RE: Current street prices for US Internet Transit

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1

Thanks to all who replied with data, and yes, the pricing was all 95th percentile.

Wow - the U.S. has an amazingly unhealthy and cut throat transit market in 2004.

About 20 folks responded, most saying the Peering Coordinator quotes (below) sounded about right.

> ISP Transit Commits and Prices

---------------------------------------------------------------------------------------------------------------------
> if you commit to 1M per month you will pay about $125/Mbps
> if you commit to 10M per month you will pay about $ 60/Mbps
> if you commit to 100M per month you will pay about $45/Mbps
> if you commit to 1000M per month you will pay about $30/Mbps

A couple people said these prices were TOO HIGH, particularly for the gig commit, although several multi-gig commits came in tiered; for example, $45/Mbps for 1G commit, $35 for 2G, etc. on down to $21 for 8G commit. (One Tier 2 ISP said that they sold 1G commit as low as $18/Mbps, presumably simply reselling Tier 1 BW so the difference may be negligible.)

Three said that these transit prices were TOO LOW, in one case they paid about double these numbers. It was interesting that these three were a content company, a cable company and a DSL company, folks who traditionally don't sell transit. Maybe they are in a retail market for transit, while everyone else buys in the wholesale market.

Since so many said these prices are about right, I'll use them for the Peering versus Transit analysis. A couple people pointed to the 10M commit being closer to $80/Mbps, so that may be an adjustment.

Given the adjustment, I thought you might be interested in how the U.S. transit prices compare against a handful of other Peering Ecosystems:

         The Cost of Internet Transit in�
Commit AU SG JP HK USA
1 Mbps $720 $625 $490 $185 $125
10 Mbps $410 $350 $150 $100 $80
100 Mbps $325 $210 $110 $80 $45
1000 Mbps $305 $115 $50 $50 $30

Round numbers anyway FWIW. Hope this helps. I feel bad for those selling transit these days - at these prices, margins must be mighty thin, and I suspect we will see some more turbulence in the industry.

Bill

2

To give you guys additionnal information, prices in France (probably in all Western Europe) are quite similar to those currently in
the USA. One can also notice that peering costs are also cheaper in Europe than in North America.
(monthly fees are around 1000-1300$ in most European IX's)

I unfortunately share Bill's feelings about more turbulences to come. And this applies not only to the IP transit field, but rather
to the whole telecom industry. Rough days that we live..

Fred

3

Thanks to all who replied with data, and yes, the pricing was all 95th percentile.

Wow - the U.S. has an amazingly unhealthy and cut throat transit market in 2004.

Mind if I ask why you think it is "unhealthy"?

I suppose an argument could be made that this is "below cost", but since you are not a provider and do not sell transit, I would hope the people doing so know their costs and margins better than you do.

Unfortunately, I doubt any transit provider offering these prices will tell us if they are below cost. (Someone care to prove me wrong? :slight_smile: But since this is not 1999, I'm guessing at least SOME of them are profitable, and therefore the costs are not necessarily unhealthy. So perhaps you should be more careful of your characterization?

A couple people said these prices were TOO HIGH, particularly for the gig commit, although several multi-gig commits came in tiered; for example, $45/Mbps for 1G commit, $35 for 2G, etc. on down to $21 for 8G commit. (One Tier 2 ISP said that they sold 1G commit as low as $18/Mbps, presumably simply reselling Tier 1 BW so the difference may be negligible.)

Having been a "Tier 2" (several, actually :), I can tell you that it is not "simply reselling Tier 1 BW" - which you should know, providing a service to allow Tier 2s to do more than resell transit from a bigger network....

Given the adjustment, I thought you might be interested in how the U.S. transit prices compare against a handful of other Peering Ecosystems:

        The Cost of Internet Transit in�
Commit AU SG JP HK USA
1 Mbps $720 $625 $490 $185 $125
10 Mbps $410 $350 $150 $100 $80
100 Mbps $325 $210 $110 $80 $45
1000 Mbps $305 $115 $50 $50 $30

Round numbers anyway FWIW. Hope this helps. I feel bad for those selling transit these days - at these prices, margins must be mighty thin, and I suspect we will see some more turbulence in the industry.

Those are apples & oranges. You cannot compare bandwidth in countries without the same fiber infrastructure as the US ( and with government owned PTTs controlling almost all access to the US market. Not to mention other differences which just don't translate.

