SEACOM pricing – how much does it really cost

[rpm]

SEACOM pricing – how much does it really cost (http://mybroadband.co.za/news/Telecoms/9030.html)

MyBroadband gives a breakdown of true international bandwidth costs on SEACOM

[rpm]

Let me be the first to say that I think it is exemplary of SEACOM to release its pricing in the public domain. It certainly brings about competition in SA and lowers the cost of international bandwidth, but it is also needed to explain the pricing in more detail to avoid unrealistic expectations.

[krycor]

hectic..

[Lightscribe]

Excellent Article. The best breakdown of the pricing yet.

[DragonLogos]

cost not costs in title

[ads]

Excellent analysis. Well done mybb.

[Tegnik]

cost not costs in title

*CAUTION* === *GRAMMAR NAZI AHEAD*

This is an excellent article. It certainly put some realism into all the SEACOM hype. Just what we needed. An expert analysis.


Just what we needed: an expert analysis.

Thanks.

[Gatecrasher]

Nice to see some serious analysis of costs. However putting it all together the article should put a great more emphasis and breakdown on this:


Providers purchasing bandwidth from SEACOM will also have to pay for their access link to carry traffic from the Neotel/SEACOM data centre to their own point-of-presence (PoP), and cater for local IP transit (which can cost in the region of R 5 000 per Mbps per month) if they want to provision broadband services.

This cost is 60%-70% of the total per Mbps! All the other stuff the article goes on about is minor. This is clearly the pricing bottleneck. More explanation of this crazy cost is needed.

[gpe]

Great article!

Some pretty hectic figures. Interesting.

[rippedoff]

doesnt make any difference to the home user, Seacon was only installed purely to have Hidef coverage, we would not of got any cables if we did not get the world cup and visa versa

[ambo]

And this is why ISPs are always keen to tie you into long term contracts. When they are spending those kinds of cash as a 5 year investment they want to have some guarantees that they will still have customers next year. If you want to take advantage of the better pricing... expect contracts :D

[pkid]

Sigh. Although I suppose in 20 years time R770 million will be what we are paying for a car so over 20 years I suppose it is not that bad...

[Tns]

so once more telkom is to blame. erm sorry telkom is still to blame

[Sting]

so once more telkom is to blame. erm sorry telkom is still to blame

Relative to this article; how?

From Seacom to providers' PoP can totally bypass Telkom's network.

From ISP to consumer - that's another matter...

[Odracir]

Good article but more is required so that we can see how we the consumer are being ripped off. What I would like to see is how all of that translate into what it will cost the consumer to have uncap, 1mbps internet access and not the 384kbps nor the 512kbps crap.

[McT]

Let me be the first to say that I think it is exemplary of SEACOM to release its pricing in the public domain. It certainly brings about competition in SA and lowers the cost of international bandwidth, but it is also needed to explain the pricing in more detail to avoid unrealistic expectations.

Telkom could learn a thing or two here about being open.

[freematrix]

i think what we also have to remember now is that local links are still expensive and so are the ISP interconnection fees (which are ridiculous). Telkom must still be fully bypassed on that front and ISP's who still charge connection fee's should be embarrassed.

[Zyzzyva]

Sigh. Although I suppose in 20 years time R770 million will be what we are paying for a car so over 20 years I suppose it is not that bad...

Good point

The question though, is how many companies have bought 10 gig portions?

[Fudzy]

Suveer Rhamdani, commercial manager at SEACOM, says that significant price cuts occurred in the South African telecoms market long before SEACOM even landed – purely due to the looming threat of competition.

Uh.. they did? When? Where?

EDIT: Just to avoid confusion, I'm talking about us, the end user not ISPs etc.

[Sting]

Uh.. they did? When? Where?

EDIT: Just to avoid confusion, I'm talking about us, the end user not ISPs etc.

That is exactly the point!!!! When will the ISPs pass on these savings?

[davemc]

Notice how there is zero mention of this Telkom invention, called a "cap", in that entire article.

[burn]

Am I confused? How can it cost so much to get the data from the Seacom landing site to me when local bandwidth has histroically been so cheap? Surely it should be local bandwidth cost + seacom international cost? Why just because the data is coming from overseas does it cost so much to pass around nationally?

I might be completely missing the point though...

[gregmcc]

Suveer Rhamdani, commercial manager at SEACOM, says that significant price cuts occurred in the South African telecoms market long before SEACOM even landed

:confused::confused:

I must be living in a different country to Suveer! I haven't seen ANY cost reductions let alone "significant price cuts"

[AcidRaZor]

:confused::confused:

I must be living in a different country to Suveer! I haven't seen ANY cost reductions let alone "significant price cuts"

Exactly what I have been saying the last month or so AND EVERYONE IGNORING ME!!!!

Telkom cut it's pricing for wholesale bandwidth to be in direct competition with Seacom (it's pricing is equal to that of Seacom) and was cut back in April if my information is correct.

This means EVERYONE should have seen some form of saving in bandwidth we pay, but we haven't!!!! ISP's have been raping us (yes, I just used that word!) for the last couple of months with a big fat one and we don't care.... or have cared to listen to Oom AcidRaZor when he mentioned this in several other threads!

