Costs of a Broadband Service

At a consumer level, there’s little in the way of pricing structure of a service.

Recently on Telstra’s Now We Are Talking site, Leanne made comments that iiNet get her service for $3.20 and charge her $xx.xx for it.

This would be completely incorrect, as the true costs of supplying a service reach far beyond $3.20.

Telstra have repetitively claimed that the services other ISPs are supplying are below cost services, I don’t believe them, and I have good reason.

Telstra Wholesale, Telstra’s Wholesale body, that supplies services to other ISPs, does so in a manner that leaves Telstra Wholesale one of Telstra’s more profitable areas.

Logic tells us, that if you are selling services to other competitors below cost, that essentially the end of year stats means that they would make something of a loss (or wouldn’t be very profitable). When you consider that dollars coming in from profits have to cover losses, you would consider that the profits would be very low (and not one of Telstra’s top performing areas).

So, that’s how I determine very quickly that Telstra’s “below cost” claim is absolute bullshit, but there’s another way of demonstrating that.

The costs of running an ISP.
Every user an ISP connects to its service has a cost of some sort attached to it, now because the “leeching” argument was put into place again, I thought I’d just simply do two comparisons.

1. This is a service provided on the ISPs own DSLAM, in a exchange.

The Costs are:
1. DSLAM: 24 port unit, cost thousands, each port is likely worth near $200 or more each.
2. Cutover: Each customer Telstra cuts over (that is, connect to the DSLAM) they charge $99 for.
3. LSS or ULL line rental: $3.20 – $17.00, depending on whether ULL or LSS is used. Regular monthly charge for Telstra to simply “bill for” and nothing else.
4. Backhaul from exchange: Connecting the DSLAM to the providers internal network. Can cost hundreds or thousands per megabit.
5. Provider servers. These provide authentication, IP addressing, email, and other services. These cost around $900 or more each, add on maintainence staff.
6. Routers. These provide routing to other access providers and to the internet. A good ISP won’t be running an $80 one. $2000+.
7. International Backhaul. Australia doesn’t have much of an open free hardcore industry, so that has to come from overseas. Those international links are not in plenty supply, and charges are in the hundreds per megabit, per month.
8. Support. Because you are a n00b, you will need support. Those monkeys in support don’t work for free.
9. Billing. They gotta get paid some way.
10. Phone system, sales staff, etc. All those add up.
11. A real office, cause you can’t have 200 workers in your backyard.

The total cost per month to the ISP, is definitely not $3.20, and in fact could very well come close to that $39.95 or whatever is paid to them.

2. This is the wholesale model. Lazy ISPs use this model.

The costs are:
1. Port at exchange: Depending on speed (Telstra choose to make bigger profits on the speed you get the line at, it costs them the same though). $25 – $55 ex GST a month.
2. AGVC/VLAN: This is a LAN style network to the providers server from the DSLAM. Telstra requires ISPs to use Telstra’s network and no one elses for this access. Access isn’t cheap.
3. Authentication Servers: Telstra doesn’t do authentication servers, so they gotta be setup at the other end of the VLAN, and you need to obviously maintain these. Costs are $900 upward.
4. Routers: No point being an ISP if there’s no internet on the other side, this router will link you to the internet or other neighbouring ISP networks. Cost $2000+.
5. International backhaul: International websites aren’t just plug in and access, so you gotta contact SXC or AJC to get some bandwidth, hundreds of dollars a megabit, per month.
6. Support: You are an idiot. Admit it. Now call the support lines to get help. Staff in Australia don’t work for peanuts, and neither should they.
7. Billing: They gotta get dollars out of you to pay Telstra for the port and AGVC link, and cover costs of support, backhaul and hardware, etc. Not a big regular charge per user, but certainly not free.
8. Phone system, sales staff, etc. Not free.
9. Real office, again, those support, sales, customer service staff aren’t comfortable in the backyard, parking their cars for free in a council playground across the road from your house.
10. Nearly missed this one, $99 to get the line activated, and attached to that is a 6 month minimum connection contract, so they charge you to connect, and still want to keep you connected for 6 months.. All Telstra’s terms.

And out of either of those scenarios, the ISP still has to add on a bit to make a profit, and support advertising to get customers, etc.

Now, if Leanne is sure her service is fully provided for $3.20, then I’m certainly going to start my own ISP, and I’ll do it all for $5. I’m not greedy. Reality is, Leanne is confused by the misleading crap Telstra spit on the Now We Are Talking shit website.

This is something the ACCC certainly needs to dig in on and get the misinformation and crap on that site fixed.
If not, then our government needs to fund an information campaign to protect innocent bystanders like Leanne from the bullshit spewed out on Telstra’s website, by their staff to the media, and in their dealings with customers.

It’s one thing to encourage debate on a censored public level, its another to go steps ahead and shape the debate to completely misguide the public.

I’m still waiting for anyone, anyone at all (except telstra, who would likely be able to sell themselves at $3.20), to demonstrate that a full consumer broadband service can be supplied at $3.20.

Or further, anyone at all to demonstrate to me, how exactly services are below cost, when Telstra Wholesale are making big profits? It defies the basic theory of logic. But then, that’s not uncommon from Telstra, who still push for regulations in New Zealand, which they fight tooth, nail and shareholder funds to prevent from happening further in Australia.

Hypocrites? Liars? Definitely.


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