Friday, June 12. 2009New 'Research' Emphasises The Need For New PlansJohn Linton The end of the latest financial year is less than three weeks away and I have no recollection of where it's gone. I think that's partly because I have spent most the the past 11 plus months worrying about how the threatening financial situation around the world and especially in Australia would affect Exetel's ability to survive and if we were able to ensure it survived then what needed to be done to ensure it was able to grow and make the most of whatever opportunities came our way. As it turns out I seem to have wasted a whole year worrying about scenarios that never materialised and the twelve month period has turned out (given nothing changes in the next 19 days) pretty much like every other year of Exetel's existence. There is one major difference though. That is that the average data usage by residential customers has increased more rapidly over the past 12 months than in any 12 month period I have records for which is the past seven years. I was talking to a nice industry analyst today and I remembered that I have been heavily involved in the provision of internet services since the mid 1990s when 14.4kbps dial up was the only widely available residential service with 28.8 kbps still many months away. No need to concern yourself with data usage by customer in those days. I do understand that Exetel's 'average customer' is very different from Bigpond's 'average customer' and also different to almost every other ISP's 'average customer'. So what their average download by customer might be will be different because of the huge differences in the demographics of each company's user bases. My involvement with broad band goes back to 2002 and my records show the 'average usage over the years increasing rapidly but not anything like as rapidly as over the past year or so. The average monthly download per customer for the last few years looks something like this: 2002 - 1.1 gb 2003 - 1.6 gb 2004 - 2.0 gb 2005 - 2.7 gb 2006 - 2.9 gb 2007 - 3.3 gb 2008 - 3.6 gb 2009 - 4.5 gb A 25% increase over a 12 month period is a very, very large growth and if it holds true for the coming 12 months it will pose an interesting problem. Pricing of 'pure' IP bandwidth has fallen by about 30% in 2008 and by a further 2% or so in 2009 so pricing to the end user can be accommodated by Exetel in IP terms but it is the bandwidth between the customer and the Exetel switches that will present the problem in cost terms because it hasn't fallen at all so far in FY2009 though there were some significant reductions in FY2008 for ADSL2 connections. You also have to remember that Pipe peering, Akamai and PeerApp caching all combine to reduce the 'pure' IP pricing component but there is no such amelioration on the 'other side' of the network. As far as I can see, at the moment at least, the 'pure' IP cost reductions will reduce the overall cost of the data supply cost of the service based on today's significantly increased 'average' per user usage. However if the average downloads per customer keep increasing at the same rate as over the previous 12 months they won't continue to do that. It's an interesting 'problem' because it can be solved in only one realistic way (I am discounting raising the plan costs as inappropriate and quite hard to do) - by adding new customers whose average usage is much less than the average usage of current customers. Problem solved....or it would be if I knew how to do it - which I don't. At the moment our monthly ADSL order intake is continuing to slowly increase each month and I really don't want to play around with that scenario. If the advertising we do to promote the HSPA service is 'successful' it will be of assistance in reducing the average download per customer but it's unlikely to have much effect over the next few months. So, basically, the only option is to change/move the target demographic for the ADSL plans in to 'unknown' territory. While I'm not really a timorous person (we opened a company in Sri Lanka and bought our own floor space in what were meant to be difficult financial times this year) I really have been dithering over what to do about 'finding a new broad band market' for Exetel. I have prepared a new set of plans for both ADSL1 and ADSL2 which make financial sense but they don't appeal to me 'aesthetically' as they move away from the direction we have been heading in for the past 5 plus years which appeared, at least to me, to be finally 'paying off'. It's almost always dangerous moving target demographics especially when you have spent many years understanding one marketplace and have paid little attention to any other. I was surprised to be told today that 'general industry sources' put the annual churn rate of ADSL users at something like 25% and that the reason for churn was people were looking for a better service experience (as in help desk type service). While I can understand that concept I don't see it in the figures from our data base which puts our annual 'churn away' rate as something less than 7% with 'churn ins' at around 22% - so that information has further confused me. In our, absolutely not meaningful, small numbers it appears to me that people choose Exetel because of a lower plan/speed price and larger than 'average' download allowances. While far more people churn to Exetel rather than away from Exetel that is, mainly, simply a function of Exetel's tiny market share of users available to churn away versus the 50 times larger base of users available to churn to us. Yes. I know, statistics say that shouldn't be true but it is in this case. So if we throw away the base premises we have been refining for over five years what size of risk are we taking? I guess there's still a couple of weeks in which to make a 'final' decision. Trackbacks
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You must have been providing 14.4k services in a different market to me then - at 14.4k a customer could theoretically inflict a bit over 3.5gb/month of pain on you. When you're paying around $0.19/mb, that's about $600 worth of bandwidth a 14.4k customer could chew up if they set their mind to it.
