Kordia's 'OptiKor' transtasman cable still progressing

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samsam

167 posts

Master Geek

#483302 20-Jun-2011 17:43

generally the return on investment is calculated on a yearly basis. You would expect to get a return atleast as good as your next best option if you are to invest in a project.

Beccara

1469 posts

Uber Geek

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#483327 20-Jun-2011 18:29

Same old arguments.

It's worth noting that the Kordia cable right now is planned for Akl-Syd and MAYBE down the line to USA.

Once again there are minimum costs over the life of a cable, If you take Pacific Fibre which let's say has 6Tbit/sec (A little more than planned) and a cost of $400million US( ~$496million NZD) with a lifetime of 20 years.

Taking all this into account and a flawed assumption of no running costs/repair costs/You sell 100% of capacity etc etc etc then you have a price of US$271 per Gbit per month (US$0.26/mbit/month)

Add in on top of this that you have NZ delivery cost's depending on where you are and also that price only gets you to the US West Coast, You still have to pay to connect everywhere else.

Buying in bulk from Vocus/Pacnet/Kordia right now you can get $75/mbit for international which I personally say is not that far off the price floor of these cables.

For the Kordia cable it's NZD$100million or $68/gbit/month and that just gets you Sydney :)

tl;dr Cables cost alot in 13,000km lengths, International wont drop that much - See MTR :P

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Screeb

698 posts

Ultimate Geek

#483336 20-Jun-2011 18:46

samsam:

Your maths is completely out of whack. A 3% annual return on $1bn over 10 years is ~$1.34bn, not $1.7bn. 0.15/1.7 is almost 9, not 8. Not that it matters, since it should be 11.2% (0.15/1.34) instead. And even then it's a meaningless figure, because:

samsam:
(if they didn't build the cable they would have 1.7 billion USD).

No they wouldn't (even at 1.34 instead of 1.7). It wasn't their money, so they couldn't have earned 3% on it for doing nothing. (Please let me know where I can borrow $1bn and make a profit from letting it sit in a bank)

Screeb

698 posts

Ultimate Geek

#483343 20-Jun-2011 19:13

Beccara: Same old arguments.

It's worth noting that the Kordia cable right now is planned for Akl-Syd and MAYBE down the line to USA.

Once again there are minimum costs over the life of a cable, If you take Pacific Fibre which let's say has 6Tbit/sec (A little more than planned) and a cost of $400million US( ~$496million NZD) with a lifetime of 20 years.

Taking all this into account and a flawed assumption of no running costs/repair costs/You sell 100% of capacity etc etc etc then you have a price of US$271 per Gbit per month (US$0.26/mbit/month)

Add in on top of this that you have NZ delivery cost's depending on where you are and also that price only gets you to the US West Coast, You still have to pay to connect everywhere else.

Buying in bulk from Vocus/Pacnet/Kordia right now you can get $75/mbit for international which I personally say is not that far off the price floor of these cables.

For the Kordia cable it's NZD$100million or $68/gbit/month and that just gets you Sydney :)

tl;dr Cables cost alot in 13,000km lengths, International wont drop that much - See MTR :P

I don't see how any of this makes sense. Firstly, in 20 years, PF is going to be capable of far more than 6Tbps - a 100Gbps/wl upgrade (as SXC is planning for in a few years) would make it 12Tbps, and there will be no doubt many other upgrades before 20 years. Of course none of that is really relevant because you haven't speculated on any real costs or demand. Your figure of "US$271 per Gbit" is completely meaningless, so to make any judgments based on the fact that "you can get $75/mbit for international" currently is nonsense. Never mind that the running cost per Mbit has almost nothing to do with the length of the cable - so why is it that other international cables offer cheaper bandwidth, if it's already almost as cheap as it can get?

Whether or not the Kordia cable is worth it in light of PF, I don't know, but evidently Kordia are willing to bet that it is.

oxnsox

1923 posts

Uber Geek

#483364 20-Jun-2011 19:55

tdgeek: ---tdgeek: Who will pay for it? The number of users is static--- ---(edit)...

A good analogy is that you own a dairy. It provides a acceptable income. This income is worth it based upon what you have invested into the dairy, and allows for more money to be spent adding more capacity. Two more open up across the street, now you share the same number of customers between you. If you retain the prices, your revenue is down by 66%.
.....(edit).....
My theory will however, be completely incorrect if most customers are prepared to pay more for broadband.

The error in this analogy is that it forgets that with more dairies, and more competition, the customers with shop more often... ultimately spending more.

