[9343] in Commercialization & Privatization of the Internet
Re: Cost vs benefit of internet services
daemon@ATHENA.MIT.EDU (Karl Denninger)
Wed Dec 29 19:42:47 1993
From: karl@mcs.com (Karl Denninger)
To: stpeters@dawn.crd.ge.com
Date: Wed, 29 Dec 1993 18:41:46 -0600 (CST)
Cc: martinea@hawk.nstn.ns.ca, com-priv@psi.com
In-Reply-To: <9312292347.AA04939@spare-parts.crd.Ge.Com> from "Dick St.Peters" at Dec 29, 93 06:47:06 pm
> > From: martinea@hawk.nstn.ns.ca (Michael P. Martineau)
> >
> > There are costs associated with providing Internet access. Many
> > organizations, such as ours, price their services based on single
> > organizations or individuals (in the case of dial-up services). Assumptions
> > are made as to the number of customers we can get. If apply the same prices
> > to others who wish to be resellers we would not be able to stay in business.
>
> I don't think anybody's saying you should be required to sell to
> resellers at the same rate, but using a fixed CIX fee as a startup
> barrier for small providers is, in effect, a form of partial price
> fixing.
>
> Try this on for size: amend the CIX rules so that each national carrier
> and CIX member pays the CIX $10K/yr for each reseller to which it
> provides service. The CIX gets the same amount, but the money is owed
> by the big CIX-member carrier, not the reseller. The national carrier
> is free to charge the reseller $10K, $2K, or even $15K for CIX routing.
>
> If Brand X national carrier thinks of itself as a wholesaler and wants
> to see the retail market flourish, it can absorb some of the cost for
> new retailer accounts, as an investment in developing the market. It
> can also offer a discount on CIX routing to compete with other national
> carriers. Competition in the market will soon price CIX routing at
> what it's actually worth.
Uh, excuse me for being stupid today, but if I'm a big national carrier
and have to pay $10k for each regional/small reseller/whatever that
I sign up and provide routing to, how can I do that and not pass it on?
If I "eat" it is that not the same thing as getting a better price on the
circuit instead? If I eat it <entirely>, and can do that, then either (1)
I am making an extra $10k annually on the circuit, and I had the slop in my
rate structure, or (2) I'm going to go broke.
If I don't eat it then the cost to the "little reseller" is <exactly> the
same. The only difference is who gets sent the check. What you've
proposed, unless I missed something, is just a transfer payment (which
someone will charge even more to handle and "administer").
I hate hidden charges. Itemize what you're selling me, and how much each
piece costs me. That way I can go through the list and find the things
that I think are stupid and get the price where it belongs for what I
really <need>.
Consider that ANS charges about $70k/year for a full T1 circuit (use > 20% I
believe). Add $1k/month for the local T1 line (which you have to pay) and
you are around ~$80k/year.
$10,000 is 1/8th of that, which is almost lost in the noise of the rest of
your costs. Its also <less than the cost of the local T1> amortized over 12
months. That's a bargain in my book.
I consider the $10k to be a cost of doing business, somewhat like a business
license. Unlike a business license, you actually <get something> for your
money when you join the CIX.
If you think the price is too high, then start a competing commercial
interconnection point and price the membership however you like. I'll give
you a hint -- the real problem is the $50k router(s) you need, and the
$100k/year techies who know how to make this stuff work reliably. Lots of
folks seem to think this is just a "plug it in and turn it on" game -- as
someone who builds regional and national networks for private clients for
a living, let me say that its not that simple <even when you own all the
gear and interconnect points>. The real Internet is hundreds of times more
complex than any private WAN.
I challenge anyone on this list to call CISCO and see what a fully redundant
C7000 costs -- make sure to include one spare of every individual piece (can
you afford to be down 4 hours if it blows up when you're playing routing
Ghod?) in that configuration. Add in the requisite T1 CSU/DSUs and a
building to house 'em in with reasonable security and facilities. Don't
forget redundant power, 24x7 security of some kind, and staff at least on
call for 24x7 as well.
If you're not choking on the numbers when you get done with this exercise,
let me know. It will give you some respect for what goes into a venture
like the CIX and what it really costs.
The last collapsed backbone that I built had over a half-million bucks
in CISCO gear in residence at the central site alone. That backbone
served only 56kbps tail circuits. (It did serve 12 states and something
like 300 actual sites however. :-)
--
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