John Linton
It's the time of year that we re-look at our basic supply contracts (which we try to only ever sign for twelve months at a time) and we also re-examine our general 'directions' and begin the basic planning for the coming new financial year. If you are an Exetel customer then you can go to the User Facilities:
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?