Thursday, October 22. 2009Prices Continue To Fall........John Linton .....in almost every area of providing ADSL2 services....and I'm beginning to wonder why. I am a lousy 'commercial negotiator' in almost every sense of that term as I was brought up and educated in a period when/where such things were despised in terms I can still remember, one of which was along the lines of "such practices should remain where they belong - in the back alley bazaars of Cairo". Having been made aware of such disdain by then very influential people, from such an early age, plus my innate impatience and boredom with detail, I suppose there was very little chance that I would ever develop the ability to conduct backwards and forwards price "negotiation". This has always been re-inforced in subsequent life by the degree of 'sliminess' I associated with the type of people who involve themselves in such practices. I have always taken a 'take it or leave it approach' to buying and selling in both my personal life and as a natural flow on in my commercial life when I became "senior" enough within an organisation to become involved in buying products and services. So the past year or so has presented new 'challenges' to me in that so many of the products and services that Exetel needs and buys seem to have no real 'price' with any 'proposal' we receive almost always containing either the spoken, or increasingly written, proviso that "the price is negotiable". Perhaps its always been the case and I just never noticed until it has become so blatantly 'up front'. One of the most expensive 'building blocks' for tiny companies like Exetel in offering ADSL2 services has always been the monthly rental of the exchange port which, as an example, in the case of Telstra's ADSL1, often comprises 90% of all costs in providing the service. Over the three or so years that Exetel has been providing ADSL2 services there has been some reductions in ADSL2 port costs but they have not been much and they have not been frequent (a euphemism for very infrequent). With the current port capacities on an increasing number of exchanges reducing (at least to companies like Exetel) there seemed to be little chance of this major cost reducing but that now appears not to be the case via unexpected sources. If this proves to be the case then even this 'set in stone' pricing may change downwards by a, relatively, significant amount in the not too distant future. In the mean time, just as I thought that Exetel had obtained an extraordinarily good price for our latest and future IP upgrades - along comes a new offer that is almost 15% lower than the latest price which was itself more than 25% lower than the, what I thought only six months ago, was an exceptionally good price at which we contracted the major share of our IP buying. So in far less than 12 months the price of IP has fallen by over 60% and now gives every indication of falling further. My guess is that the $A's continuing rise against the $US is a major contributor to these rapid changes but that wouldn't seem to explain it completely. Whatever the reason it allowed us to pass almost all the benefits of these lower prices on to our customers. It's hard to see, at least it is for me, where end user 'average usage' is going. Part of the reason is that Exetel has been providing very high 'off peak' download allowances and over a very long time our relatively stable user base has adapted their habits to use the off peak period very extensively for major downloads. We have been 'so successful' in doing this that the old 'peak' time is now almost the lowest usage time of the day with the new peak being 2 am in the morning. This initially prompted us to suggest to our bandwidth providers that they should use a two tiered pricing 'model' with "off peak" bandwidth priced at a much lower cost than "peak". We received three proposals along those lines around the time I was due to take holidays so we left the decision until I returned by which time this 'new' pricing had begun to appear and by the time we were ready to make a decision the 'free off peak' pricing model had been 'blown away' by the new general IP pricing. The net result for Exetel's customers has been lower plan pricing, more downloads for the lower pricing and, finally, the restoration of the 12 midnight to 12 noon 'off peak period' which we had to move away from less than three months ago! An amazing turnaround caused by an amazing set of price reductions. I think it means that I should go away more often and for longer periods as quite clearly other people in Exetel are much better price negotiators than I am.
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John, there seems to be an issue with the posting of Today's blog. The title is all that is available.
Cheers, Paul Comments (2)
I have had formatting problems for the past couple of days but the blog seems OK to me.
Comments (9)
You and I are of an age, John. I also dislike bargaining for products and services. Many years ago I had a twelve month stint in Singapore and actually became quite good at screwing people into the ground...
I was just getting around to again being a reasonable human being when this bargaining thing started in oz. It's now at the stage where a lot of businesses have (at least) two prices. "Retail" and "Discount". I was told that to ask "is that the best price you can do?" will in most places elicit a discount. I tried it and it does indeed. My latest effort was to ask a motor accessory place if they could do any better on a $145 battery. For the question I received a $15 discount. I think the practice is so wide spread that the actual retail price is inflated. If they get the business well and good but also have wriggle room when asked "is that the best you can do?" I still don't like the concept but I just may be able to fund my retirement with all the money I've saved Comment (1)
Undoubtedly you're right.