I notice that you do not list a single EU country. Prices there are much closer to the US.

Anyway, I suspect "more turbulence in the industry" for the next few millennia, no matter where prices are. :slight_smile:

4

Cisco 12400 OC192 cards are $225k listprice.
You want to build a triangle with redundancy, ie 6 12400, 12 OC192 cards,
and you want to write this off in three years. You have a good discount at
50% and you're a good provider who is sincere about redundancy and only
load your links 50%.

This means you've forked out approx $1.4M in linecards, you can load these
at 50% ie 10gigabit/s of revenue-generating traffic (at best), that means
approx $4 per megabit per month in just linecard costs to haul this
between your three metro areas. No customer facing interfaces, no
interconnect to other ISPs etc. I estimate that the router+LC cost for any
GSR/juniper based network is $10/per megabit at least.

Now, you probably need to get yourself a DWDM system or some DWDM capacity
to run this network over, and you probably want to hire some qualified
people to run it. Selling 10gig of internet at $30/megabit gives you a
total revenue of $3.6M per year.

I have a hard time to see the business case in this at current prices.

Time to go back to the drawing board and find another way of doing this?

Would you pay $10 more per megabit to buy this capacity from someone using
12000 than from someone using let's say 7600 routers? That's something
people will have to start to figure out the way we're headed here.

5

I have a hard time to see the business case in this at current prices.

Time to go back to the drawing board and find another way of doing this?

Yes, stop paying retail.

6

Unfortunately, I doubt any transit provider offering these prices will
tell us if they are below cost. (Someone care to prove me wrong? :slight_smile:

Cisco 12400 OC192 cards are $225k listprice.
You want to build a triangle with redundancy, ie 6 12400, 12 OC192 cards,
and you want to write this off in three years. You have a good discount at
50% and you're a good provider who is sincere about redundancy and only
load your links 50%.

This means you've forked out approx $1.4M in linecards, you can load these
at 50% ie 10gigabit/s of revenue-generating traffic (at best), that means
approx $4 per megabit per month in just linecard costs to haul this
between your three metro areas. No customer facing interfaces, no
interconnect to other ISPs etc. I estimate that the router+LC cost for any
GSR/juniper based network is $10/per megabit at least.

Now, you probably need to get yourself a DWDM system or some DWDM capacity
to run this network over, and you probably want to hire some qualified
people to run it. Selling 10gig of internet at $30/megabit gives you a
total revenue of $3.6M per year.

I have a hard time to see the business case in this at current prices.

Interesting analysis, but I really can't believe that 10 gigabits of connectivity costs $30/Mbps. There is not a network in the US or Europe who will not sell you a 10 gig commit for far less than $30/Mbps, and I honestly do not believe that every network is selling below cost.

Perhaps some of your assumptions are wrong. Perhaps people are making due with OC48s. Perhaps there is less redundancy or more loading. Perhaps your discount level is too low.

Who knows? Did you build an OC192 network with 6 routers and 3 links and etc.? I didn't, so maybe I'm wrong. But given the choices of A) Every single network on at least two continents is selling for less than half their cost or B) An one page e-mail to NANOG may not reflect the complex business realities of the telecommunications world - well, I'll pick B.

But that's me. :slight_smile:

Would you pay $10 more per megabit to buy this capacity from someone using
12000 than from someone using let's say 7600 routers? That's something
people will have to start to figure out the way we're headed here.

What do you care which routers they use? I've seen networks buy the most expensive routers and run a crappy network, and I've seen people run stable networks on the cheap.

I just want my bits to flow quickly and reliably. I don't really care if you do it on Juniper, Force10, cisco, or tin-cans-and-string.

Why do you care?

7

Well, with the GSR (and alike) you're paying for high MTBF, large buffers
and quick re-routing when something happens, so yes, this is a quality
issue and that's why you should care and make an informed decision.

Though I do agree with you that current internet connectivity is becoming
more of a bulk packet forwarding service with questionable SLAs, and
that's what people are willing to pay for, not the premium service.

Good enough, I think it's called.

8

Mikael Abrahamsson:

Well, with the GSR (and alike) you're paying for high MTBF,
large buffers and quick re-routing when something happens, so
yes, this is a quality issue and that's why you should care
and make an informed decision.

For some of us "large buffers" is exactly what we don't want. Actually, for
most of us, but most people haven't figured that out yet.

