[101940] in North American Network Operators' Group
Re: Lessons from the AU model
daemon@ATHENA.MIT.EDU (Geoff Huston)
Sun Jan 20 23:14:05 2008
Date: Mon, 21 Jan 2008 15:14:07 +1100
From: Geoff Huston <gih@apnic.net>
To: Matthew Moyle-Croft <mmc@internode.com.au>
Cc: Randy Bush <randy@psg.com>, Andy Davidson <andy@nosignal.org>,
Andrew Odlyzko <odlyzko@dtc.umn.edu>, nanog@merit.edu
In-Reply-To: <47940930.9090306@internode.com.au>
Errors-To: owner-nanog@merit.edu
Matthew Moyle-Croft wrote:
>
>
>>
>> Southern Cross cost some US $1B to construct about a decade ago
> RFS was Nov 2001. They full paid the debt from a US$1.3B cost of
> construction in Oct 2005.
> (see
> http://www.southerncrosscables.com/public/News/newsdetail.cfm?StoryID=14)
>
> So, they're making some VERY decent money out of the duopoly with AJC.
Yes, that exercise managed to weather the slump in prices a couple of
years back when supply far exceeded demand, and then exploit their
excellent technical position when demand picked up and translate that
position into good revenue streams that appear to be well above initial
construction and ongoing operational costs.
I don't believe AJC has had a similar story, but others may know more here.
>
> Hence why Telstra's building their OWN cable to Hawaii. It's cheaper
> to build than buy!
My comment is that its generally more complicated than that, and from a
sufficiently distanced view overspending on infrastructure forces up
prices as much as underspending. The only real revenue stream to fund
this infrastructure comes from this pool of 24M folk living at the bum
end of the Pacific Ocean. Paying for a large number of underutilized
cable projects does have a higher total recurrent cost than would be the
case of there were efficient sharing of a smaller number of cable
projects, and ultimately its consumers who fund this inefficiency in
supply. So sometimes competition provides natural incentives for cost
efficient investments, that ultimately benefit consumers, and sometimes
competition gets it wrong and over-invests because the actors cannot
resolve their individual requirements in ways that result in efficient
sharing of common venture infrastructure investments, and in such cases
the consumer ends up paying for the inefficiency in infrastructure
investment. So sometimes it is cheaper to lease than construct, and
sometimes its not.
Here endth the Nanog lesson in economics from me ( :-) )
My only point in entering this thread was to make the observations that
the lessons from the AU model may not be very generic - small isolated
communities often have a unique set of constraints for investments in
communications systems and that often results in different industry
structures, different relationships between the actors and often results
in different pricing structures in the consumer market. I'm not sure
that I'd be confident in generalizing this particular history into
anything more generic that would apply to other communities in other
parts of the world.
