19 cents per GB about right?

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richgamer

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Topic # 29888 22-Jan-2009 14:20

i was reading an article which said it costs isps less than us10cents which is nz19cents per gigabyte for international data using the southern cross cable. the article also says costs could be higher if the isp signed a contract when the price was higher and their contract hasn't expired yet.
anyone know if telecom or any nz isp has a contract with the southern cross cable with the lower 19 cent per gig price? if this is the case, then i know an isp has to make a profit so lets say an isp wanted to make a 3 dollar profit per gig downloaded by it's users which would make the price $3.19 per gb. if this was the case then an isp could have these plans:

$31.90 for a 10gb plan
$63.80 for a 20gb plan
$127.60 for a 40gb plan

i compared these to telecom's broadband plans which are:

$49.95 for a 10gb plan. so it seems telecom may be charging $18.05 more than it needs to.

$59.95 for a 20gb plan. telecom may be losing $3.85 on this plan, so it cheaper than the price it's buying data for.

$79.95 for a 40gb plan. telecom may be losing $47.65 on this plan.

or telecom could be counting on the fact that most customers probably wont use that much data. but good on telecom for it's $59.95 and $79.95 plans. although the 40gb plan has an excess charge of 2c/MB which seems very overpriced when 19 cents may buy a gig.

however as i said above, the $49.95 10gig plan may be $18.05 overpriced. for $49.95 the plan should have a 15gig cap, not a 10gig cap.

i wonder if anyone can just ringup the southern cross cable company and just say u want to start an isp and ask how much a gig of international data costs. anyone know if the commerce commission has done this?

article that says us10 cents per gig:
http://www.businessday.co.nz/industries/telco_it/4748203

article that says $10 for 30gig:
http://www.stuff.co.nz/4560779a28.html

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Phil Gale
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Reply # 191307 22-Jan-2009 14:34

This is an incredibly simplistic and unrealistic view of an ISP's operating costs.

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Reply # 191309 22-Jan-2009 14:40

That only covers the data.
What about paying the staff, phones, power, advertising etc etc ?
The ISP has got to be able to pay for all the other ongoing services and hardware.

I know what youre getting at, but I think at this point in time, data in NZ for consumers is as cheap as its going to be for a while.

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coffeebaron

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Reply # 191349 22-Jan-2009 17:17

Also the ISP's don't pay by how many gigabytes, they pay for how fat the pipe is; i.e. how many gigabytes can pass through their pipe per second. That 20c per GB could be the cost per GB if their pipe is running at full capacity 24/7. However, if the pipe is only running at full capacity say 6 hours per day (i.e. peak time), then that would make the per GB cost 80c - i.e. 4x the cost, as the pipe is running full capacity only 1/4 of the time.

Again, a simplistic view, but that's the general idea.

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raytaylor

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Reply # 191404 22-Jan-2009 22:57

An isp in auckland would typically pay approx $350-400 per month, per megabit of upstream traffic.

A one megabit pipe would transfer 324gb a month. Cost price is 350/334= $1.08 per gb.
They also have to pay chorus $26.67 per month to provide the dsl link between you and them.

So a 10gb plan costs
(10x1.08)+26.67=$36.75

If they sold that to you for your proposed $31.90 then they are loosing almost $6

Now on top of that $31.90 they also have to provide customer support at ~$13-16 an hour per support rep so to have a minimum of 10 support staff on 24/7 thats $130 an hour. $93,000 a month.

Plus add on buildings, server hardware, stationary, marketing, network administration staff etc. The costs add up.

If we just took the retail of $49.95 less the data cost of $36.75 then we have $13.25 per customer left to pay the support staff, the building rental and still need to make some sort of profit from it too.

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Screeb

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Reply # 191586 23-Jan-2009 15:37

Someone want to tell me then, why NZ broadband is so much more expensive than in the US, for instance? Why can't we have unlimited data, if, according to SCC, "medium to heavy broadband users pay an average of only US$3.50 a month to use the network" (Stuff link). So by that measure, NZ broadband should only be up to US$3.50 more expensive than US broadband for medium to heavy users (complete with unlimited data, or the data caps of US providers), and even less for light users. Why isn't that the case? I thought NZ was "isolated, therefore must pay more for international data". So much for that argument, huh!

Screeb

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Reply # 191591 23-Jan-2009 15:40

raytaylor: An isp in auckland would typically pay approx $350-400 per month, per megabit of upstream traffic.

