Lessons from the AU model (was: An Attempt at Economically Rational Pricing: Time Warner Trial)

Andy Davidson andy at nosignal.org
Sun Jan 20 23:40:48 UTC 2008


Hi,

On 20 Jan 2008, at 16:37, Andrew Odlyzko wrote:

> The more sensible end of town pays about $80 per month for about 40  
> Gbytes of quota, give or take, depending on the ISP.  After that  
> they get shaped to 64 kbps unless they want to pay more for more  
> quota.

I replied offlist to Andrew with some ideas, but I have been thinking  
more about the econometric model of Australian connectivity, and how  
interesting it is.

> When transit is costing $250 per megabit per month, there aren't  
> many other options.
[...]
>> On Sun Jan 20, Matthew Moyle-Croft wrote:
> Having a cap and slowing down afterward (64kbps or 128kbps are  
> typical) is what worked here in Oz.

The grass is always greener of course, but when I think about why ISPs  
in the UK have to cap fairly aggressively (bear in mind I pay the  
figure Andrew cited is typical for internet access in AU, and have a  
smaller quota !), there are aspects of the Australian problem that I  
am envious of.

Australia has a relatively small population (c. 20m) which would act  
as a small ceiling for demand, but the vast majority of the population  
live in relatively close proximity.  Density is highest in coastal  
regions which makes it ideal for fiber landing !  I will trust  
Andrew's numbers of $80 for a 40GB cap.

The UK has a population of c. 60m, and population density is high (12k  
people per square mile in London).  I'm more likely to pay less than  
$10/Mbit for global transit.  The small country and concentration of  
POPs in key metropolitan areas makes interconnection cheap.  Exchange  
membership and participation is hugely popular (>600 networks peer in  
London, 415 peer exclusively in the UK).  And yet I pay US$70 to my  
ISP for residential connectivity and my cap is 30GB.  Why is this ?   
Thanks to the pricing model imposed on last-mile connectivity imposed  
by the incumbent, it costs an ISP US$471/Mbit to send data to my  
customer[1].  Maybe the same data that's just come all the way from Oz  
through my transit for US$10.

It used to be the case that global transit was very expensive wherever  
deployed in the world.  As pricing fell, this fueled innovation and  
created demand for connectivity at every level - domestic, data  
centre, enterprise, carrier ...  The price of connectivity to  
Australia is likely to fall, because as the opportunity to sell  
connectivity increases, so should the number of fibers running to  
Australia (if we were all in the same room, this is the point that Rod  
would wave his arms, leap out of his seat, and announce that he's  
already half the way there and would get there first, so noone else  
needs to try :-) ).  And as economies way off to the west of the  
country grow and stabilise, then the options for sea routes to the  
country will grow.

In the mean time, that $250 figure is a market price.  Attempt to  
modify the market conditions will change the price.  But perhaps there  
are commercial activities that could stimulate demand for consumer IP  
services - here's some ideas for thought

  - What's my traffic to south Asia and the other apnic regions ?  Can  
I save some money buying *partial* routes from a large player in this  
region.  Or is the problem that actually it's the transport to  
*anywhere* out of Australia ?
  - Am I peering widely enough ?  Should I actually be stuffing a  
switch under the floor in my employer's suite and letting my buddies  
plug in ?  Peeringdb knows about eight exchanges in a developed  
economy of 20 million people.  We have more than eight in single  
cities of Europe.
  - So transit pricing sucks.  But that's one of my costs as an  
operator.  What's the pricing of a footprint in carrier hotels ?  Are  
there enough carrier hotels ?  How much am I paying for power ?  If  
real estate and power is cheap in AU, then shouldn't content network  
operators in places where power and space is expensive already be  
planning how to pop up in Australia ?
  - What about local content ?  Why is so much traffic leaving the  
country ?  Does someone need to be extremely plucky and offer bargain  
basement content hosting in the continent ?  If AU entrepreneurs are  
ignoring the online channel for retail and entertainment, then who  
wants to jump on a plane and turn this situation around with me ? :-)
  - OK, how about we proxy certain types of content unless our users  
opt out.  Any cache hits don't contribute to their 40GB monthly  
download.  If transit is the problem, then offer financial incentives  
to your users to help you not pay for it.  If you're peering IP, why  
not start "peering" your top cache hits between providers too ?
  - P2P is probably a problem for AU networks.  Contrary to most  
policy makers, there are services which use p2p as a transport, that  
don't involve the distribution of copyright material without consent.   
The next generation services that use p2p as a transport, e.g. Joost,  
have said to be trying to build proximity awareness into their p2p  
implementation.  Peering widely will help here.  As for the file  
sharers, then (I really, really hate to say it) but can you just make  
sure you're picking up the seedier parts of usenet binaries over  
peering instead, and hope people use that ?  Sad to think in these  
terms, but if we're being pragmatic ...

I'd love to hear the opinions of AU operators on these issues, and  
think that there's lessons for everyone - if AU operators can show us  
how they deploy more cost effective connectivity products, then there  
are some regional ISPs in the rest of the world who would also benefit.

Andy




[1] £1,758,693 ($3.5m) PA for a 622Mbit BT Central, (so in bandwidth  
terms, equates to $471/Mbit per month - if the central is maxxed out)  
- I posted this to Nanog in October.


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