Matthew Kaufman
matthew@eeph.com

9

Mikael Abrahamsson wrote:

Would you pay $10 more per megabit to buy this capacity from someone using 12000 than from someone using let's say 7600 routers? That's something people will have to start to figure out the way we're headed here.

You should take more care on picking your examples... Both the mentioned subjects are fairly straightforward to configure in a way they flame out.

However on the subject at hand, to a knowledgeable buyer there is value on operational specifications the network commits to (like latency, jitter, packet loss, reconvergence time, etc.) To an occasional buyer ("end user") the value of a brand name is more significant.

Pete

10

Mikael Abrahamsson:

Well, with the GSR (and alike) you're paying for high MTBF,
large buffers and quick re-routing when something happens, so
yes, this is a quality issue and that's why you should care
and make an informed decision.

For some of us "large buffers" is exactly what we don't want. Actually, for
most of us, but most people haven't figured that out yet.

Matthew Kaufman
matthew@eeph.com

11

I submit that the equipment in the network is far, far less important than the people running the equipment. I repeat: "I've seen networks buy the most expensive routers and run a crappy network, and I've seen people run stable networks on the cheap."

I do not care what equipment the network uses, as long as my packets get to their destination reliably and quickly. This may or may not place restrictions on the equipment to be used (can you get my packets there "reliably and quickly" on tin-cans-and-string?), and it almost certainly places restrictions on who runs that equipment, but those are the provider's problem, not mine.

12

Mikael Abrahamsson wrote:

Well, with the GSR (and alike) you're paying for high MTBF, large buffers
and quick re-routing when something happens, so yes, this is a quality
issue and that's why you should care and make an informed decision.

Do you have data to back up the above claims?

Pete

13

Patrick -

The other thing that I found interesting when factoring in the equipment costs into the cost of Peering, was that the used equipment market remains vibrant.

round numbers here, one can pick up a used 7500 series router equipment now for about $9K ! The configuration was with an OC-3, and FastE for peering, for about 25% of the new cost. Pretty amazing - from my research I cited one guy who built his whole test lab from used 7500's. On eBay folks can get used Juniper M20s as well, some still shrink wrapped. Caveat: When I walked the Cisco and Juniper contacts through the research paper ("Do ATM-based Internet Exchanges Make Sense Anymore?") they pointed to the software license as being non-transferable, and therefore requiring a new license from the vendor to be legitimate. There is also a re-certification process if you want to get the gear under service contract. There are some used equipment vendors that claim to take care of these issues for you.

So, used equipment is one way that some are deploying low cost networks, and yes, the packets get there. If their negotiating is as strong as their scrounging, they may be able to compete in today's market.

Bill

14

Used engine 2 OC48 cards for the Cisco 12000 is up from $3500 in 2001 to
approx $15-20k now. Yes, there are hardware vendors out there that are not
favored by a lot of people which you can have very cheaply, but the mostly
coveted Cisco parts are quite expensive on that market nowadays.

OC3 and FE is not very interesting to most people, reflected in the price
of a 16port OC3 (engine 2) card for the GSR, listprice $165k can be had at
approx $3k used. I know hardware resellers that have had such in stock for
over a year without being able to sell them.

If you're a small time ISP just starting up and you have plenty of space,
cooling and electricity, the backbone routers of 5-7 years ago can be had
quite cheaply, yes.

15

Amazingly, the term "cost" actually has different contexts, and these
greatly impact the final numbers. For example, the cost model used to
justify a given price to a customer can be "fully-loaded/fully-allocated"
or simply "incremental"... The fully-loaded one will result in the same
unit cost every time, whereas the incremental one often doesn't recover
the cost of past investment in the network. Of course, if that investment
is several years old, has been through a bankruptcy or two, then it might
not really matter (until a customer sale results in having to do some new
spending for additional capacity...)

Do you take on customers at rock-bottom prices which barely cover your
out-of-pocket expenses, your payroll, and interest payments, or do you let
them go to your competition because no revenue is better than revenue
which doesn't let you cover the network growth in 3 or 4 years? This is
a question which is being discussed at quite a few ISP's today...

/John

16

From my conversations with folks in the Peering Coordinator Community,
round numbers here, one can pick up a used 7500 series router equipment
now for about $9K ! The configuration was with an OC-3, and FastE for
peering, for about 25% of the new cost.

