John Linton
....and I'm surprised to have to admit that 'emotional' factors are influencing, at least my thinking, in making this particular decision.
One of the decisions we have to make next week is which carrier(s) we use for IP connectivity over the 12 month period commencing June 1st 2009. We would normally have made that decision before now and are dangerously delaying it (in terms of getting new infrastructure in place if that is made necessary by the decision) for several reasons not related to the IP bandwidth itself but for the different 'other products and services' we buy from some of the carriers we are considering and also the issues involved in buying all of our bandwidth from the one carrier.
While I, personally, have been dithering with my input in to this decision I have been interested to read the 'alleged' pricing that has been put forward by various commentators on the Krudd myth of a national FTTH network in which various costs of current back haul and IP connectivity are cited. I am under no illusions that Exetel's small size ensures we never buy as well as our much larger competitors so I was surprised to see some of the 'estimates' being bandied about by apparently well informed employees of two largish ISPs. Of course they weren't specific but their "estimates" were some 40 - 50% higher than Exetel pay today (not the immediate future) which, even allowing for 'generous rounding up' seemed excessively conservative. Perhaps they were both such inherently dishonest people they were lying for purposes that were completely unclear to me?
Determining the end user price of internet services is mainly constrained, these days, by the basic rental cost of the connection from the end user to the local exchange. In the case of Exetel's ADSL1 services these costs are determined by Telstra and in the case of ADSL2 services are determined by Optus and AAPT. For Exetel's most used plans these port costs account for over 90% of the total cost of providing an ADSL1 service and over 80% of providing an ADSL2 service (in round figures). So the actual price of IP, which used to figure so prominently in setting end user ADSL pricing is becoming progressively irrelevant - at least up to a point.
The other two main cost components are the back haul from the local exchange via the carrier's network to the Exetel switch and then the cost of IP (either 'pure' or 'cached'). The cost of IP traffic used to be much higher than the cost of customer back haul but with the contribution of Akamai, Pipe and PeerApp caching as well as the recent lower costs of IP the two costs are pretty much the same. Again, it's not easy to reduce the carrier's back haul costs as they have a 'monopoly' which is a stupid way of saying that they price an ADSL port based on various elements of cost which, of course, are soley involved with their service provisioning.
The other key consideration, affecting the bandwith costs per user, is the average amount of customer downloads and, just as importantly, the peak download times. The average amount of downloads per customer has gradually increased year on year for the past 7 years and the 'curve' continues to gradually 'steepen'. In general terms the total customer IP band width requirements have increased almost proportionately to the reduction in bandwidth costs (at least across Exetel's customer base) so the progressively lower costs of IP bandwidth have only been sufficient to keep the total supply costs at around the same percentage as in previous years.
The 'added value' provided by Exetel on its broad band plans is now becoming a more significant component of the total cost equation as we have moved to add real value that has real costs such as the SMS/FAX/VoIP call components. It is these added value components (and the ones planned for the future) that are making the decision on IP so much more difficult. While it's true we could buy these various components from different carriers and essentially their pricing is independent of the IP pricing it's my view that this is becoming less the case today (as our volumes, small as they are at the moment, continue to grow).In my opinion, based on nothing other than my own observations, the 'whole of business spend' has become the over riding 'mantra' for our larger suppliers.
Right now - there is exactly $A1.00 per mbps between the four quotes we are considering for IP bandwidth - which makes price an irrelevant aspect of this particular decision. We could, literally, flip a coin to make the decision without the result affecting our ability to provide services at the lowest possible costs in any way - perhaps that's what we will do. But.....I am now seriously annoyed at the difference in trading terms apparently being provided to Exetel's larger competitors by at least two of our current suppliers - not because of my obvious inability to negotiate effectively (though there's probably an element of that) but that in providing such terms these suppliers are delivering a huge competitive advantage in terms of funding their promotional activities to our significant detriment.
We certainly don't want better trading terms - I would regard that as almost criminally reprehensible for a small company as well as being very, very dangerous. However if our major suppliers are going to 'advantage' our competitors by subsidizing their pricing and promotional activities then why should we support the suppliers who are assisting our competitors drive us out of business?
...and yes, I can see the stupidities in that view......and yes, I understand there are many, many factors in setting a price for a wholesale customer and size of business is very much a component of that.......I did say that this simple decision making process was now affected by 'emotional' issues. It 'rankles' and I can't seem to get rid of that absolutely non-commercial view.
Life used to be much easier than this.