Lessons from the AU model

Mark Newton newton at internode.com.au
Tue Jan 22 08:01:01 UTC 2008



On 22/01/2008, at 3:59 PM, Tom Vest wrote:

>> When the cable is full or EOL'ed its owner should have earned
>> enough to build a new one at current market rates.
>
> I believe that someone will be able to "build" (i.e., finance) more,  
> when/where more is required.

Faith-based network rollouts.  Neat :-)

> Sounds like change is afoot however; I wonder how closer to flat- 
> rate AU will come after one or two new cables are completed... ?

My guess?  There'll continue to be industry-wide acceptance of
the notion that a limit you never reach and don't care about
is indistinguishable from no limit at all, and quotas will
continue to steadily rise, stimulated by the lowering of
the costs of supply, so that more and more people will never
reach them and never care about them.

_Most_ people couldn't care less about whether their monthly
limit is 100 Gbytes or 150 Gbytes.  But there are a small number of
people who will be unhappy with any number smaller than 6 Tbytes,
which is roughly the amount you can download on a 24 Mbit/sec
ADSL2+ access tail if you run it flat-out 24x7 for a whole month.

If new cable systems lower the cost of getting across the Pacific
by a factor of 2, then 24 Mbit/sec of transpacific for that customer
will _still_ cost us about $3000 per month, so you won't see us
flocking to service those sorts of customers.  There is simply
no way that any provider in this marketplace is going to offer
to service any customers on those terms.  To get Australian
providers to sell "unlimited" access you'd need the price of
crossing the Pacific to drop by two orders of magnitude.

Despite the best efforts of some people to run their broadband
access at line rate, residential broadband is very much a
"CIR + burst" kind of service.  All of our customers can burst
to line rate (they're paying for it, so they should be able to
get it).  None of our customers can burst at line rate 24x7 for
a month without paying for it.  You can work out the CIR by
dividing the number of bits in the quota by the number of
seconds in a month.

> Here's another dynamic you missed. The coexistence of flat-rate and  
> metered access creates two tiers of regional markets: the flat rate  
> ones that generate lots of content and service innovations, attract  
> lots of talent and FDI, and over time come to occupy an increasingly  
> central position in the evolving global L2/L3 topology -- and the  
> ones that don't, whose native innovators and content providers  
> prefer to ship out or offshore production to the former. Metered  
> access exacts a price at the national level.

I don't doubt that at all, and the USA has certainly done very
well out of it.

But how sustainable is it in the long term?  You guys are
about to have some serious economic challenges that are
going to affect us too, but nowhere near as much as they'll
affect you.  I don't doubt that a difference in Internet
access pricing policies has benefited your economy, that much
is completely obvious.  But if you're going to get all
macro and holistic on me all of a sudden, are you prepared to
assert that the benefit it has brought to your economy
outweighs the other consequences that your ways of doing
business have been creating?

Because from where I'm sitting, it looks like the native
innovators are in India at the moment, and the global L2/L3
topology that's been built over the last five years has been
centering itself on Singapore, Hong Kong and Tokyo, and most
of the high-growth parts of the US economy have been based
on unsustainable debt rather than actual, existing money,
and despite your claims of high growth my standard of living
in Australia is at least as good as yours.  So don't be too
hasty to tell me all about the benefits of doing business in
the American way.  Not yet, anyway. :-)

>> Where I come from household water is already metered, so I'm
>> not sure what you're talking about :-)
>
> Agreed, but I almost never hear my water vendor claiming that my  
> rates need to be increased so they can cross-subsidize a new,  
> separate national plumbing platform.

That's exactly what my water utility is claiming.  Australia
is in the worst drought in recorded history, and all the
water utilities are saying their rates are going to rise
so that they can afford to build desalination plants and feed
them with electricity.

I'm tellin' ya, man, the parallels to this discussion are
eerie :-)

>> The only people they'll piss off will be the 2% of customers
>> they don't want in the first place.
>>
>> Hardly fertile ground for a revolution.
>
> That almost sounds unobjectionable, I'll grant you -- at least in  
> currently unmetered, high demand markets; everywhere else the  
> bandwidth demand for any/every customer segment is nothing more than  
> an artifact of whatever metered pricing plan is currently in place.  
> So the reasonableness of the bandwidth cap level is itself  
> contingent on the reasonableness of the metered plan.

The metered plan will be reasonable, as dictated by all the
competitive pressures you keep banging on about.

With multiple vendors of metered Internet access, the vendor
offering the best deal will get the customers.

"Best" varies according to the eye of the beholder.  Some prefer
high reliability, zero effective contention, on-net content sources,
titanium-plated CPE, clueful support, and hot and cold running
network engineers.  Some prefer it cheap-and-cheerful, and will
prefer the provider that costs the least amount per month regardless
of the quality.

Some shop at Target, some shop on Rodeo drive.  Some buy Ladas,
some buy BMWs.  You get what you pay for.

> But even assuming you manage to define a "reasonable" cap, how will  
> you defend it against competitors, and how will you determine when &  
> how to adjust it (presumably upwards) as the basket of "typical"  
> user content and services gets beefier -- or will that simply tip  
> more and more people into some premium user category?

You make it sound like this stuff is hard and unworkable.

Quotas and prices are adjusted according to competitive pressure.
In 2000, Telstra was offering 3 Gbyte per month caps and we were
offering 4.5 Gbyte per month.  Now the industry norm is more like
40 - 60 Gbytes.  I'm sure that in another 2 years it'll be 150 -
200 Gbytes.  Competitive pressure is every bit as powerful in a
metered marketplace as it is in a non-metered one, and to pretend
that the alternative to the current US status quo somehow involves
the end of business as we know it is just crazy talk.

In Canada, which has much lower transit costs than ,au, the benchmark
quota is presently about 100 Gbytes.  How many broadband customers
in the USA would actually have a problem with that as a limit?

Here's a question for you:

Power is metered.  Water is metered.  Gas is metered.  Heating
oil is metered.  Even cable-TV is packaged so that you pay more
if you want to use more channels...

... what economic fundamentals exist to suggest that Internet
access should be the _only_ domestic utility that's delivered to
households unmetered?

   - mark

--
Mark Newton                               Email:  newton at internode.com.au 
  (W)
Network Engineer                          Email:   
newton at atdot.dotat.org  (H)
  Internode Systems Pty Ltd                 Desk:   +61-8-82282999
"Network Man" - Anagram of "Mark Newton"  Mobile: +61-416-202-223








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