A one megabit pipe would transfer 324gb a month. Cost price is 350/334= $1.08 per gb.
They also have to pay chorus $26.67 per month to provide the dsl link between you and them.

So a 10gb plan costs
(10x1.08)+26.67=$36.75

If they sold that to you for your proposed $31.90 then they are loosing almost $6

Now on top of that $31.90 they also have to provide customer support at ~$13-16 an hour per support rep so to have a minimum of 10 support staff on 24/7 thats $130 an hour. $93,000 a month.

Plus add on buildings, server hardware, stationary, marketing, network administration staff etc. The costs add up.

If we just took the retail of $49.95 less the data cost of $36.75 then we have $13.25 per customer left to pay the support staff, the building rental and still need to make some sort of profit from it too.

Your figures are flawed. You're assuming that each person uses exactly the amount of data cap their plan is allocated each month, which is absolutely not true.

raytaylor

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Reply # 191624 23-Jan-2009 17:00

Screeb:
raytaylor: An isp in auckland would typically pay approx $350-400 per month, per megabit of upstream traffic.

A one megabit pipe would transfer 324gb a month. Cost price is 350/334= $1.08 per gb.
They also have to pay chorus $26.67 per month to provide the dsl link between you and them.

So a 10gb plan costs
(10x1.08)+26.67=$36.75

If they sold that to you for your proposed $31.90 then they are loosing almost $6

Now on top of that $31.90 they also have to provide customer support at ~$13-16 an hour per support rep so to have a minimum of 10 support staff on 24/7 thats $130 an hour. $93,000 a month.

Plus add on buildings, server hardware, stationary, marketing, network administration staff etc. The costs add up.

If we just took the retail of $49.95 less the data cost of $36.75 then we have $13.25 per customer left to pay the support staff, the building rental and still need to make some sort of profit from it too.

Your figures are flawed. You're assuming that each person uses exactly the amount of data cap their plan is allocated each month, which is absolutely not true.

Yes there is a bit of a flaw there so if an isp purchases more capacity then the price per gb rises. If they dont purchase enough capacity (assuming not everyone uses their caps) then the price per gb drops and it can be onsold to other users. I imagine most would be running their pipes at full capacity most of the time anyway to keep their upstream bandwidth cost down in which case the pricing above works out close to correct.

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NonprayingMantis

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Reply # 191844 24-Jan-2009 19:04

Screeb: Someone want to tell me then, why NZ broadband is so much more expensive than in the US, for instance? Why can't we have unlimited data, if, according to SCC, "medium to heavy broadband users pay an average of only US$3.50 a month to use the network" (Stuff link). So by that measure, NZ broadband should only be up to US$3.50 more expensive than US broadband for medium to heavy users (complete with unlimited data, or the data caps of US providers), and even less for light users. Why isn't that the case? I thought NZ was "isolated, therefore must pay more for international data". So much for that argument, huh!

you say "stuff link" but then provide no link. We have no idea what the context of that quote is.

the price of international bandwidth per Mbps is much higher for a NZ ISP than for a US/European ISP.

Plus there is the fact that US users will hardly use any international bandwidth at all relative to the amount NZ users use, since most of the content they access is through their domestoic network. So a US heavy user might only use $3.50 of international bandwidth, , but the price of that bandwidth to the ISP is much less, and he uses proportionally much less than an equivalent NZ user.

I suggets checking the commerce commission website, I'm pretty sure they have the formula which tells you approx how much of your monthly fee goes towards intenational bandwidth. IIRc it's about 20% (buit I haven't checked for a while)

Screeb

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Reply # 191870 24-Jan-2009 21:18

NonprayingMantis:
Screeb: Someone want to tell me then, why NZ broadband is so much more expensive than in the US, for instance? Why can't we have unlimited data, if, according to SCC, "medium to heavy broadband users pay an average of only US$3.50 a month to use the network" (Stuff link). So by that measure, NZ broadband should only be up to US$3.50 more expensive than US broadband for medium to heavy users (complete with unlimited data, or the data caps of US providers), and even less for light users. Why isn't that the case? I thought NZ was "isolated, therefore must pay more for international data". So much for that argument, huh!

you say "stuff link" but then provide no link. We have no idea what the context of that quote is.

the price of international bandwidth per Mbps is much higher for a NZ ISP than for a US/European ISP.

