John Linton ......when we start looking at our IP and national interconnects again. How time continues to speed by.
Like many other buyers of bandwidth, Exetel has two or three year contracts with its suppliers that have annual review clauses in them. Like everyone else who has been around the communications industry for more than 'five minutes' we know the patterns of price changes and the mechanisms that trigger those changes. Having been around since the days when 2 mbps of IP connectivity to the USA cost the best part of $US1 million a year we have seen some amazing falls in IP costs over that time. Similarly the cost of national interconnect between the different Australian capital and other large cities has also fallen dramatically since we first installed 128kbps between Sydney and Melbourne in the early 1990s using ISDN. Ahh, those were simpler and slower days with little or no pressure.
Today, Exetel's IP and national network is rapidly closing on 10 gbps and will go past 12 gbps early in 2012 heading towards 18 gbps by the end of that year - if we meet our planned targets. We have three main suppliers of IP and three main suppliers on national interconnect. Another major factor is that increasing amount of our 'IP' bandwidth is delivered via Google and Akamai cache as well as local peering points, particularly in Sydney. Cached IP now accounts for closing on 3 gbps of our total 9 gbps on an average day. That trend is likely to continue in to the future though it's difficult to measure. So we go into the 'negotiating season' this year with a different set of needs than in any previous year.....and with the knowledge that we have always paid too much for both types of bandwidth in the past.
The obvious complication in changing bandwidth suppliers is that no sane person wants to go through the potential disruption of moving providers because of all the installation and change over hassles involved....so incumbent providers always have a starting advantage in contemplating changes. Having said that - Exetel has changed suppliers on several occasions because 'incumbents' over play their 'hand' and end up losing the business. Incumbents always have management who measure their sales people on an NSRI basis (they take the level of current revenue as a given and only look at increasing that revenue - pretty difficult to do in a falling market) which usually negates their advantage of no hassle upgrades. In this instance say we are paying $30.00 per gbps for IP and are now looking for $15.00 per gbps we would have to buy twice as much from supplier x just to maintain their revenue at the same level. As we are not contemplating doubling our IP at this time our current suppliers are at a disadvantage to 'new' suppliers who have no current revenue from Exetel to protect.
I am not yet sure what price we will establish for either IP or national interconnect but it will be much lower than we signed up for last year. The quantity is likely to be 20% to 30% more than we have now but we are, as always, looking for a net reduction in our IP and interconnect monthly bills. Without understanding any of the situations with our current suppliers I think it's likely that we will buy directly from Southern Cross this year instead of buying through one of their re-sellers. As we progressively upgrade our interfaces with our suppliers from n x 1 gbps links to single 10 gbps links the move between suppliers has become much simpler - at least for us - and for the suppliers willing to provide 10 gbps bearers. So there will be some interesting discussions between Exetel and various suppliers between now and the middle of February next year.
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