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Re: More Sidgemore on per-bit pricing

  • From: Barry Shein
  • Date: Sat Dec 05 15:02:22 1998

One possible positive effect (for the consumer) of "per-bit" pricing
is the opportunity to buy larger pipes but only pay for what you use.

Right now flat-rate pricing mostly assumes you're going to, within
some statistical model, actually use the bandwidth you get, or
certainly that someone buying a DS3 is going to use a lot more
bandwidth, on average, than someone with a DS1.

So if you usually only use, say, 25-75% of a DS1 then you'd be
well-advised to only buy a DS1, even if 10% of the time you really
have a good use for more.

For example, imagine a company which wants to back up all the remote
servers in their branch offices once per week, but would like to get
it done as quickly as possible so it completes in the wee hours when
the databases are quiescent. The rest of the time a DS1 might suffice
for the usual email etc, but for those few hours, for the backups
which run on Sunday night, a full 45mb/s would be useful.

Under the flat-rate model that company would have to either buy a DS3
full-time, for around $50K/mo, or live with the DS1 for around $2K/mo
(or possibly find some equivalent flat-rate option in between such as
a 10mb, but that begs the point, they still can't pay for a T1 when
they need a T1 and a T3 when they need a T3.)

It all depends on the actual pricing models which might arise, which
indeed is an arguable point, but without stating that assumption one
can't argue the more general issue.

For example, if I were to offer you either:

	a) DS1 $2K/mo
	b) DS3 $48K/mo
	c) per-bit DS3 $2K/mo/DS1-equivalent pro-rata per minute

you'd be foolish, unless you have no control over your bandwidth usage
(a whole other issue) not to take (c) if you occasionally need bursts
of high bandwidth and were seriously considering going to the DS3; the
most it can cost would be $48K/mo if you used that bandwidth 7x24
100%, but you almost certainly won't, so it can only cost you less.

Now, it's admittedly not likely that someone wouldn't charge some sort
of premium for the pro-rata bandwidth, perhaps it would actually be
$2500/DS1-equivalent, but unless you really need the DS3 100% of the
time (in which case you should buy the dedicated DS3) it's still
likely to cost you a lot less.

At a 50% utilization that $2500/mo pro-rata still only costs you
around $30K/mo which is significantly less than the $48K/mo for
committing to the whole pipe.

As we move to, e.g., gigabit pipes I suspect this sort of pricing
model will become more and more popular, or else not too many gigabit
pipes will get sold.

Buying 100% of a gigabit at the DS1 equivalent of, say, $2K/mo would
come to about $2 million/gb/month.

Customers certainly exist for $2M/mo connections, but not many of
them.

And the incremental cost of installing a pipe capable of gigabit
bandwidth on demand is relatively very small (mostly just a piece of
fiber and the boxes on each end), likely to be worthwhile even if the
customer just uses $10K or more per month of that potential $2M/mo
(pro-rata), or something like that much, much smaller than the $2M/mo.

We're a case in point of that, we have a good amount of fiber to our
offices here, NYNEX was happy to put lots of it in rather than ever
trench the street again (they had the backhoes out for us on this
urban street twice.)

However, one remaining problem is the local loop, the RBOCs, who do
like to price any service as if you are going to use 100% of it.
Thus, to even buy a per-bit DS3 from an ISP you would still have to
pay my RBOC around $5K-$10K/mo just for the local loop under the
current model, which if nothing else raises the bar for such services.

I think this is something Sidgemore is accounting for in his comments,
however.


-- 
        -Barry Shein

Software Tool & Die    | bzs@world.std.com          | http://www.world.com
Purveyors to the Trade | Voice: 617-739-0202        | Login: 617-739-WRLD
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