I can't recall the numbers, but we absolutely did take into account the average usage when making pricing decisions Comment (1)
In theory you're correct but you would also remember that in those days there was no usage type/source material that would ever get near that number.
In my particular situation we had moved from buying IP from Telstra/Telecom Australia to buying IP from MCI and we had 2 mbps (mbps is correct)at a fixed monthly cost. The CEO/owner of the company simply wanted to add as many users a possible at $1.00 per hour to make a profit from his investment. Needless to say the chance of any individual downloading 3.5 gb in a month was zero. Comments (7)
My fault sorry. I finally convinced my parents that no, you won't get hit by $150/gb excess usage charges like their friends got hit with by their ISP. I think me saying "I'll pay ANY excess usage charges you get hit with" that finally convinced them.
Comments (2)
A fair percentage of the people I have encouraged to move to Exetel have also done this little sum....
.... (but only) after they received huge excess charges bills from their previous supplier. The comparison of excess charge rates is a pretty convincing argument... ... I now use the PAYU rates in the comparison $1.00 and $0.20 per GB versus $150 per GB.... always looks good! Harry. Comment (1)
You might be interested to note that you have had 4 years where the increase in average usage was 25% or more, with 2002-2003 being the highest at 45%. According to your figures the % increases have been:
2002-3...45% 2003-4...25% 2004-5...35% 2005-6...7% 2006-7...13% 2007-8...9% 2008-9...25% (Of course, coming off a lower base and having technology increases by orders of magnitude will always 'gap' a trend). Comments (3)
You're quite right of course.
My 'concern' was that after three years of single digit growth there was such an increase over the past 12 months and what that might mean for the coming 12 months. Comments (7)
4.5GB average download? Does that include off peak? What is the average plan quota? I wonder what your average download would be if everyone used 95%+ of their download allowance (like me)?
Comment (1)
4.5 gb included both peak and off peak.
If everyone used 95% of their plan allowance then plan prices would double. Comments (7)
Maybe you've been TOO successful in educating Exetel users about the off-peak "bonus".
But seriously I think that you are also seeing an increasing awareness that material is available for download/streaming via the web. For example the ABC started promoting it's iView, 9 network making Underbelly2 available via Web plus numerous links to further material on the likes of YouTube. I was at a neighbour's house last weekend and they were discussing an email from their ISP about being 75% through their quota. "We've never used that much before - where's it all gone?", "Well I did download those Four Corners episodes - could that have done it?" and so forth. So I think that you are going to see a steady growth of your "base" users coupled with some incremental growth of the 95% quota usage crowd. The upshot is that average download per user is going to be increasing more than you might have planned for. Maybe you'll have to stop passing on the cost savings to your users. No more increase in off-peak for example and let your 95% quota users move to other ISPs and thus slow your average download per user growth. Would be interesting to see the month by month average over the last 12 months and see if you can identify anything that may have triggered a jump. Comment (1)
I think it's probably as simple as more 'sensible' users downloading more 'sensible' video files - your ABC example would explain the increase very easily.
Comments (7)
John, out of curiosity what's the level of baby boomer penetration at the moment? Is that where the opportunity is or is there some flaw in chasing that demographic?