Plus there is the fact that US users will hardly use any international bandwidth at all relative to the amount NZ users use, since most of the content they access is through their domestoic network. So a US heavy user might only use $3.50 of international bandwidth, , but the price of that bandwidth to the ISP is much less, and he uses proportionally much less than an equivalent NZ user.

I suggets checking the commerce commission website, I'm pretty sure they have the formula which tells you approx how much of your monthly fee goes towards intenational bandwidth. IIRc it's about 20% (buit I haven't checked for a while)

Sorry, the Stuff link I was referring to was the one in the first post - http://www.stuff.co.nz/4560779a28.html.

> the price of international bandwidth per Mbps is much higher for a NZ ISP than for a US/European ISP.

Sure, but if it's only $3.50 USD worth per medium/heavy user per month, then it's hardly much. Why can't twice that amount paid mean twice the international data cap for the user?

The $3.50 USD figure is for New Zealanders, not Americans.

NonprayingMantis

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Reply # 191894 25-Jan-2009 01:02

raytaylor: An isp in auckland would typically pay approx $350-400 per month, per megabit of upstream traffic.

A one megabit pipe would transfer 324gb a month. Cost price is 350/334= $1.08 per gb.
They also have to pay chorus $26.67 per month to provide the dsl link between you and them.

So a 10gb plan costs
(10x1.08)+26.67=$36.75

If they sold that to you for your proposed $31.90 then they are loosing almost $6

Now on top of that $31.90 they also have to provide customer support at ~$13-16 an hour per support rep so to have a minimum of 10 support staff on 24/7 thats $130 an hour. $93,000 a month.

Plus add on buildings, server hardware, stationary, marketing, network administration staff etc. The costs add up.

If we just took the retail of $49.95 less the data cost of $36.75 then we have $13.25 per customer left to pay the support staff, the building rental and still need to make some sort of profit from it too.

good post.

One thing though, (which only reinforces your argument)

the $49.95 price is GSt inclusive, the $26.67 to Telecom Wholesale is not.

This means the actual revenue from a 49.95 plan is only $44.40

so you have a gross profit of only 44.40-26.67 = $17.73 before you take into account any sort of bandwidth, backhaul, servers, billing systems, customer service, finance, marketing, power, rent, maintenance, office overheads, depreciation and so on.

Really, it's impressive that ISPs make any profit at all from broadband. (I strongly suspect that they make a loss on low end customers)

Also remember that although pipes are rarely run at full capacity, the ISP pays on a 'max Mbps' basis. this means that if all the traffic was spread evenly throughout the day they would pay significantly less than if a big bunch comes at once (which is what happens in reality between 6 and 10pm weeknights.) so it is pretty hard to realistically convert Mbps to GB.

raytaylor

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Reply # 192181 26-Jan-2009 21:47

Really, it's impressive that ISPs make any profit at all from broadband. (I strongly suspect that they make a loss on low end customers)

Orcon used to have a 128k or 256k plan that they sold for something like $19.95 with 500mb data which Seeby was flaunting at the time as their loss leader

Ray Taylor
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Reply # 192243 27-Jan-2009 12:17

Our prices are being strangled by the near monopoly from the Southern Cross network. The Aussies have a similar reliance and the prices had been proportionally as bad.

They can charge us as much as we can stand it as there is little decent alternatives (even though they have recently been doubling the bandwidth to satisfy demand?).

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Reply # 192245 27-Jan-2009 12:30

They can charge us as much as we can stand it as there is little decent alternatives (even though they have recently been doubling the bandwidth to satisfy demand?).

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Reply # 192401 28-Jan-2009 00:35

If the prices are so sky high for our geographic isolation why hasn't anyone built a competing cable sooner?

Commercial reality is an inconvenient truth?

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Reply # 192403 28-Jan-2009 00:50

Ragnor: If the prices are so sky high for our geographic isolation why hasn't anyone built a competing cable sooner?

Commercial reality is an inconvenient truth?

The southern cross cable was a really good investment for telecom and the other partners - it launched in 2000 and was out of debt by 2005.

Prices usually tend to go down for a lot of things over time but i'm not sure if laying submarine cables is one of those things. Fuel to power the vessels that lay the cables probably cost double now what it did in 2000. I would suggest that it may cost more to lay the same cable now and therefore any new company intending on duplicating the effort might find it hard to do so without charging as much as they possibly can for the usage.

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