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Re: Cogent/Level 3 depeering

  • From: Richard A Steenbergen
  • Date: Thu Oct 06 14:58:34 2005

On Thu, Oct 06, 2005 at 01:59:01PM -0400, Patrick W. Gilmore wrote:
> You are mistaken.
> If I sent 100 Gbps outbound and 20 inbound, I can sell 40-60 Gbps of  
> additional inbound for FAR, FAR less than 40-60 Gbps of additional  
> outbound.
> Zero cost?  Probably not.  Trivial cost?  Possibly, depends on network.

Patrick, I keep telling you, you are not an ISP. :)

Yes clearly there is SOME reduction in equipment cost at the edge, you 
need to buy fewer peering and transit ports if there is available capacity 
on a full duplex circuit in the opposite direction. You may also see some 
savings on the customer edge where you are utilizing the extra capacity in 
the opposite direction on trunk ports out of your aggregation layer.

Unfortunately in the core traffic is traffic, and you usually don't see 
such an obvious "but I have this extra capacity in the other direction" 
pattern. The opex cost of hauling the bits that other folks hot potato 
onto you is going to quickly negate the capex cost of the equipment. I 
know you don't deal with this, since as we've already established you are 
not an ISP, but the cost of longhaul circuits (even very large and well 
negotiated ones between major cities on major routes) is huge. The cost 
per meg to get a bit from one side of the US to the other is roughly equal 
to or above what people are selling transit for per meg these days, and in 
many cases that doesn't take into account non-perfect utilization and the 
need for backup capacity on diverse paths. There is nothing trivial about 
this cost for an actual network, and this completely different from using 
a rule of 95th percentile billing to squeeze some extra service out of 
someone else's network for free.

Of course you could always make the argument that since circuit costs are 
usually fixed, you could sell at any price and still make more money than 
nothing as long as you have extra capacity. This may make you very popular 
in the industry for a short time, but eventually you will hit a brick wall 
where you can't afford to buy more capacity on the revenues you are 
generating. A visit to your local bankruptcy court usually follows 

> It doesn't have to scale.
> I'm perfectly willing to sell $100K worth of services for $1K worth  
> of cost, knowing I cannot sell $101K because "it does not scale".

Which is why there are a few small networks who don't have extensive 
circuits and who happen to have some extra inbound capacity available on 
their transit pipes are selling it for cheap. The concept of "it does not 
scale" explains why networks are still paying for their bandwidth, even 
their inbound bandwidth. On the original subject of Cogent, the cost of 
selling inbound bandwidth is not significantly cheaper than the cost of 
selling outbound, infact it may actually be more expensive depending on 
how you crunch the numbers for the fiber and DWDM longhaul capacity.

> But I do agree with you on the "couple years late" thing.  Putting  
> Cogent out of business will _not_ make prices go up.  (And I'm not  
> even sure this will put them out of biz.)  In fact, Cogent is not the  
> "lowest cost provider" any more - at least not for bit pushers.

Lots of people out there are emulating Cogent's business model but on a 
smaller scale in order to deliver a low price/meg number. They're often 
cutting corners that even Cogent doesn't cut though, and their model only 
works because a) they're dumping traffic onto peers and transits, and b) 
they have found transit providers who are as desperate for business at any 
price as they are.

Richard A Steenbergen <[email protected]>
GPG Key ID: 0xF8B12CBC (7535 7F59 8204 ED1F CC1C 53AF 4C41 5ECA F8B1 2CBC)