If we have choices for more bandwidth/larger datapacks... won't we embrace them?

samsam

167 posts

Master Geek

#483428 20-Jun-2011 21:49

wow sorry that was some really bad maths, even then 10% doesn't seem that bad. Im sure someone would lend you 1 billion dollars if you could make interest payments on it, and if you then wanted to invest it in a bank that would be up to you

Beccara

1469 posts

Uber Geek

ID Verified

#483434 20-Jun-2011 22:10

Screeb:
Beccara: Same old arguments.

It's worth noting that the Kordia cable right now is planned for Akl-Syd and MAYBE down the line to USA.

Once again there are minimum costs over the life of a cable, If you take Pacific Fibre which let's say has 6Tbit/sec (A little more than planned) and a cost of $400million US( ~$496million NZD) with a lifetime of 20 years.

Taking all this into account and a flawed assumption of no running costs/repair costs/You sell 100% of capacity etc etc etc then you have a price of US$271 per Gbit per month (US$0.26/mbit/month)

Add in on top of this that you have NZ delivery cost's depending on where you are and also that price only gets you to the US West Coast, You still have to pay to connect everywhere else.

Buying in bulk from Vocus/Pacnet/Kordia right now you can get $75/mbit for international which I personally say is not that far off the price floor of these cables.

For the Kordia cable it's NZD$100million or $68/gbit/month and that just gets you Sydney :)

tl;dr Cables cost alot in 13,000km lengths, International wont drop that much - See MTR :P

I don't see how any of this makes sense. Firstly, in 20 years, PF is going to be capable of far more than 6Tbps - a 100Gbps/wl upgrade (as SXC is planning for in a few years) would make it 12Tbps, and there will be no doubt many other upgrades before 20 years. Of course none of that is really relevant because you haven't speculated on any real costs or demand. Your figure of "US$271 per Gbit" is completely meaningless, so to make any judgments based on the fact that "you can get $75/mbit for international" currently is nonsense. Never mind that the running cost per Mbit has almost nothing to do with the length of the cable - so why is it that other international cables offer cheaper bandwidth, if it's already almost as cheap as it can get?

Whether or not the Kordia cable is worth it in light of PF, I don't know, but evidently Kordia are willing to bet that it is.

Upgrades cost money and if you read my post closely I've noted that my figured don't include any running costs what so ever or maintenance or interest on the loans to build it etc etc etc. The figure is merely to point out that there is a price floor for the cost of International bandwidth. My figure of US$271/gbit is simply the raw cost of the cable over 20 years

Also the "running" cost (which I dont get into in any way shape or form in my post) does have a certain degree of bearing to the length since PF is not a loop there will be a cost to keeping repair teams on some level of standby at either end and a couple of midpoints.

As for other cables offering cheaper I'd like some sources on that, Cable cost, Life span and amount of capacity sold all have bearing on the price offered to users of the cable as do the politics. AT&T for example may sell bandwidth on a transatlantic cable below cost simply to maintain a monopoly on it

Also didn't I read somewhere recently that SCC already sells capacity to buyers at the same price regardless of it's landing in Akl or Syd?

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tdgeek

29751 posts

Uber Geek

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#483435 20-Jun-2011 22:16

---The error in this analogy is that it forgets that with more dairies, and more competition, the customers with shop more often... ultimately spending more---

Good point. So, going back to NZ, the number of broadband users will be largely static. So in spending more, this means the same number of customers will spend more. If a customer spemds $40 on a 3Gb plan, how much more will they spend? I thought the idea was to have competition, therefore to save money?

Now, dont get me wrong, I see the arguments, competition, reduced prices, etc, that is all good and that is a free market. What my point is, is that the costs of providing triplicate international cable networks has to provide revenue for each, and the static number of broadband users has to pay this. If SXC was charging 300% too much, then reducing their revenue by 66% would work (assuming the 3 networks took 1/3 market share). The dairy analogy is a good one. Customer numbers dont change, total revenue doesnt change (as no one wants to pay more for what they already have), the number of cable providers increases 300%, triplicating what we already have.

jeffreyh

54 posts

Master Geek

#483454 20-Jun-2011 23:06

You exclude the possibility that with innovation people might like to visit your local dairy from other suburbs. A cable has 2 ends and people that travel over your infastructure from either direction can help grow your revenue

Screeb

698 posts

Ultimate Geek

#483474 21-Jun-2011 00:34

samsam:
Im sure someone would lend you 1 billion dollars if you could make interest payments on it, and if you then wanted to invest it in a bank that would be up to you

Yes, but the result is a loss of money, or at best, no profit. Not 3% or whatever. In other words, the interest payments you have to make negate the interest you earn from the bank. So any profit you make should be compared to the base amount, not the interest-appended amount.

