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My guess is that this would be similar to the pre-paid phone cards. When they first came out nobody (Joe Average consumer, at least) could figure out how the companies could be making a profit since long distance calls cost at least (just to pull a number from a hat) 20 cents/minute while the phone cards were only charging 14 cents/minute. The answer, as Bob said, is buying in bulk.
I was paying AT&T $30/month for an unlimited data plan (until I dropped it as Internet access from my cell is frustrating-maybe I'll try again now that they've upgraded to 3G here). An alternative, with a limit, was $30/month for 5GB which might give another aspect on the cost. (Why the two rates? The unlimited was cellphone only and the other was for a cellular modem.)
So, if Joe Average consumer can pay $30/month for 5GB then what would Amazon pay for 500GB? Certainly not $3000. But let's say they are. Then that 500GB would allow the download of an estimated 500,000 ebooks/month. Assuming Amazon sold that much at $10/book they'd be raking in $5M/month-enough to afford the bandwidth, I think.
And I don't think it matters if we scale back to more reasonable numbers-the more you scale back the number of books they sell the more the bandwidth they need scales back & therefore the more the cost scales back and it still all stays in proportion.
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