Saturday, March 6. 2010Plus Ca Change, Plus C'est La Meme ChoseJohn Linton
http://public.mrtg.exetel.com.au/bwsummary/total-supplier-bandwidth.html and scroll down to the bottom of the first four MRTG reports. You will see that the average IP usage by Exetel customers has doubled on average over the past year and that (from the top graph on that page) it now peaks at around 5.5 gbps briefly twice a day. 12 months ago we were paying close enough to double what we are paying for IP bandwidth today which reduced by around 25% in August last year and all bandwidth we purchased from November onwards we paid around 50% of what we paid in March 2009. On a 'melded' basis we are paying around 35% less for bandwidth (per mbps) than we did 12 months ago but we are using double what we used 12 months ago. However our other costs, ADSL port charges, customer connectivity bandwidth have not reduced over that time and our support costs have risen as we move towards meeting the 1 minute call wait times we aspire to be providing by mid 2010. We are in the final stages of selecting a 'short list' of suppliers to deal with post July 1 this year and there are some new vendors that we are considering although, as almost always in business, our preference is to stay with people we know and have some reasonable knowledge of. IP, as always, continues to fall. This is partly due to our continually growing purchase volumes and partly because there are significant technology advances for the cable owners that lower their operating and delivery costs - (more capacity on the same physical infra-structure). Similarly the cost of inter-State connectivity continues to fall with some well overdue falls to some of the 'smaller' locations. So we would expect to be able to obtain significant discounts in both IP and inter-State transits post July 1st but, as you would see from the MRTG reports in the user facilities month on month growth in customer usage leaves the cost per customer pretty much the same even if , over a year, you manage to reduce those costs by 50%. Our major problem is the actual port monthly rental costs and the cost of the port provider's bandwidth cost between the customer exchanges and our POIs. It is absolutely unfathomable for me to understand that we we now buy IP at a slightly cost than the carrier's charge us for back haul from their exchanges. At today's IP rates of sub $A70.00 for IP and falling towards $A50.00 we will soon be paying 20/30% less to get data from the other side of the world than we do for data from 2 kms away.These costs remain disproportionately high and mean that even at a notional $A1.00 per month profit it is difficult to keep the costs of providing ADSL services to residential customers above break even without the constant 'micro-management' that sometimes annoys some percentage of current customers at any given time. We intend to address that issue differently this year after failing to make any progress over the past 5 years and we will either get what is reasonable or we will radically re-think our approaches to residential marketplaces - there are a number of different scenarios we could consider. We want to complete our 'short list' of possible suppliers for FY2011 and also 'short list' our market approaches by Friday week so that we have a realistic time frame to bring about whatever changes are decided before the last of our current contracts are up in late August. That is a tough time frame for some of the people we are talking with who find our approach to 'negotiating' unusual (no meetings and discussions - just a reply to our RFP in writing with any questions put and answered by email) and definitely no "what price are you looking for" nonsense. It always surprises me that so many large companies are so 'flexible' in their pricing that it can vary so widely. I wonder why they do that? I learned a really hard lesson on the last trip to Sri Lanka. In the 'negotiations' we had for the rental cost of the new floor space and then for its fit out I asked for, with no negotiation permitted, pricing that was 20 - 30% better than that being offered - and got my asking price. It showed me what a complete fool I had been when we first went there and got completely ripped off in our total naivety. I don't intend to continue to make that mistake in paying far too much to Australian suppliers as we have for the past six years. It is humiliating to realise how incompetent I have been all these years and how much more difficult my incompetence has therefore made it for Exetel to survive let alone grow. No fool like an old fool describes the last six years perfectly. Maybe I just don't understand this industry now? Maybe I never did? Trackbacks
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"It always surprises me that so many large companies are so 'flexible' in their pricing that it can vary so widely. I wonder why they do that?"
