Lessons from the AU model

Simon Lyall simon at darkmere.gen.nz
Tue Jan 22 09:25:57 UTC 2008


On Tue, 22 Jan 2008, Tom Vest wrote:
> 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?

Seriously Tom it's not *that* hard and like we've been saying plenty of
ISPs in many countries manage to do it. The different companies just play
around until your profit, costs and income all balance nicely

In NZ and Aus as the costs of bandwidth have decreased (and the demand has
increased) then the bandwidth quotas have tended to go up.

Lets say that a customer costs around $25 per month in last mile charges,
staff, billing, marketing, profit for a 6Mb/s DSL. In the US right now you
spend $5 on marginal bandwith usage which at $10 per MB/s gets you 150GB
across the month.

In Australia where the bandwidth cost is closer to $200 per MB/s per month
that $5 only gets you around 8GB. Pricing flat rate will either put you
out of business or cost so much that you not get 90% of customers.

So in Australia you'll do a $30 cheap account with a 5GB/month quota, a
$40 account with a 15GB Quota and a $60 account with a 40GB/month quota.
This keep you bandwidth cost about the same and allows you to capture low
end customers for $30 as well as heavier users at $60. Cheap entry level
option and heavier users can pay more to get more.

In the US 150GB is more than 90-something percent of users do and 6MB/s
line speeds ( mostly) keeps the heavier users from going high enough to
screw the average above that. So you keep a simple flat pricing scheme
because that is easier to market and makes you more money. Just like
helpdesk calls are usually free even though some users use up hundreds of
dollars worth of them per month.

On the other hand, image a few years down the track and you are at a US
provider with $5 per Mb/s per month transit costs, most of your customers
have 100Mb/s connections and :

the bottom 30% of your customers average 0.25 TB / month = $4 / customer
The next 40% of your customers average 1 TB / month = $15 / customer
the top 30% of them average 3 TB / month = $45 / customer

So you average bandwidth cost is around $20 per customer.

Options are:

1. Increase prices to $45 per month and keep flat rate
2. Introduce tiered accounts
3. Traffic shap until bandwidth costs drop enough.

Now right now option 3 seems to be common which sort of indicates that
bandwidth usage by home customers *is* a problem. In many cases the choke
point is at the last mile but it still doesn't really change the numbers.

Providers have a budget to spend per customer on bandwidth, when they
start to exceed that then something has to give.

Of course with a bit of luck the cost of providing bandwith will keep
falling as fast or faster than the average customer demand. Personally I
doubt that long term home demand will exceed 30Mb/s or 10TB per month (
around 1 HDTV channel) on average.

-- 
Simon J. Lyall  |  Very Busy  |  Web: http://www.darkmere.gen.nz/
"To stay awake all night adds a day to your life" - Stilgar | eMT.




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