In Europe, for a lot less. Configurations like:
Cisco 7513 + 2xPSU-AC + 2xRSP4 + POSIP-OC3-40SM + VIP2-50 + PA-FE
went multiple times for 3300-3850 EUR on Ebay Germany.

Caveat: When I walked the Cisco and Juniper contacts through the
research paper ("Do ATM-based Internet Exchanges Make Sense Anymore?")
they pointed to the software license as being non-transferable, and
therefore requiring a new license from the vendor to be legitimate.

Yes, this is standard tactics. Fortunately, in Germany this is void
as the vendor can't make software license for specific hardware
non-transferrable, by law.

There is also a re-certification process if you want to get the gear
under service contract.

Yep, this is the tactic they use to catch "the rest". Sources told me
that the re-cert fee makes buying used gear almost totally
uninteresting. The fact that e.g. Juniper gear doesn't sell at all
on Ebay is a good indicator for success of this tactic.

With Cisco it's a different story... people get around service contracts
by just buying enough spares on the used market... it's cheap enough.
With Juniper it's more difficult as the offerings aren't as broad and
cheap.

There are some used equipment vendors that claim to take care of
these issues for you.

Interesting. I wonder how. :stuck_out_tongue:

Best regards,
Daniel

17

[snip]

Do you take on customers at rock-bottom prices which barely cover
your out-of-pocket expenses, your payroll, and interest payments,
or do you let them go to your competition because no revenue is
better than revenue which doesn't let you cover the network growth
in 3 or 4 years? This is a question which is being discussed at
quite a few ISP's today...

Bing! Not to mention cost of acquiring and retaining the customer.
Hint: if they are shopping only by price, then lock them into a long
contract, else they will go shopping for the next guy who happens to
have cheaped out some other elements of the network or beat you on
an ebay bid or hired a fresh pack of smart kids who never had a job
before. The cost of customer churn is very, very high.

There's some fishing anology here: trying to collect the bottom-
feeders often nets you nothing more than churn and muck.

18

I believe this is still an open legal argument waiting to be tested. They
claim it, but no one has fought it yet. In federal law there is a concept
called right of resale. Note article dates when reading:
http://www.washingtontechnology.com/news/14_11/federal/758-1.html
http://articles.corporate.findlaw.com/articles/file/00353/009275
The grey area starts when they point out IOS is software and software has
had a limited success with licenses that claim ownership of your soul and
other crazy ideas in some legal arenas. There's ample analogies where this
would be arguable: You can't sell your car with the diagnostics software
that's built in under the hood and removing it makes the car not turn on?

The one that would take some fund-age to argue is: non-transferable where
non-transferable makes the hardware a huge rock and impedes on my right
of resale. You devalued what I purchased by claiming I can't give it
as-is to someone else for money.

Claims of "write your own IOS to run on the hardware" or pointing to
fledgling open-source attempts to circumvent this problem are ludicrous at
best.

Currently, I practice and encourage: "(re)license it unless you want to be
the company that takes Cisco to court to question their right to say
non-transferable." With all of the sympathetic facial expressions I can
give that it's a silly idea.

There was a good news article about Cisco and Netapp both doing this a
while back though. I can't find it now and I don't know if Netapp still
does it.

Gerald (Not a lawyer, and not going to court on your behalf.)

19

If you buy a serious quantity of equipment (say: $10M+ each year) and
are particularly annoying (who, me? ;-), then you can take some amusing
contractual steps to insure that you receive the full useful value of your
equipment purchases...

This includes including the post-warranty maintenance plan costs in your
total ownership cost comparison (to bring useful life out to match the three
or five years deprecation life) and it also means requiring vendors to allow
clear transfer in those cases where you need to remove equipment from
the network and they turn down the option to buy it back themselves...

Contractual mechanisms work very well, and all it takes is a willingness to
turn away vendors in the lobby who otherwise thought you'd buy gear that
loses half its resale value on receipt...

/John

20

I just want my bits to flow quickly and reliably. I don't really care
if you do it on Juniper, Force10, cisco, or tin-cans-and-string.

Why do you care?

Because of the value proposition inherent in certain manufacturers' products
whether they work properly or not. After all, the Street wants to see that
the network is poised to leap forward into the next paradigm by setting up a
strategic alliance with another company which is already so poised. Silly
rabbit. :wink: Now excuse me while I soak my hands in bleach for having typed
this.