Re: The Great Exchange
Subject: Re: The Great Exchange Date: Fri, 29 May 1998 09:56:15 -0400 From: "Perry E. Metzger" <perry@piermont.com> [...]
You appear to be confused, or perhaps confusing, on a couple of points.
The business case in all telecom markets is going towards distance insensitive pricing, and even flat rate pricing.
This isn't particularly true. The cost of a phone call shows distinct changes in pricing based on geography: from my free local calling area to intra-state to inter-state to international. You are correct that the pricing within one of these four "bands" (for lack of better term) is becoming less sensitive to distance. However, there are distinct differences in prices between "bands." Once you start using the phone analogy, you might consider pricing based on several zones: o Time-insensitive, distance-insensitive communications analogous to a toll-free, unmetered local calling area. Is this traffic that uses a local Internet exchange? o Time sensitive, distance-insensitive communications analogous to interstate phone calls. Is this usage sensitive pricing for Internet services? o Time sensitive, distance-sensitive communications analogous to international calls. Is this pricing for overseas Internet traffic for countries that have significant differences between the cost of intra-country and inter-country services? It should also be noted that the phone companies have trying to eliminate unmetered (on the basis of time) local phone service. I believe that there are fewer and fewer areas with unmetered (based on time) local phone service. So, I think a closer examination of your example may yield a different result.
The cost of providing service is very low, and not particularly traffic or distance sensitive in reality. [...]
Again, I don't know whether you are confused or confusing, but your statement ignores the differences between the average cost of providing a service and the incremental cost of providing a service. The incremental cost of forwarding a packet is obviously very small. However, the cost of operating a large, high-quality ISP is very high. We seem to expect an ISP to have, for example, a 24x7 NOC. Someone has to pay for that expense. That someone is generally the ISP's customers. The only question is how to allocate the cost of a NOC to the customers. It probably seems reasonable to charge "larger" customers more than "smaller" customers. It also seems reasonable to allocate this cost on the basis of some other variable cost, such as the size of their Internet connection, or (oh no!), the amount of traffic they generate. [I want to be there when someone tries to use this "the [incremental] cost of providing service is low" argument at the rental car counter to get a rental car for the cost of the gasoline. If someone volunteers at the next NANOG or IETF, I would like to come watch.] -tjs
Maybe some telcos, but not all... When SWBell (sorry, "SBC") bought PacBell, I remember reading that SWBell was the "most profitable of the Baby Bells." So, considering SWBell's buying craze and the aforementioned statement, one could reasonably assume that SWBell has a competitive business plan. Let's examine SWBell's local POTS offerrings: . Flat rate per month, large local calling area In Houston, my local calling area (for a *normal* phone line) was over 75 miles in diameter. This was for $17/mo. Dallas has a similar calling area. There is no charge of any kind for local calls. . Flat rate per month, bigger local calling area In Dallas, I can subscribe to a "metro line", which adds the entire Ft. Worth calling area to my already large Dallas calling area. This is for a mere $8/mo, and works both ways (people in Ft. Worth can call me local too). . Flat rate per month, massive local calling area In either city, I also have the option of getting "local plus" service, which gives me a local calling area of about 1/4 of Texas, which is a staggering thought (for POTS service). This is for around $25/mo over the regular rate. And let's not forget the cell/PCS carriers, which charge no long distance intra-state, and some are no longer charging inter-state either. In fact, my PCS phone is so cheap (for ALL calls), I am on the verge of cancelling my POTS line. Then again, some of you don't have the good sense to live in Texas :) Stephen Sez Tim Salo:
It should also be noted that the phone companies have trying to eliminate unmetered (on the basis of time) local phone service. I believe that there are fewer and fewer areas with unmetered (based on time) local phone service.
So, I think a closer examination of your example may yield a different result.
-- Stephen Sprunk, KD5DWP "Oops." Email: sprunk@paranet.com Sprint Paranet -Albert Einstein ICBM: 33.00151N 96.82326W
Tim Salo writes:
The business case in all telecom markets is going towards distance insensitive pricing, and even flat rate pricing.
The cost of a phone call shows distinct changes in pricing based on geography: from my free local calling area to intra-state to inter-state to international. You are correct that the pricing within one of these four "bands" (for lack of better term) is becoming less sensitive to distance.
Right now, I pay about $.11/minute for cellphone service in the U.S., regardless of where I am or where I am calling provided the call is domestic. It is true that the price for international calls will not fall to this level soon, but that is largely a function of international regulation and not inherent in the system.
It should also be noted that the phone companies have trying to eliminate unmetered (on the basis of time) local phone service. I believe that there are fewer and fewer areas with unmetered (based on time) local phone service.
NYC did not have unmetered service for a long time. It is now available again.
The cost of providing service is very low, and not particularly traffic or distance sensitive in reality. [...]
Again, I don't know whether you are confused or confusing, but your statement ignores the differences between the average cost of providing a service and the incremental cost of providing a service.
The incremental cost of forwarding a packet is obviously very small. However, the cost of operating a large, high-quality ISP is very high. We seem to expect an ISP to have, for example, a 24x7 NOC. Someone has to pay for that expense.
The cost of personel is higher for most ISPs than the cost of buying bandwidth. This leads one to question the business model you are proposing. It is true that someone has to pay for the service, but is the logical way to do that to double your personel costs by creating a complex billing system that absorbs lots of human time? I am not saying that it makes no sense to charge customers based on the size of the pipe they own. I am merely suggesting that the notion of distance measured per-packet charges -- the insanity suggested at the beginning of this thread to increase locality of access -- is completely impractical. Perry
participants (3)
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Perry E. Metzger -
sprunk＠paranet.com -
Tim Salo