Friday, April 9. 2010There Appear To Be Deeper Issues.......John Linton .....than I thought affecting today's Australian communications market places. We had expected to have signed off on our 'negotiations' for new services well before now but the revised approach we have taken to obtaining bids for our, not very large requirements in the context of the current 'buyers' in Australia, seems to be of a disproportionate interest to some of the suppliers we approached. I am, through experience, a very conservative buyer of base services as I have seldom seen 'new' base service providers deliver on new infrastructures without very significant 'negatives' that seem to last far longer than even the most pessimistic estimates. However I am having a great deal of trouble reconciling the current price disparities between the pricing offered by our 'traditional/long term' providers and the newer possible entrants to the Australian marketplaces. Perhaps our previous approaches to 'negotiation' have been naive and, maybe, even just plain stupid and our long term suppliers have got used to treating us carelessly? Maybe I will have to accept that we have, through my personal stupidity, allowed that view to have grown over the years. I think that is probably a distinct possibility. However I can't help thinking that something else has changed this time around that is making more difference than modifying our previously naive buying processes. Possibly its the fact that the number of potential purchasers of IP services in Australia is decreasing (Westnet, Soul, People Telecom, and now NetSpace all 'exiting' the buying process over the past 18 months or so). Those companies 'exits' don't leave many buyers of any 'size' left for the newer entrants to sell reasonable amounts of IP services and inter-State transits to. I think that may have had a greater influence than I thought when we started this years 'negotiations'. With the times being as tough as they currently are and, at least in my opinion, likely to get significantly tougher it is very difficult for us not to move away from the providers we have dealt with over the last six years and to 'try something entirely different'. My back of the envelope calculations of what the latest 'revised' offer we received last night would reduce our costs by over the offer we are (were?) about to sign a contract for shows cost reductions over that offer that are hard for us to not consider very, very carefully before making any 'final' decision. We will do the proper analysis of the new offer today and then carefully consider the various ramifications over the week end before making a final decision next Tuesday when Steve is back in Sydney. We need to also consider the wider issues of what such offers mean to the Australian data communications 'industry' more generally. A year ago I simply couldn't conceive that IP costs (available to a company of Exetel's size) could fall by over 70% in 9 months. Although IP is no longer the largest component of providing internet services (the port and carrier connection costs are five times larger) it is still significant and the lowest costs currently offered would cut our current IP monthly bill by 66% - which would transform our profitability forecasts to numbers we never dreamed possible....not a bad 'day dream' to allow yourself to have - even if only briefly - because such things don't really happen in business. Or do they? Perhaps Exetel, like so many residential buyers of communications services, has become used to being 'ripped off' by the prices charged by Telstra and co over the past 20 years that we actually don't believe that anything else is possible? Perhaps I should go back to the base maxim of my technology past where the expectation always was that prices fell by 50% and delivered twice as much every 18 months and use that as a base point for asking for new pricing? That level of pricing, at least at the moment, is easily achievable. I guess it puts clearly in perspective the danger of living in a country that has a monopoly infrastructure provider - gouging pricing is the inevitable result without competition. As the ADSL market becomes even more fiercely competitive it occurs to me that it might be worth considering re-selling IP bandwidth to some smaller ISPs but mainly to larger corporate and government users. Currently, as has always been the case for Exetel, we put in a lot of effort and cost to make almost nothing out of ADSL services and that will only get worse over the coming 12 months or so. It might make much more sense to deliver IP services to the corporate market without the hassle of dealing with Telstra? What is the only thing worse than a commercial monopoly? A government monopoly?
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What a decision! Risk is the question and how do you assess it? You're not just buying IP, you're buying reliability, longevity and secure supply. If prices are dropping that quickly, the question is whether the current best pricing being offered is sustainable. Are the established players "ripping off" customers or are the newer entrants priced under cost to get market share? Is there enough buyers to sustain the number of suppliers? If not or if the pricing doesn't seem sustainable, something will have to give and suppliers will start to go under.
I'd be looking at the financial backing of those suppliers. How long can they hold out in a highly competitive market? You may find that the price premium relates to this. Or it might just be the established player's way of appearing to be secure! Comment (1)
In this case the 'offeror' is many magnitudes bigger than Telstra.
Comments (5)
The public network /NBN, in place of Telstra's (what could be worse?) gouging....It will be a welcome change for me accessing a '25/1 mbps port' for 'less than 50AUD' +cheaper backhaul as you being able to sell
it finally and actually make 1dollar. Take a glance at whats being developed here, Home-Fibre25M-5 5 GB Shaped Free N/A Dynamic $49.95 /mo source: http://bc.whirlpool.net.au/bc/isp-9-15/internode-home-fibre.htm To my mind, A$50-$40 a month for access to a consistent basic high speed 25 mbps to 90% of the populus ( inc. wireless to fill the outback gap...for which it becomes economical supplying them this choice of your preferred tech) cannot really be that bad. Either that or my vision is not rational ? is $50-40 a month ( Wholesale/fibre rollout sited) not roughly in step with todays (5) xGB HSDPA plans pricing?? Alternatively, would your rather observe share holders punish those unable to afford ongoing-and-continuing-to-be-Unrealistically-charged 270 AUD botched 'bundle' of HFC cable plan while taxpayers' PSTN corrodes and suffers by their hand?? Now the communications industry has dramatically been consolidated I sincerely hope the traditional suppliers of IP bandwidth dont hang up on small Exetel and instead cut you some slack. I am happy with my 150gb-ADSL 1 at 86 dollars-including a PSTN. (Happy I guess)...though if you shall falter this may become something else. Allllll the best sir . Comments (2)
I don't think it's possible to offer that sort of price.