I'd say that's pretty normal - start high and see if the customer will pay it. Then reduce it until they buy. "...and definitely no "what price are you looking for" nonsense" I agree, the face to face haggling is tedious. Have you thought about conducting a reverse auction where they are aware of each other's bids and can submit new bids? Then the haggling is done by their competitors. Comments (2)
We've never done that - and that's difficult if you have any ethics or even any regard to the requirements of confidentiality usually required by most commercial paperwork. ie. a requirement not to disclose the information to third parties.
I have always used the 'submit one price' and we will base a decision on that which has worked well in my private life but clearly isn't optimal in today's commercial life. Comments (5)
John, recently (after being involved in IT tenders for over 10 years) I came across a unique concept which is complimentary to a standard RFP or RFQ process. It was a concept called "best and final offer (BAFO)', pretty simple & it works like this!!
Tenders are sent to 4-5 vendors for the required service. The resultant proposals are scored based on predefined criteria (Eg. 40% on technical & 60% on price etc). Two vendors are then shortlisted based on the scoring and all outstanding questions are resolved with these two vendors. Then, you request the 2 vendors to submit their BAFO, this then becomes a pure $ for $ comparison and keeps the vendors on their toes. I was truly amazed how much vendors will cut pricing when they know they have a fighting chance! Interesting concept that I have seen to work extremely well. As a new Exetel customer, I enjoy reading your blog and keep up the good work. Also, appreciate the work you are doing in SL, I was born there abit lived in Aus most of my life. Comments (2)
I wasn't suggesting anything unethical or breaching confidentiality. All participants would be invited to participate and fully aware of the process. If they didn't wish to participate on those terms, they can just say "no thanks".
Comments (2)
Did you see our ad in the Melbourne SL monthly newspaper?
Comments (5)
No, but I will have a look when I get my hands on a copy.
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It's interesting that there has been very little growth in outbound traffic over the year, despite more users and considerable increase in inbound traffic.
I'm wondering what the rate of growth in individual usage shows. Do you have any public graphs showing average monthly traffic per user (understand if this is commercially sensitive)? On a different path, my Parents are about to come off contract with Three for their 3G internet Service. They are very unhappy with the service they are on. They live in Bondi Junction and there seems to too many users in this area leaving them with a poor service most of the time. They rarely use more than 2gb a month, but enjoy streaming from sites like youtube which can be painful. They have spoken to neighbors using Optus and Vodaphone 3G, but they all have similar issues. So it looks like ADSL/2 is the way forward for them (for now). After your comments a few days ago about Eftel, I took a look at their offerings. The idea of 10Gb over a 3 month period I think is very good for this type of customer. But I would like to recommend a more financially sound company to provide their service. Is Exetel considering anything like this? Even if you counted both up and down, I think this style of plan is a winner (if you can do it profitably). Peter. Comment (1)
I think most wireless congestion problems will be addressed by all carriers who, from what is observable, have been more successful than they expected.
Bear in mind that Telstra got to over 400 'congested' ADSL exchanges before they started a program of upgrades only quite recently. EFTel is not a company we 'monitor' in terms of what they do as, up to the time I stopped looking some years ago, all they did was copy. Comments (5)
I am a little confused by and would be interested to understand the thought processes behind the statement "and there are some new vendors that we are considering although, as almost always in business, our preference is to stay with people we know and have some reasonable knowledge of."
The confusing bit for me is I remember reading on a number of occasions in your blog that you were frustrated / scornful / perplexed / annoyed (I can't remember the exact sentiment) at potential commercial customers who were content to pay higher prices to a competitor for similar services to those Exetel offered on the basis that their "preference is to stay with people we know and have some reasonable knowledge of". Comments (2)
Apart from Telstra where we have no choice we have never continued to buy from a supplier if they don't meet our price expectations - we have/would never pay a 'premium' just to stay with a supplier.
The difference is, probably, that we spend our own money - not that of 'the company'. Comments (5)
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