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North American Network Operators Group Date Prev | Date Next | Date Index | Thread Index | Author Index | Historical RE: future transit prices
There are a couple of other points to consider when talking about 60% utilization of the backbone. I can sell 20 T3's into my OC48 pop and still not ever see 900mb/s average usage. The statmux effect varies depending on the nature of your traffic. Spikes/peaks disappear in the core, and the larger your core, the better able your average will multiply for you. Second, 60% utilization -- is that assuming symmetric usage or not? Often the same T3 of capacity can be sold to complimentary customers/usage (access/web), etc. And while staff/facilities/legal/etc may stay relatively high irrespective of usage, I would be very surprised to see them scale at anywhere near the same velocity as backbone capacity. A n OC48 backbone and an OC192 backbone don't require different amounts of operations staff, maybe a variable (<<4x) amount of front-line customer-service-staff, and like wise the equipment isn't 4x more expensive than the OC48, etc. So I would say overhead per bit per second is a high constant with a small variable (capacity dependent) piece and when dividing into that capacity the numbers drop drastically. In an access-network point-of-view. Obviously running datacenters changes the model slightly. Deepak Jain AiNET > -----Original Message----- > From: [email protected] [mailto:[email protected]]On Behalf Of > joe mcguckin > Sent: Friday, October 18, 2002 3:51 PM > To: Paul Vixie; NANOG > Subject: Re: future transit prices > > > > > How do you compute CGS on a network that is 25% utilized? Is it > expenses/current utilization or expenses/maximum capacity? > > I think a lot of the low-ball pricing that is in the market is > the result of > networks selling off underutilized capacity at discounted pricing just to > get some additional cash flow. This pricing probably doesn't take into > account the necessary capex that will be required to upgrade the network > when it approaches saturation. > > > On 10/18/02 10:46 AM, "Paul Vixie" <[email protected]> wrote: > > > > > someone wrote, in response to my piece this morning... > > > >> Can you explain more about why you think transit prices will return to > >> the $200-$300/mbps. I've been quoted $40/mbps on a 50mbps commit > >> (95th%) ... which I think is pretty much as low as it's going to get. > >> I can understand prices going back up near $100/mbps over time, but > >>> $200 is much more than I'm expecting. > > > > the way i think about this is that somebody has to carry the traffic to > > wherever it's got to go. with a "top tier" of huge networks, > the pricing > > model gets smoother in two ways: (1) the distance insensitivity in sales > > has a larger set of costs to average against; and (2) cost per bit-kilom > > goes down as pipe size goes up. however, the cost per bit per second of > > switching these is relatively constant over time (people, rent, > depreciation > > or lease of equipment). > > > > a non-top tier provider who wants to get into the game will not be able > > to make money at market prices until they fill their network to a > > certain crossover point. (and if you buy your pipes too small you can't > > get there at all, and if you buy them too large then you can never fill > > the whole thing.) > > > > a lot of networks, both top-tier and non-top-tier, have been selling > > transit without being able to determine their costs other than at a very > > gross level. the thought seems to have been, we have to charge what the > > market will bear, and hope we're the last ones standing. but i think > > we, as an industry, have pretty much burned all the cash we'll be able > > to burn in that way. > > > > when i look at the ingredients: > > > > worldwide presence (peering points, pops, whatever) > > worldwide L1/L2 costs between pops > > staff (engineering, operations, management, sales, marketing, etc) > > capital (for all those pops) > > rent (of things that aren't pops, like HQ offices) > > marketing, legal, travel, other goo > > and so on > > > > it looks to me like you could run an OC48 backbone at 60% capacity and > > make a sustained single digit NPM selling at $250/Mbit average, or you > > could do an OC192 backbone at 60% capacity and single digit margins at > > maybe $175/Mbit. perhaps an OC768 backbone running at 60% will be able > > to make single digit NPM at $100/Mbit, but i'm really reaching > on that one. > > > > doing it for less involves either (a) not knowing your costs yet, or (b) > > buying market share, or (c) cost containment strategies like using > > assets that have been recently through the cleansing ritual of > > bankruptcy, or (d) selling ahead of usage like getting 100Mbit/sec > > commits from a lot of 20Mbit/sec customers. none of those things lasts > > forever. > > > >> Regardless of which of us is right, I guess I'm still pretty safe if I > >> lock in todays rates for multiple years. > > > > oh yeah, oh yeah, oh yeah. > > > > > > >
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