If you follow the various statements being made in the press over the past few months you might reach the conclusion that Australia has been severely constrained by lack of bandwidth connectivity to the rest of the world. I base this on the series of 'announcements that include:
1) Telstra planning to add huge capacity to its own trans-pacific cable (capacity not stated)
2) Southern Cross more than doubling its previous capacity to 860 gbps
3) AJC completing an upgrade eventually capable of 1 Tbps
4) PIPE planning on a new cable by early 2009
For those of you who had a look at the reference in a previous musing that showed Teltra's (and therefore Australia's) total international bandwith as being around 150 mbps in 1998:
these Terabits of new capacity seem to be a massive over kill even taking in to consideration the huge growth of internet usage over the past decade.
You may also have noticed that some people who manage ISPs have publicly stated that the new capacities, when they become available, will not reduce the cost of internet 'plans' as the amount of data used by ADSL2 and, presumably by then, fibre connections has greatly increased. A Telstra spokesperson was quite firm on this point if I recall correctly.
Ignoring the apparent self contradiction of such comments (current plans are obviously based on current pricing and availability) it does raise the issue of what end user pricing decreases will become available in the short term and medium term future when the costs of IP bandwidth decrease for Australian ISPs.
I can only guess at what the cost of international bandwidth is for other ISPs but I know what a small company like Exetel pays and have a very good idea, to within a few dollars per mbps of what the cost of buying bandwidth directly from Southern Cross is as we almost made the decision to buy direct late last year but put that decision on hold due to the financial uncertainty and the uncertainty in what price reductions would occur later this year as the various cables/cable upgrades were brought into service.
By August of this year Exetel's cost of sourcing international IP will have fallen by close to 40% - and that's buying from the current carriers at sub 2 gbps volumes. By May in 2009 we have already 'locked in' international IP pricing that reduces our current costs by a further 15% - giving an overall cost reduction between May 2008 and May 2009 of around 55% or in our purchase terms a saving of over $A200,000 a month.
These savings are achieved by a mix of price reductions from the carriers and the use of Akamai, Pipe and P2P caching. They are also based on not buying international IP bandwidth ourselves. If we were to buy direct from Southern Cross or AJC then the cost would fall by a further 15%.
So these are huge cost savings for Exetel and, I assume, the same or even 'huger' savings are being made, or going to be made, by all other ISPs.
Will an Exetel broadband user benefit in lower costs or larger included downloads from these 'huge' savings?
The answer is, probably yes - but not by very much.
A saving of $200,000 a month, if passed on in full to all customers would amount to around $3.30 per customer.
Doubtless other, larger, ISPs will save more money than Exetel and would have the ability to pass on larger savings but somehow I don't think that is going to happen.
The reason for this apparent anomaly in terms of Exetel is that international bandwidth is no longer the, or even a, major cost of delivering a broadband service to an end user; and this is particularly true for Exetel in delivering ADSL2 services (which would not be the case for ISPs who own their own ADSL2 infrastructure).
The major cost to Exetel for delivering ADSL1 services is the monthly port rental paid to Telstra Wholesale.
The major cost to Exetel for delivering ADSL2 services is the back haul cost paid to Optus.
IP bandwidth costs for Exetel ADSL1 and ADSL2 plans account for less than 9% of the total cost of providing any of our current plans so a 50% or so saving in bandwidth costs is not going to provide much of a saving on plans that average $50.00 (inc GST) to the end user.
So, at least from what I can see at the moment, these apparent huge IP bandwidth reductions aren't going to result in any significant lower plan costs for end users in the near or medium term future.