DSL Costings - a "macro view" open question

Re: DSL Costings - a 'macro view' open question

Des Ramsay said:

> How much ATM bandwidth can one provide for R25m a month?  2Gbps?   5Gbps?
> I
> don't know the ATM pricing as well as some of you, but I would expect it
> to
> fall well below the 50,000 x 512kbps = 25Gbps maximum potential throughput
> that our revenue assumption demands.

In the "VPN Supreme" brochure I received from Telkom, the words "Gigabit"
and "MPLS" were used to describe the underlying structure underneath their
ADSL system.

This would suggest that they were using gigabit ethernet (or even
potentially 10gig ethernet) over their fibre links, which is significantly
cheaper and many times faster than ATM.

Telkom routinely denies customers access to new technology, but that does
not mean Telkom don't use new technology internally. Using Telkom's vastly
inflated end user pricing to do costings of Telkom's internal systems is
likely to give you very skewed results.

Regards,
Graham
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RE: [ISPA] DSL Costings - a "macro view" open question

Re: RE: [ISPA] DSL Costings - a 'macro view' open question

Des Ramsay said:

> But popular opinion seems to indicate that cross subsidisation is almost
> an
> embedded policy within Telkom, so it would not surprise me at all if
> Telkom
> was giving SAIX R200 out of their access circuit revenue to help them
> compete unfairly against other IAP's.

I would strongly suspect that the R600 per month for ADSL is actually
paying for the ADSL - the old ATM technology is sorely in need of an
upgrade/replacement, and although not as expensive as ATM was, as still a
significant investment if you're replacing everything lock stock and
barrel. Telkom are probably treating early ADSL users as "early adopters"
and charging accordingly in an effort to cover as much of their cost as
quickly as possible, which in a monopoly situation they can get away with
quite easily.

Regards,
Graham
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RE: DSL Costings - a 'macro view' open question

Graham wrote:

"I would strongly suspect that the R600 per month for ADSL is actually
paying for the ADSL - the old ATM technology is sorely in need of an
upgrade/replacement, and although not as expensive as ATM was, as still a
significant investment if you're replacing everything lock stock and barrel.
Telkom are probably treating early ADSL users as "early adopters"
and charging accordingly in an effort to cover as much of their cost as
quickly as possible, which in a monopoly situation they can get away with
quite easily."

Agreed (I just have a question with regard to your implication that DSL is
being used for long haul in place of ATM, I suspect you are referring to
some other new technology on their long haul routes.  As far as I know DSL
is severely limited in it's distances.  I take it you actually mean "a new
tech backbone which can be used for DSL traffic").

But the faster Telkom want to pay it all off, the less capital they can
spend, once again raising the question - how much bandwidth are they
actually providing for all the DSL users to share on the way to SAIX.  

R25m / month is not much, even allowing that new tech is being used, to
carry traffic nationally from hundreds of exchanges for 50,000 users with
"broadband" expectations.

I think it will be impossible to tell for the reasons you stated in your
previous reply - one cannot base costing estimates for Telkom systems on
their nonsense retail pricing for old tech products which are probably not
being used for the service.

Still, once the traffic arrives at the IPC, how small a pipe does the
traffic have to compete for to get into SAIX.  And how little Internet
bandwidth is SAIX providing?  These resources are being paid for out of only
+- R10m / month.

The answer seems to be that up to now "enough" has been provided, but my
concern is the subtle (but to me ominous) statement in the press release
that they have "now reached critical mass".  

To me this indicates that they over provisioned at first to achieve
economies of scale on purchasing, network and equipment capacities, and are
now approaching the correct bandwidth / user ratios on which their pricing
models were based.  

Performance during this "over provisioned" period was fine (most of the
time) - but what are we in for in the future? 

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RE: RE: [ISPA] DSL Costings - a 'macro view' open question

Graham Leggett said: -

> I would strongly suspect that the R600 per month for ADSL is actually
paying for the ADSL - the old ATM technology is sorely in need of an
upgrade/replacement

Nonsense. The cost of provisioning a single ADSL circuit (i.e. one port on a
DSLAM, plus splitter, is under R1500. This is paid for, in full, in  two
months for "business" ADSL, and less than three months for residential, at
the new rate. This excludes the cost of the BRAS, which is shared with many
users. (In early 2004, Telkom increased from 5 to 8 of these, for example)

So, Telkom has fully recovered the cost of all equipment involved, plus
labour, in a few months. OF COURSE the remainder goes to one of two
things: -

1	Cross-subsidising the bandwidth costs, thereby making it really hard for
UUNet, IS, etc. to compete
2	Obscene profits.

My guess is a bit of each 

Kind regards,

William Stucke
ZAnet Internet Services (Pty) Ltd
+27 11 465 0700
William@...