It is seems quite clear I need to move on and find someone who doesn't find such practices so distasteful run the company. Comments (9)
The posting has come good. Thanks.
What is your take on why ADSL1 costs haven't reduced in the same way as ADSL2? The majority of non capital city exchanges including the vast majority of exchanges in my home city of hobart are still 'sometime' away from ADSL2 availability. This means ISP cost for providing ADSL1 are extremely high, (as you say, "often comprises 90% of all costs in providing the service") and consequently the cost to us, the end user is high, with the likelyhood that the price may rise even further? Comments (2)
Telstra have no need/any pressure to reduce the cost to wholesale buyers and therefore, as with all monopolistic pricing you have the ludicrous situation where the monthly cost of an ADSL1 port (constrained to 256/64) costs more than an ADSL2 port.
Comments (9)
Hi John,
I’ve said before - I just don’t understand why you choose not to negotiate on prices. I keep trying to understand your logic but I really can’t get my head round your thinking. Have you ever considered having an Exetel intermediary negotiating on your behalf to achieve the best pricing outcomes. What about giving James the Guernsey .. cheers bill Comment (1)
Bill,
As I've said to you before - I am too old to change a lifetime of conviction. That may well mean I am past my use by date in doing this job. If I could find someone to do it for me I would happily do so. Comments (9)
I often wonder why Exetel isn't a bit bigger by now. Every thing seems to be in place yet its still a small vISP?
Its puzzling, I hope that Exetel breaks the Telstra monopoly in the rural wireless market. Comments (2)
I don't know what you mean by vISP.
Exetel grew in revenue and profit by over 25% last year. That is a realistic amount of, high, growth for a 5 year old company. Most companies actually don't make any profit in their first five years and many more don't last five years. A number of companies last five years by losing their shareholders large amounts of money. The issue, always, for small private companies that they only have their own financial resources to grow their company and, in our case, having 'invested' close to $A2 million of Annette's and my personal lifetime savings in Exetel we are only prepared to grow the company via its own profits. For the past close to two years we have also diverted one third of any profit we make to supporting endangered bird, animal and plant species...close to $A500,000 over that period. If you bother to look at the network diagrams you will see how much money has been invested in the 7 Pops around Australia - all paid for in cash - no "off balance sheet" leasing or borrowings. We didn't enter the marketplaces we provide services to to be "big" we entered them to provide the best possible services at the lowest cost so that we make a positive contribution to Australia and Australians generally - not to make ourselves personally wealthy. Comments (9)
What a pointless way to describe a business.
So there are 4,000+ exchanges in Australia. Does that mean you call an ISP some division of 4,000 based on the number of exchanges? For Instance Optus would be 10%ISP because it has 400 exchanges with some form of equipment? What relevance does it have to a business that offers other services? Don't bother to reply - the 'description' is nonsensical. Comments (9)
My understanding of a vISP is that this is a whitelabel / rebranded ISP offering. Basically a company which doesn't have ANY infrastructure at all. Just resells ISP services under it's own brand.
This was quite popular years ago, several companies I know used to use the vISP concept to be able to offer ISP services to their employees in this way. Exetel certainly wouldn't be classified a vISP. Comment (1)
Great news on the restoration of the 12 hours off-peak period.
It is just for new users or will it be applied back to those users who were originally 12-12 but went 2-12 when you changed? Comment (1)
Hello John,
Are you aware of the new Optus MBB pricing? http://www.itnews.com.au/News/158793,optus-cuts-wireless-broadband-excess-usage-charges.aspx Very interesting, I note they seem now to be cheaper than most providers out there. I'm sure they'll be receiving quite a few e-mails this morning from wholesalers asking for a review of their offering. Cheers. Comments (2)
It's an interesting move by Optus and makes their wholesale offerings look unattractive.
Comments (9)
There is a "catch" with the new Optus MBB pricing - your monthly quota gets halved as soon as your contract is finished!
God I love Exetel and its simplicity - no catches, no BS. Don't ever lose that approach! Comment (1)
Sure does. I'm surprised they haven't released these plans under their Virgin brand.
Comments (2)
You mentioned last year that you were looking into providing ADSL2 ports from a third provider. With your current supply of ports drying up in some areas it might be worth looking into offering them from that third provider as well.
Comment (1)
The pricing they were asking for proved to be unworkable for us.
Comments (9)
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