Sunday, August 19, 2012

“Bandwidth cost is Cheap” – be careful when you say this!!


“Bandwidth cost is Cheap” – be careful when you say this!! - The ABCD of Net Access, costing and how it works in India

Most people think based on what they get at home – that’s the only way of knowing the access, the pricing and of course the speed – their home broadband. Generally at office you do access internet but don’t have a clue on the speed or the costing. Unless of course you are the CIO or CxO or the network in charge at an enterprise and you probably know much more on how costing and speed at various levels and all that is. Nevertheless this is for all to understand how really internet works across the globe and what are the pricing points and what are “different miles” and how does they all add up as far as costing is concerned and how will it all play in the near future and how does it affect your internet experience and what you pay at the end of the month or quarter or year.

Internet or broadband or bandwidth as they call actually is generally made up of “three miles”. The last mile or the retail mile is that part of the end that we all sit on it or what at home (or enterprise) we order and check our speeds too (remember when you check the speed you probably are connecting to another server which is within the country, city, local region). This end is very competitive in India currently with many players but will not remain so for long as many me-too players will drop off, more regulations from government and of course cannot burn the cash all the time and need to be profitable too at the end of the day. In many other countries unlike India, this retail market remains very expensive as it remains dominated by a single large player or a cartel.

The second part or the second mile is called as the “middle mile” – the point at which internet traffic enters and leaves a country.

The last part (not really last) which is popularly known as the “First Mile”  is where all the $$$ flows and the action happens J This is what is the most distant from the end consumer and is the global network of submarine cables which is beyond the national boundaries and whose rates have never dropped in the last few years. It is this segment that is the least competitive as far as the prices are concerned and you will see very soon (or read soon J) in the next paragraphs on how it will shape and which probably ill define how you are going to pay for your bandwidth and what kind of service and speed you can really expect out of it.
These are the cables that extend under the sea across Singapore, Persian gulf, our bay of Bengal and Arabian Sea, across Suez Canal, Western Europe and the Pacific and the Atlantic.

These First mile are less in number and in few countries there is only one and hence prices are rocket high. Thankfully in India due to the structure and due to the cables owned by Tatas, Reliance (FLAG) and Bharti and of course the control of TRAI, the costs are reasonable to cheaper per say compared to many other countries across Africa, Middle East and even in South America.

But there is another item which plays spoil sport in the whole availability and pricing for India. This is the Middle Mile which was mentioned earlier. In India we call this as the cable landing station. These stations are the key points through which submarine cables cross into Indian mainland. These are the stations to which our telecom operators, broadband & ISP providers pay to get connected to rest of the world. These charges are very expensive and adds up to the total high cost you end up paying to your provider for a very good speed across the borders (not just within the country or within the last mile which most home owners buy).
In India we have 12 such cable landing stations located at different parts of the country with half of them in Mumbai through which all of India connects with the rest of the world. It is with these providers domestic operators buy bandwidth on an international submarine cable. Tata has 5 such stations and owns 56% of the market, Bharti has two stations and owns 37% of the market. Because of the lay of the market and number of players (or lack of it), the price is pretty much controlled by them and they needless to say charge a huge amount of money and this has not reduced at all over the last four years and there are no signs of that reducing at all in the years to come (unless I & you decide to lay cables across the oceans – wow – that’s a nice project – is there a cable on the cloud J J ). This costing actually contributes around 56% of the total bandwidth costs to any company. These charges are far cheaper in many developed nations and as an example Singapore cost might be say $2500 to $3500 per year as compared to India where we have to pay $150,000 (charged by Reliance) per year to $700,000 (charged by Bharti).

You get the point now. The overall bandwidth costs are dependent on three parts, the charge for the local loop, the landing station costs and the submarine cable costs. In some countries one is cheaper than the other and in others some are way too expensive than the other but your overall expense somehow ends up on the higher side if you really need a good bandwidth with a good speed not just local but across the sea too!!

Considering how all these works out, and how it depends on many parts and players, be careful when you say next “Bandwidth is Cheap”, my next question will be “Which part” J

Some Facts of Costing:

It costs around 40 times to 60 times in say many African countries per mbps per month, and 4 times in South American countries to 20 times in Middle East to 30 times in few Asian counties compared to US rates.

Manjunath M Gowda, CEO i7 Networks – Bandwidth Analytics 2.0

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