-----Original Message-----
From: owner-ioz@... [mailto:owner-ioz@...]On
Behalf Of Graham Leggett
Sent: 02 March 2005 12:57
To: Des Ramsay
Cc: ioz@...; 'DNS Admin'
Subject: Re: [IOZ] RE: [ISPA] DSL Costings - a 'macro view' open
question

Des Ramsay said:

> But popular opinion seems to indicate that cross subsidisation is almost
> an
> embedded policy within Telkom, so it would not surprise me at all if
> Telkom
> was giving SAIX R200 out of their access circuit revenue to help them
> compete unfairly against other IAP's.

I would strongly suspect that the R600 per month for ADSL is actually
paying for the ADSL - the old ATM technology is sorely in need of an
upgrade/replacement, and although not as expensive as ATM was, as still a
significant investment if you're replacing everything lock stock and
barrel. Telkom are probably treating early ADSL users as "early adopters"
and charging accordingly in an effort to cover as much of their cost as
quickly as possible, which in a monopoly situation they can get away with
quite easily.

Regards,
Graham
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Re: RE: DSL Costings - a 'macro view' open question

Des Ramsay said:

> Agreed (I just have a question with regard to your implication that DSL is
> being used for long haul in place of ATM, I suspect you are referring to
> some other new technology on their long haul routes.  As far as I know DSL
> is severely limited in it's distances.  I take it you actually mean "a new
> tech backbone which can be used for DSL traffic").

No, not DSL - ethernet. Gigabit ethernet is now mainstream and dirt cheap,
and a good 50% faster than OC12 (655MBps if I'm not screwing up my
acronyms). 10Gig ethernet is also available and very expensive, but being
faster than OC192 is probably also an option. In addition, they get to use
standard ISP routing equipment like the stuff from Cisco, rather than the
esoteric SS7 stuff.

Remember that their most expensive component is their fibre cable -
something that's already there. All they need do is upgrade their
endpoints, which is cheap by comparison.

> But the faster Telkom want to pay it all off, the less capital they can
> spend, once again raising the question - how much bandwidth are they
> actually providing for all the DSL users to share on the way to SAIX.

Upstream bandwidth is different to "local loop" bandwidth. Remember that
Telkom does not pay the inflated rates they charge. Their upstream
bandwidth probably costs them peanuts. That combined with the fact that
nobody is actually allowed to use the bandwidth (if they do - cap), means
they can provision a whole pile of people at minimal capacity.

> R25m / month is not much, even allowing that new tech is being used, to
> carry traffic nationally from hundreds of exchanges for 50,000 users with
> "broadband" expectations.

Neither is the cost of DSLAMs or ethernet switches that high either (I got
quotes for DSLAMs, a 24 port DSLAM can be had for a few thousand rand),
and keep in mind that providing ADSL is an end point upgrade - all
existing cable and fibre is used.

> Still, once the traffic arrives at the IPC, how small a pipe does the
> traffic have to compete for to get into SAIX.  And how little Internet
> bandwidth is SAIX providing?  These resources are being paid for out of
> only
> +- R10m / month.

The link to SAIX is probably a dedicated ATM or ethernet link, or SAIX is
probably housed in the same datacentre and the link becomes trivial.
Telkom is quite willing to hand out huge capacity lines internally to
itself.

> Performance during this "over provisioned" period was fine (most of the
> time) - but what are we in for in the future?

That is not going to be decided by Telkom, but by the newly deregulated
market.

Networks don't appear at the snap of some fingers - they will take time to
come, but when they do, Telkom will have to start competing just like
everybody else.

Regards,
Graham
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RE: RE: [ISPA] DSL Costings - a 'macro view' open question

William Stucke said:

> Nonsense. The cost of provisioning a single ADSL circuit (i.e. one port on
> a
> DSLAM, plus splitter, is under R1500. This is paid for, in full, in  two
> months for "business" ADSL, and less than three months for residential, at
> the new rate. This excludes the cost of the BRAS, which is shared with
> many
> users. (In early 2004, Telkom increased from 5 to 8 of these, for example)

This is true - but this isn't the only equipment they have to upgrade. At
the same time they had to pay for upgrades to their links between
exchanges to give them meaningful bandwidth (just a single saturated
full-capacity-8MBps 24 port DSLAM will overflow a 155MBps ATM link). And
with the talk of Metro Ethernet, I think Telkom are looking further than
just ADSL, and are milking the market for all it's worth to give them the
biggest headstart possible.

