transporting it to your device.
With the cellphone companies, they build towers that connect to our devices that can transmit those lines of code wirelessly to the hard line to the internet. Each of these towers can only handle a certain number of connections to devices at a time. They use systems so that towers can cover massive numbers of devices, but there is still a limit. Further, that choke point of the tower connecting to the internet also has a limited number of connections.
What you are paying for each month is for them to maintain these towers and connections, build more as more devices are being used, and profit.
Data is not a limited resource the internet companies own, but they own the pipelines from our houses to the internet. The prices they set for data usage isn’t a price that changes like oil, but it does adjust as they have to use more complex technology, and like most businesses their prices ended up nearly the same out of competition.
Mobile/internet companies don’t create data – they transfer it. Data exists on a server somewhere – the movie you want to watch on Netflix is sitting on an AWS hard drive in some data center. The ISPs just provide the cables and network to get it from that data center to your house.
They tend to charge based on how much they transfer. This is because each cable can only transfer so much data at any given time, so there is a maximum amount of data that can be transferred to all of the end users.
The first thing to understand is that “data” in this sense is not really a thing that can be created. “Data” in this sense would refer to internet access, which is your ability to talk to other computers or devices that you’re not directly connected to.
What internet providers actually provide is access to these other networks. Companies that provide internet have connections to their end users on one side, and connections to other similar companies on the other side. Your ISP is the bridge between you and the other companies (and their end users).
The reason why companies charge you for usage, or impose speed restrictions, is that they generally have a limited capacity to carry data transmissions. Each individual user wouldn’t be a drain on the network, because the larger connections to other companies are able to carry huge amounts of data, but when you multiply that by thousands of users, it adds up and the company can run into the limit of what their connections carry. Bandwidth caps and speed restrictions are designed to lessen the amount of usage each individual user is using, to make sure there’s enough room for everyone on the connection.
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