Comments (5)
Well that tune^ might change as 'Steve' gets his replies back from the NBNCo 'admin'/ 'monopoly' as you consider them.-
Until then I dont consider it unreasonable that a non-advertising based ISP, such is Exetel, could not, in theory, begin transferring over willing e.g. 8192/384+1500/256k trial subjects: 'gouged','out-of-contract', consumers - to a superior And cost-efficient A$40/mo/ 25/? mbps basic NBN. There will be a lot riding on this Tasmanian experience to either prove/disprove the viability of fibre based communications in Australia. Comments (2)
In the event that we could offer an 'NBN2' service at a lower cost than a Telstra ADSL1 service then we would, obviously, do so.
Nobody wants to pay Telstra's exhorbitant prices for ADSL1. Comments (5)
'I have seldom seen 'new' base service providers deliver'
I remember you had a blog post where you were offering a company a much cheaper Ethernet connection than Telstra was changing them. But they stayed with Telstra and paid them craploads, thinking that Exetel's service must be a second rate product because of the much cheaper price. You sent them a terse reply about staying with Telstra. Shoe seems to be on the other foot this time eh? Comment (1)
My experience from Optus in their early days of ADSL2 same for AAPT's ADSL2, through to every 'new' service we have ever gone into has been identical - many problems that the supplier is slow to fix.....and Exetel 'carries the can' in the customer's eyes.
Comments (5)
Hi John,
In my view it makes a lot of sense for bandwidth prices to drop - to my way of thinking about it, charging for bandwidth is a completely artificial market. Carriers (in your case, Telstra, et al), to a large degree, have been charging what they think they can get away with - which has no bearing on the true cost of delivering service. Maybe I'm missing a whole lot, but playing with back of the envelope figures, I've always wondered why bandwidth should be charged at all. My reasoning is as follows. In my view, to build a data communication link, you need, in the simplest of terms, a connection between two points. Then, you need boxen at each end of that connection to talk to each other. Rinse and repeat a few times, hopefully with good design, and you have a network. Now, the thing is, you (as a user of the network built above) are being charged a 'service' fee for usage (a.k.a. bandwidth) on top of something that is essentially physical hardware - infrastructure. Once that hardware is established, and then eventually paid off, the charge for service from that point on becomes pure cream for the carrier. Further, thanks to Moore's law [I know, its only an expectation of improvement in CPU capability based on past observation, but I think it translates here very well], improvements to the underlying network are able to be made at an exponential rate, for (relatively) trivial amounts of money. Compare the capabilities of border routers from 5 years ago to those available today - today's cheaper hardware can handle much, much, much more data. Accounting tricks around asset depreciation make the whole thing even more attractive from a money POV. I know I'm simplifying a bit, sure - but the problem from the user's end of the pricing stick starts with the carriers charging excessively for bandwidth, because they know the market will bear it - and you then have no choice but to pass that cost on. Fair enough, they are not a charity, and they have every right to make a profit for their services, but to my mind, its right for you to hold them to account for it - it is fundamentally how competition should work. Having said all of the above, yes, there are business realities to deal with, carriers have their own costs, etc; and ultimately the market is king. There is always a case for siding with a sustainable, profitable business - aggressive players going for market share with no thought to sustainability eat the bottom ends out of their markets and end up as shark food eventually. Sorry for wanting to sit on the fence and have it both ways!!! Best of luck with this one. Kind regds, MD. Comment (1)
Carriers are by no means charities and they are almost all run very inefficiently - perhaps an inevitability of size.
You need to remember that in the not too distant past ALL carriers in almost all countries (including the US and the EU) were quasi if not actual monopolies with all the inefficiencies such situations bring. Australia has the worst of all worlds in this instance but replacing what is now a private monopoly with a new and even more inefficient public monopoly is a ludicrous concept only capable of being considered by doctrinaire socialism that I thought had long died out based on its self evident ludicrosity. Socialism and the human species have no meeting point - it's a genetic prohibitive. Comments (5)
"Now, the thing is, you (as a user of the network built above) are being charged a 'service' fee for usage (a.k.a. bandwidth) on top of something that is essentially physical hardware - infrastructure. Once that hardware is established, and then eventually paid off, the charge for service from that point on becomes pure cream for the carrier."
The problem with infrastructure is that it ages. It's easy enough to change the systems that drive everything, routers, etc, but you are limited by the cable laid back whenever the network was first set up. This needs to be maintained and upgraded on a continual basis, particularly in the case of the "last mile" between premises and exchanges, where the cable is exposed to many external factors. Comment (1)
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