John Linton
I read the various reports about the decision by Pipe to go ahead with commissioning a new undersea cable to Guam which was widely reported yesterday and I was particularly amused by the APC report on Senator Conroy's comments at the launch 'event':
http://www.apcmag.com/7801/labor_to_make_broadband_announcement_in_weeks
With Southern Cross commissioning a major upgrade last year and AJC doing the same late last year there appears to be a large surplus of internet connectivity cable already available and Pipe's adding to that surplus in mid 2009 or thereabouts will certainly add to the possible pressure on reducing prices for that part of the internet delivery networks.
In one of the reports I read, and I can't remember which one now, iiNet was quoted as saying that the current cost of IP connectivity amounted to 15% of the total cost of providing an internet service. Internode was quoted as saying that if Senator Conroy's/Labour's promised domestic fibre to the node network didn't reduce current costs then any savings in cost that may become available from the new Pipe owned cable wouldn't make broadband any cheaper.
I found both comments (assuming they are correct) very surprising as they make no sense to me.
Let me take the Internode comment first.
As I understand it InterNode has deployed its own DSLAMS to provide high speed broadband and therefore knows exactly what it costs to run cable to a Telstra exchange (around $A2,000 a month for 10 gbps). The published price for LSS from an end user's boundary to the Telstra exchange is $A2.50 per month. Using the new VDSL capabilities when they are available (which will be a whole lot sooner than any FTTN service) a large percentage of CURRENT users on CURRENT ADSL2 networks in Australia's capital cities and major regional centres will be able to get around 20 mbps for a cable cost of less than $A3.50 per month per 20 mbps user connection.
I very much doubt that any new fibre deployment is going to reduce those current charges and may well not deliver a faster connection than 12 mbps in the foreseeable future. So Internode is almost certainly correct that the mooted 'new' fibre network may well cost a heck of lot more than the current higher speed network already does and is unlikely to provide anything faster for the foreseeable future and, much worse, will provide Telstra with more control over data delivery than it already has.
Seems the quintessential government cluster f*** (every possible person is disadvantaged at one stroke of the pen and Telstra gets to perpetuate its monopoly on internet delivery to Australian homes).
The iiNet comment that "IP fibre represents 15% of current Internet service delivery costs" falls in to the same category in a different way - and I note that there was no estimate of what the new Pipe cable would reduce that percentage to. Using iiNet's published figures (revenue and ADSL subscriber numbers) and using an estimate of what iiNet may be paying for IP connectivity to the current Australian purveyors of Ip bandwidth it's very hard to see how iinet's IP bandwidth contributes more than 10% to the cost of its currently offered ADSL2 and ADSL1 services - in fact I would think that 10% is a little high.
I know that Exetel's current IP costs do equate to around 15% of our cost of delivering our mixture of ADSL1 and ADSL2 services BUT, and its a big BUT:
1) Exetel charge end users less for any comparable service which inflates the percentage of each element in the delivery and have far fewer cost elements (no marketing/advertising/corporate infrastructure/huge support costs).
2) Exetel are right at the end of our current IP bandwidth contracts and will shortly reduce the current IP bandwidth charges by 40%.
3) Exetel would buy less IP bandwidth than iiNet and therefore would not buy at as good a price as is available at higher commitments.
4) Once Exetel gets lower IP bandwidth pricing later in 2008 and completes its P2P filtering and caching implementations (assuming they are successful) the estimated percentage of IP cost to total cost will be around 8% (of our much lower end user prices) - and we will still not be buying at costs as low as iiNet would now be paying or would be paying in the near future to CURRENT providers of IP bandwidth.
Harking back to the statement attributed to InterNode - the really large cost of providing internet services in Australia, particularly in providing ADSL2 services, is the port rental and back haul bandwidth costs from Telstra and Optus and AAPT (Powertel). Those costs comprise 75% of the end user selling price of an ADSL2 service to a small company like Exetel but much less, of course, to a company that deploys its own DSLAMs.
All cost reductions are welcome but I don't see that Senator Conroy's proposed fibre to the node will do anything but INCREASE the costs of that part of the network and the likely price of IP connectivity from AJC and SX in mid 2009 are likely to be less, to the non "foundation member" buyers than will be available from Pipe at that time.
So, if iiNet's comments are correct and Intenode's comments are correct the price of broadband can only go up with a combination of Labour's (Telstra controlled) FTTN/FTTH and Pipe's 'cheaper' IP will simply be around the forward pricing of the current IP providers in mid 2009 and will still not be a significant part of the cost of providing higher speed internet.
Nothing to see here - move along.