I am only going on the basis of my mother in law who is on dial up, spends more per month on the dialup charges than a good ADSL2+ connection, but obviously doesn't use much bandwidth. She really does need broadband for the odd hi res photo that her dear son sends (he's in Canada on 50Mb fibre to the appartment and sometimes forget's who's the other end) but always has some reason why she couldn't be bothered switching. I even have an old ADSL modem router ready to go but I am not forcing the issue until she's ready unless she has some problem and then blames it all on me. I'm also guessing this demographic is going to the be last to be installing the torrent server and hooking up their PC to the TV which is the kind of activity that will no doubt contribute to further usage uptick in coming years. Comments (2)
We have no way of determining our user's age groups.
Your mother is every ISP's perfect customer. Comments (7)
Has Exetel ever considered/conducted a survey to gauge the demographic profile of your customer base?
Comments (4)
Can this be gleaned somehow from "Whirlpool"s yearly survey? http://whirlpool.net.au/survey/2008/
Maybe getting in touch with Simon Wright would help? Comments (2)
Could be the way to go.
Comments (7)
Can this be gleaned somehow from "Whirlpool"s yearly survey?
I would think that the Whirpool survey "Exetel" respondants would be only a very small percentage of Exetel's actual customer base, and they would also be weighted towards the high-user tech-savvy end of the market. As a result, the Whirlpool survey results probably wouldn't offer any clear representative data for exetel's purposes. Comment (1)
I agree. The Whirlpool survey is useful for some things, but its respondents wouldn't be representative of an ISP's customer base. You'd want to capture a more unbiased sample via your own study.
Comments (4)
Looks like your average monthly download per customer is growing roughly linearly year on year.
Out of interest I thought I'd give the new WolframAlpha search engine a go at modelling your data (shortened URL = http://is.gd/Zg4a): The linear best fit is described by the formula: GB = 0.45119*year - 902.15 So, if current trends continue, in 2010 you're looking at about 4.7GB per month per customer and 5.2GB in 2011. Comments (4)
That's if you assume a linear fit. If you assume GROWTH and use that function in Excel (eg) you get:
2002 1.1 2003 1.6 2004 2.0 2005 2.7 2006 2.9 2007 3.3 2008 3.6 2009 4.5 2010 5.7 2011 6.9 2012 8.3 2013 9.9 2014 11.9 2015 14.3 2016 17.3 2017 20.8 Comments (3)
Unfortunately AFTER I hit submit on the above very amateurish attempt at analysing the numbers, I followed the link to Stanley's blog. Of course, he is an Information Analyst.
Note to self: follow the link BEFORE postulating a rebuttal! PS: Cool Blog, Stanley. Comments (3)
Thank you for the kind feedback. There's nothing inherently wrong with arguing that growth could be exponential in the future. As more and more broadband-intensive media is made available legally over the Internet, I think you could mount a strong case for exponential growth.
Having said that, I was surprised that Exetel's growth looked more linear than exponential up until now. Hence the caveat "if current trends continue". But certainly something for Exetel to monitor very closely. Comments (4)
>> JL wrote: Your mother is every ISP's perfect customer.
Mother in law actually. My parents are with exetel. In fact it was my dad (a retired telecomms engineer) who put me onto exetel many years ago after looking at one of your published network diagrams. But even they don't use anywhere near their allowance, so yes, they too are probably perfect customers. BTW - You'll be pleased to know that I've been contributing to low usage as well recently. I think the rain is in the submerged junction boxes again and maybe the cold snap seems to be having an affect as well. ADSL connection intermittent and very low speed when its working Bring on the HSPA wonder box.. or KRudd's FTTH. Comments (2)
After reading this articale in iTnews:
http://www.itnews.com.au/News/105326,isps-may-be-stranded-by-nbn-not-just-their-assets.aspx It made me wonder how Exetel will be able to transition to selling NBN services (if and when it ever comes to fruition) and how we as customers will be affected - will we have to pay more than we do now, will Exetel be able to offer discount prices or will all ISPs be forced to retail at the same price. Comment (1)
The short answer is that Exetel have absolutely no information on any aspect of the proposed FTTH wholesale company - either because we are far too small to be included in any early information dissemination or because there actually isn't any.
So, while I could speculate, I have no more information than you do. Comments (7)
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