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Subject: Re: IP-tel
From: Bill Woodcock <[log in to unmask]>
Reply-To:Network management discussion for Nordic region <[log in to unmask]>
Date:Fri, 24 Jan 2003 10:33:54 -0800
Content-Type:TEXT/PLAIN
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TEXT/PLAIN (33 lines)


    > On fredag, jan 24, 2003, at 10:48 Europe/Stockholm, Bengt Gördén wrote:
    > > I'm not sure that the reasoning behind this actually holds. The
    > > transit (TIER1) provider have invested in a network. That network
    > > already have a fixed cost. That means that the provider need to charge
    > > for that ,+ 100% (or another huge percentage), to be able to
    > > survive. The write off (don't know the name of that in English,
    > > Swedish: avskrivning) is at least 15 years for international
    > > networks. So the customer is not paying for the amount of traffic in
    > > the network but rather the investment.

avskrivning==amortization

Your statements hold true assuming an entirely credit-based economy.  That
is, if any operator can get a loan (or in this case venture capital
investment) in whatever amount they choose, at any time, then they can
operate entirely on credit, and have fixed amortization costs.  If, on the
other hand, they were to be _profitable_ (heaven forfend, I know) and
operate from revenue or some combination of revenue and credit, then they
would be planning ahead based upon their growth rate.  The more traffic
users put into the existing network, the sooner they would need to replace
the existing network with a new one of higher capacity, and thus the more
they would need to charge the users.  Also, a greater degree of use
generally implies greater support costs.

So flat-rate pricing tends to work well for small self-throttling
tail-circuits and high degrees of aggregation, because it reduces the cost
of accounting for billing, which otherwise becomes a significant portion
of the total.  But for a profitable ISP serving large customers, and which
doesn't wish to carry a large debt load, it's not a reasonable long-term
option.


                                -Bill

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