Beccara:
Upgrades cost money and if you read my post closely I've noted that my figured don't include any running costs what so ever or maintenance or interest on the loans to build it etc etc etc.

Yes, I know, but it's irrelevant given that this:

The figure is merely to point out that there is a price floor for the cost of International bandwidth. My figure of US$271/gbit is simply the raw cost of the cable over 20 years

is wrong, due to what I said before - 6Tbps is not going to be the average maximum bandwidth over the next 20 years. You simply can't know the raw cost when you don't know exactly what speeds the cable will be capable of at what time. Regardless, the figures you do come up with don't support your argument anyway - $0.26/mbit/month minimum cost vs $75/mbit/month current price - that's a lot of room for other costs. I don't see how you can say that $0.26/mbit/month means that $75/mbit/month is not much more than we can expect. Why can't it be $30/mbit/month? You don't specify the additional costs that make up the rest of the price.

Also the "running" cost (which I dont get into in any way shape or form in my post) does have a certain degree of bearing to the length since PF is not a loop there will be a cost to keeping repair teams on some level of standby at either end and a couple of midpoints.

That's a fixed cost, not a per-Mbit cost.

As for other cables offering cheaper I'd like some sources on that, Cable cost, Life span and amount of capacity sold all have bearing on the price offered to users of the cable as do the politics.

You want sources on SXC being expensive compared to other international cable prices? Really? I mean, to be honest, I haven't looked up the figures anywhere, but I'm pretty sure it's not exactly a secret that bandwidth on SXC is comparatively expensive.

Cable cost and life span are fixed costs, so given that SXC is already paid for, they're irrelevant. The amount of capacity sold is directly related to the price, not the other way around. That is, if the price is lower, they will be able to sell more capacity.

AT&T for example may sell bandwidth on a transatlantic cable below cost simply to maintain a monopoly on it

That's completely unsustainable, not to mention extremely unlikely, given the number of competing cables over the Atlantic - there's no way a single operator could have a monopoly there. And besides - if it were true, then what's your point? Why can't we have that situation here? You seem to be more concerned about how much money an operator could make, rather than how cheaply it can be provided to the customer.

Also didn't I read somewhere recently that SCC already sells capacity to buyers at the same price regardless of it's landing in Akl or Syd?

Yes, except that they sell bandwidth in too high amounts to be practical for most NZ ISPs (and so they have to buy from resellers at a higher price), while AUS ISPs don't have as much of an issue. There's also not as much relevant US cable competition in AUS as you might think.

Beccara

1469 posts

Uber Geek

ID Verified

#483533 21-Jun-2011 10:35

At the end of the day people like you and a disturbing amount of people in the industry seem to think that more cables are going to drop the price of International through the floor (Some think with PF you'll see $10-20/mbit prices) and this simply isn't the case

The other main thing you all seem to think is that PF and Kordia are going to sell the pipe in tiny chunks, I know for a fact that the Kordia cable wont be selling directly to ISP's in any smaller chunks than SCC and PF haven't come out and said anything to say they would be either so even with these new cables we'll all still be buying International Transit off the current players.

People just need to accept we are in the middle of nowhere with a tiny population that are pretty tight when it comes to spending money

Screeb

698 posts

Ultimate Geek

#483656 21-Jun-2011 14:05

Beccara: At the end of the day people like you and a disturbing amount of people in the industry seem to think that more cables are going to drop the price of International through the floor (Some think with PF you'll see $10-20/mbit prices) and this simply isn't the case

People just need to accept we are in the middle of nowhere with a tiny population that are pretty tight when it comes to spending money

Not everything is black and white. I'm not saying that the price will drop "through the floor", but you're saying that they'll hardly drop at all. There's a middle ground. I believe that prices will come down substantially with the introduction of PF - enough for me to care about. I don't know that Kordia would have much effect though.

The other main thing you all seem to think is that PF and Kordia are going to sell the pipe in tiny chunks, I know for a fact that the Kordia cable wont be selling directly to ISP's in any smaller chunks than SCC and PF haven't come out and said anything to say they would be either so even with these new cables we'll all still be buying International Transit off the current players.

No, they won't necessarily sell in smaller chunks. The point is that they will probably sell those chunks cheaper than SXC currently do, making it more feasible for an ISP to purchase. So while an ISP may be able to afford only 2.4Gbps on SXC, they might be able to get 4.8Gbps for the same price on PF, doubling their international bandwidth capacity. Oversimplified, but that's the basic idea.

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