Tuesday, July 31. 2007Pricing Of IP BandwidthJohn Linton As I catch up with what has been said in the various 'industry' publications I didn't read over the past four weeks I have become increasingly puzzled by comments from a number of ISPs that the cost of IP bandwidth has "ceased falling" or "has become more expensive" over the past few months. I can only use the information available to Exetel on the cost of IP bandwidth from both the companies whom we use at the moment, the companies we have used in the past and the companies that we approach or approach us to determine what pricing would be available to Exetel and therefore would be available to other ISPs who use IP bandwidth. As IP bandwidth is a significant cost to any ISP, including Exetel, it's something that is constantly reviewed. Based on the various proposals submitted to Exetel over the past three years the cost of wholesale IP bandwidth has continued to slowly decrease throughout that period. Over that period the cost per mbps has declined around 15% at the relatively low quantities that Exetel buys from its current providers and we are now being offered IP bandwidth from two companies at a further 15% lower than the lowest price we currently pay. While other ISPs may have already reached price points that are lower than those achieved by Exetel, and that is almost certainly the case as far as the larger ISPs are concerned, there is no indication that we can see that any IP costs are rising from any supplier - they are all continuing to fall. Currently Exetel has around 1,500 mbps of IP "upstream" bandwidth but due to contractual issues with current providers is seldom in a position to buy in quantities of more than 500 mbps with any one supplier. At the 500 mbps level the price reduction over the last 12 months has been around 23%. I look at IP costs every 2 - 3 months so that Exetel doesn't get itself 'locked in' to buying at unfavourable rates. I would expect that Exetel's IP bandwidth costs would fall over the next 9 months by a further 20% - 40% per mbps. I can see no indication that IP bandwidth costs will increase and I would expect the buy price for 'quality' IP bandwidth to be well below $A200.00 per mbps in early 2008 falling to well below $A150 per mbps by early 2009. Monday, July 30. 2007"Naked" ADSLJohn Linton The ability for carriers/providers to buy a copper line from Telstra without a dial tone has actually been around for over 30 years and has been utilized to carry data for all of that time (initially and still predominantly in the âback to baseâ alarm scenario). Exetel's directors, in a 'previous life', were offering 2 mbps x 2 mbps data services over what were then known as âPAPLâ lines from Telstra in the early 1990s when the cost of such a line from Telstra was $120.00 per month compared to over $2,000 per month for a PRI â the only difference being the PAPL distance was constrained to around 3 kilometers making it only of use to a service provider for customers in a cityâs CBD. More recently Telstra has been âforcedâ by the ACCC to provide termination of a PSTN line to another carrierâs dslam in an exchange without making a charge for the dial tone service â in other words itâs a copper line that runs from an end point to an end point carrying a signal generated by whatever devices the lessee of the line (the carrier/service provider) decides to install. The charge for such a line is much less than that charged for a line that carries a dial tone. This means that organisations such as Engin (who offer VoIP plus ADSL) can reduce the line cost they must include in the end user price and organisations such as TPG can reduce the cost of their ADSL2 service. While this will appeal to both vendors and some buyers of communications services it can only be offered to customers connected to those exchanges where the carrier/service provider has dslams and is restricted to customers who wish to give up their âconventionalâ telephone service and current telephone number. Exetelâs current suppliers (Optus and Powertel) will probably take whatever cost savings they may achieve in to consideration in the future but neither company has yet made any definitive statements to Exetel about what that might be or even if any such service will be offered. Monday, July 30. 2007Video On DemandJohn Linton One of the first meetings I attended when I returned to the office was with a prospective supplier of VOD services. Exetel has looked at VOD for around 18 months but has never proceeded with offering a service due to the cost of each title to the end user and the lack of 'new release' titles. Over time these two major negatives continue to get closer to a viable service and the latest discussions are as close as I have seen - while still not meeting what I would think would be required by most people. While I was away I was in contact with an old acquaintance from my IBM days who went to work with Sony in the late 1970s and is now a very senior person within that organisation. He mentioned that Sony had been looking at VOD (directly/semi directly by Sony) as an additional part of its distribution process for some time as a counter to the growing loss of business caused by internet piracy. Sony, and any other major studio's concerns are obviously on not disturbing their current main source of income which is their distribution by the cinema chains and secondly by the DVD rental and sale chains. He made the point that a "Sony Direct" VOD was not possible in the current distribution environment and because of that the cost of using a third party plus the time restrictions on protecting the current distribution arrangements would continue to make VOD a non-starter from a major/established studio's viewpoint though the pressures to do something about piracy via the internet were growing stronger each quarter. In the meantime Exetel will probably begin a trial of VOD with one of the current suppliers in the near future to determine the 'popularity' of such a service within the current negatives and to more accurately determine how to address those negatives. Thursday, July 26. 2007Tough Times For Smaller ISPsJohn Linton Just before leaving I had participated in a decision to increase all of Exetel's ADSL1 prices. Our reasons were that the increasingly extensive use of P2P coupled with a move to higher speed plans by our current and new users had driven the 'average' bandwidth usage to almost double what it had been less than a year ago. The growth in usage per customer has almost doubled over the last 12 months and the trend seems likely to continue as an ever larger percentage of users move to higher speed plans and more people stream video and use P2P applications to maximise download speeds on 8192/384 ADSL1 services and the higher speed ADSL2 services. It's unlikely that Exetel users are markedly different to other ISP's users so it was pretty obvious why many other ISPs had also increased their prices some time before we did. However, that doesn't seem to be a reason to either go broke (as Koala did) or, in the case of a small visp like Kern, simply hand over your user base to your supplier. It was obvious in the case of previous recent ISP bankruptcies (aaNet, Wild, Veridas etc) that those companies were incredibly poorly managed and were forced out of business by their creditors. While it's unlikely that a tiny company like Koala was any better managed than the other ISPs that went broke, Kern seems to have been in business for a very long time. The model another company (WCG) used that sent them broke was providing services to these very low end ISPS/VISPS that was always a disaster waiting to happen - goodness knows how WCG managed to convince the credit controllers of tough companies like Optus to give them credit when their end customers were fiascos like Wild. It seems to me that becoming a wholesaler of services to very small other companies isn't a sensible approach to a business model but clearly Optus has different ideas in their ongoing support of M2, iSeek, WCG (until they went broke) and even smaller 'dabblers' such as LetsGo who buy from iSeek and then resell to tiny ISPs who have no hope of ever surviving.. Perhaps the reasons will become clearer over the next few weeks?
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