[george_vg]

So the scape goat (greed) has a few more aliases... we need to add an internet link into our WUG's and start to remove all the middlemen...and play-play wireless ISP's

[Gaz{M}]

So let's see:

A STM-1 (155Mbps) on a 1 year lease:

R737 446...... SEACOM Price
R12 000........ Cross connect fee
R9 000.......... Rack space
R755 000....... Local transit
R15 662........ London transit

Total R1 529 108 per month for a 155Mbps pipe to London.

Or R10 195 per Mbps per month. (With 150Mbps usable bandwidth)

1Mbps = 331 GB per month

So R10 195 / 331GB = R30.80 per GB

----------------

If the ISP buys an STM-1 IRU instead of leasing the capacity, then the cost is roughly R969 000 per month or R6462 per Mbps per month = R19.50/GB

[AcidRaZor]

So let's see:

A STM-1 (155Mbps) on a 1 year lease:

R737 446...... SEACOM Price
R12 000........ Cross connect fee
R9 000.......... Rack space
R755 000....... Local transit
R15 662........ London transit

Total R1 529 108 per month for a 155Mbps pipe to London.

Or R9865 per Mbps per month.

With 150Mbps usable bandwidth.

1Mbps = 331 GB per month

So R9865 / 331GB = R29.80 per GB

And then that is 1:1 contention ratio...

*edit*

BTW, its more like 253 GB per 1 Mbps if you consider the 80% rule when it comes to max speed

Working on your 150Mbps and the 80% rule on a 30 day period you'll get +- 37968.75 GB downloaded. Which is roughly around R40 per GB on a 1:1 contention ratio

[Weasley]

So let's see:

A STM-1 (155Mbps) on a 1 year lease:

R737 446...... SEACOM Price
R12 000........ Cross connect fee
R9 000.......... Rack space
R755 000....... Local transit
R15 662........ London transit

Total R1 529 108 per month for a 155Mbps pipe to London.

Or R9865 per Mbps per month.


.

1Mbps = 331 GB perndwith

So R9865 / 331GB = r mo80 per GB

----------------

If the ISP buys an STM-1 IRU instead of leasing the capacity, then the cost is roughly R6254 per Mbps per month = R18.90/GB

Thanks now it makes more sens

[rpm]

With the per Mbps SEACOM pricing you should still incorporate local bandwidth (at R 5000 per Mbps per month according to some sources) and IP Connect in the case of ADSL. The per GB cost then typically exceeds R 50.

[Trixanno]

So let's see:

A STM-1 (155Mbps) on a 1 year lease:

R737 446...... SEACOM Price
R12 000........ Cross connect fee
R9 000.......... Rack space
R755 000....... Local transit
R15 662........ London transit

Total R1 529 108 per month for a 155Mbps pipe to London.

Or R10 195 per Mbps per month. (With 150Mbps usable bandwidth)

1Mbps = 331 GB per month

So R10 195 / 331GB = R30.80 per GB

----------------

If the ISP buys an STM-1 IRU instead of leasing the capacity, then the cost is roughly R969 000 per month or R6462 per Mbps per month = R19.50/GB

No offence to you Gaz{M}, but this sounds too good to be true, anybody else care to just confirm the numbers. Very nice to see the costs broken down to a very simple and understandable format.

If this "ABC for tiny tots" analysis is correct...ISP's are adding quite a large profit margin as we haven't seen any real price reductions.

[Roman4604]

With the per Mbps SEACOM pricing you should still incorporate local bandwidth (at R 5000 per Mbps per month according to some sources) and IP Connect in the case of ADSL. The per GB cost then typically exceeds R 50. ... and most are under the impression that ISPs are staffed by unpaid volunteers, landlords dont expect rent from ISPs, Eskom doesnt bill ISPs, Carlton kindly donates the 1 ply etc.

[Gaz{M}]

Those were pretty accurate, real world figures.

The point is, SEACOM is less than 50% of the total cost of delivering a GB of data to your ADSL line. We need to reduce that other 50% drastically before meaningful price reductions can happen.

[AcidRaZor]

... and most are under the impression that ISPs are staffed by unpaid volunteers, landlords dont expect rent from ISPs, Eskom doesnt bill ISPs, Carlton kindly donates the 1 ply etc.

They seem to be thriving quite well with current pricing my friend. And if you notice some even only have a measly 5% markup on some pricing? The norm being 10-15% markup.

Where they make their money is how they pay for bandwidth...

When an ISP sells you a 3gb account they don't pay for the entire 3gb to Telkom, only the portion you use.

So if you have 100 clients who bought a 3gb account. And 50 of those only use 2gb for the month. They pay for only 250 gig instead of the 300 gig.