> So, Telkom has fully recovered the cost of all equipment involved, plus
> labour, in a few months. OF COURSE the remainder goes to one of two
> things: -
>
> 1	Cross-subsidising the bandwidth costs, thereby making it really hard for
> UUNet, IS, etc. to compete
> 2	Obscene profits.
>
> My guess is a bit of each 

Remember that (almost) everywhere else in the world, the local loop
headends are open to any company that wants to provide a service. Telkom
doesn't let IS or UUNet anywhere near their headends, but I don't think
this situation will last forever. When Telkom are forced to open up their
headends, they will have a high speed fibre MPLS network connecting all
the headends together already in place, paid for in full by current IS and
UUNet (and Telkom) customers.

This is an enormous head start for Telkom, and a barrier for someone else
wanting to use their own cable to reach a headend.

Regards,
Graham
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RE: RE: [ISPA] DSL Costings - a 'macro view' open question

William said
"So, Telkom has fully recovered the cost of all equipment involved, plus
labour, in a few months. OF COURSE the remainder goes to one of two things:
-
1	Cross-subsidising the bandwidth costs, thereby making it really hard
for
UUNet, IS, etc. to compete
2	Obscene profits.
My guess is a bit of each "

You did leave out a third cost factor which I think could be the fairly
significant - the cost of the national network to carry the traffic from
every Blikkiesdorp and small city to the IPC (wherever it is) and out to
SAIX.  Even transporting this around Johannesburg and Pretoria has a cost
attached.

There is an argument that says sufficient fibre is already laid down to
carry all this traffic and that it is written off and therefore has zero
cost attached - I think that this is (partially) Graham's view.  I am
uncomfortable with this, as there must at least be a depreciation /
maintenance / upgrade and replacement provisioning factor and probably an
opportunity cost if they can't sell it to someone else at their exorbitant
prices.   

I would consider that in Telkom's books there must be a national transport
cost attributed to DSL, and whatever this cost is puts a limit to how much
raw national capacity (not Internet bandwidth) they are willing to allocate
to DSL.   It certainly wouldn't be 25Gb.  I am trying through this
interaction / discussion to work out what Telkom would be prepared to
allocate to DSL traffic, and therefore how much congestion this shared
resource would introduce.

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RE: RE: [ISPA] DSL Costings - a 'macro view' open question

Des Ramsay said:

> You did leave out a third cost factor which I think could be the fairly
> significant - the cost of the national network to carry the traffic from
> every Blikkiesdorp and small city to the IPC (wherever it is) and out to
> SAIX.  Even transporting this around Johannesburg and Pretoria has a cost
> attached.

This national network already exists, having been built up for the last
hundred years or more. And if you pay close attention while driving cross
country, you'll notice those telephone poles down the national roads no
longer carry bundles and bundles of cable strands, but one single black
fibre strand. And the inner city connections have been all but replaced by
fibre, courtesy of some obliging copper thieves and Telkom's insurers. All
that's missing was the endpoint upgrade.

> There is an argument that says sufficient fibre is already laid down to
> carry all this traffic and that it is written off and therefore has zero
> cost attached - I think that this is (partially) Graham's view.  I am
> uncomfortable with this, as there must at least be a depreciation /
> maintenance / upgrade and replacement provisioning factor and probably an
> opportunity cost if they can't sell it to someone else at their exorbitant
> prices.

This cost exists yes, but is completely independant of the technology
running on top of it. This same cable is used for both the POTS system and
Telkom's legacy data systems. The cost of cabling is spread across all of
Telkom's infrastructure investment, and isn't limited to just ADSL.

> I would consider that in Telkom's books there must be a national transport
> cost attributed to DSL, and whatever this cost is puts a limit to how much
> raw national capacity (not Internet bandwidth) they are willing to
> allocate
> to DSL.   It certainly wouldn't be 25Gb.  I am trying through this
> interaction / discussion to work out what Telkom would be prepared to
> allocate to DSL traffic, and therefore how much congestion this shared
> resource would introduce.

Enter "VPN Supreme".

http://tinyurl.com/5mwyn

Telkom ADSL is built on top of VPN supreme, which is Telkom's first
product worthy of being called 21st century. This seems to be the backbone
for Telkom's new generation of products, which are at last seeing the
light of day. DSL is just the first product to be built on top of it.
Diginet could easily be replaced by VPN Supreme if it wasn't so
artificially expensive, a problem that will go away in time and with
emerging competition.

25GB of bandwidth is simply two and a half 10GBE connections, which at a
few thousand dollars each is not in the league of Telkom's current
hundreds-of-thousands-of-rands for 155MBps.

Bandwidth is not expensive.

Regards,
Graham
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