Let's assume Telkom charges the ISP R59.50 per gig and the ISP has a 15% markup on that price bringing it to R70 per gig (prepaid value of course, the percentage markup goes down slightly if you pay for 3gig account. but only by a few %)

The ISP, in above scenario, would sell 300 Gigs of bandwidth:

Total Profit: R3150 per 100 accounts

If the ISP's users used their bandwidth in above scenario:

Total Profit: R6650 per 100 accounts (more than double)

That sure does pay for a few staff and premises don't you think? ;) And trust me, I've resold bandwidth to clients of mine before, most on 10 gig accounts doesn't even use 2gb. That's a lot of profit in the end... especially if ISP's boast of having 100 000+ ADSL accounts. You start to make money on reselling hosting/emailing services etc etc as well...

So by lowering bandwidth costs and saying it's Rx per month doesn't mean they will stop being profitable...

[Roman4604]

So by lowering bandwidth costs and saying it's Rx per month doesn't mean they will stop being profitable...But thats not what's being discussed here, your point around oversell applies whether your use SAT3 or Seacom.

I was merely point out that the (Seacom based) GB cost calculations are not accurate as they don't include standard business operating overheads.

[Gaz{M}]

Roman, you are correct, but I think the point of the calculations was to show some forumites that the raw cost is closer to R30/GB with SEACOM before any operational or business costs. This is to prove once again that SEACOM is a minor factor in the broadband cost calculation and certainly not the saviour it has been hyped up to be. Even more so now that SAT3 costs the same.

[wirelessvsadsl]

All the pricing makes me laugh if you think that its going to cost R300 - R700 per meg

In the real world it will be $ 500 - $ 900 and that is the fact i have the figures in front of me

Its easy to calculate the cable at 0 profit margin for 20 years but there is so much to be added on operating costs , termination , financial commitments to the bank @ 15 % , return on investment , equipment etc etc etc

For the real costing you need to look at the whole picture not just the pretty picture

I feel sorry for all the SA people getting false hopes of major reduction but unfortunately until the local loops come down to UK / USA pricing you are stuck with getting ripped

[poolmania]

So let's see:

A STM-1 (155Mbps) on a 1 year lease:

R737 446...... SEACOM Price
R12 000........ Cross connect fee
R9 000.......... Rack space
R755 000....... Local transit
R15 662........ London transit

Total R1 529 108 per month for a 155Mbps pipe to London.

Or R10 195 per Mbps per month. (With 150Mbps usable bandwidth)

1Mbps = 331 GB per month

So R10 195 / 331GB = R30.80 per GB

----------------

If the ISP buys an STM-1 IRU instead of leasing the capacity, then the cost is roughly R969 000 per month or R6462 per Mbps per month = R19.50/GB

But, for example, Neotel offer an Uncapped >1Mbps for R999. Based on your calculations they would be making a loss. Am I missing something?

[greggpb]

But, for example, Neotel offer an Uncapped >1Mbps for R999. Based on your calculations they would be making a loss. Am I missing something?

you contention ratio is proball somthing like 20:1

[K3NS31]

Roman, you are correct, but I think the point of the calculations was to show some forumites that the raw cost is closer to R30/GB with SEACOM before any operational or business costs. This is to prove once again that SEACOM is a minor factor in the broadband cost calculation and certainly not the saviour it has been hyped up to be. Even more so now that SAT3 costs the same.

First I wanna say thanks to Mybroadband for finally publishing a full price analysis (and kudos to Laurie from Cybersmart who published most of those figures on a forum post a coupla weeks ago already).
And thanks to Seacom for being open with your pricing.

Gaz, I understand what you're saying, we have pricing bottle necks with the local loop etc, which prevent us getting really cheap internet.
However, bandwidth costs do make up a bigger portion of your total bill as your cap increases. So, for example, if you're on a 5GB or 10GB cap, then even maybe a 15% price decrease is quite significant.
And looking at the numbers (and this has been confirmed elsewhere on the forums), we should be getting between 20% and 30% off our current per GB bandwidth costs. Which would enable me to increase my cap from 5GB to 7GB, for pretty much the same price. Which is a start, at least.

[kaaskop]

After reading this I lost all hope for cheaper bandwith in this country.:mad:

[brianherlihy]

Dear All,

it is very interesting to read all of these posts. i think some very good points are being made but also would point out that there are multiple ways to look at pricing to the end user.

first, I come from a very different pricing structure in the US. We don't have the concept of Gigabit caps or pricing per data. we price on the throughput we receive from our carrier with unlimited rights to download data. The SEACOM model is also based on throughput, therefore our pricing and the end user pricing in SA are not an apples to apples comparison.

If we look at the throughput model for a minute to the end user, you have to look at the total cost as formulated below:

end user price = last mile + metro area access/national access + international access + services / (divided by) contention ratio. In other words, when you do the calculation of the SEACOM cost to the carrier, (as someone pointed out), you are doing it on a 1:1 contention ratio. This is not the service level that a carrier provides you (anywhere in the world) but better service level agreements have better contention ratios. The pricing model i am used to from the States (as an end user) would get anywhere from a 20:1 to 30:1 contention ratio - best in class i 10:1. To complicate the matter, carriers will do different contention ratio for different parts of the solution (i.e. last mile, metro, international) and use statistics to hope the customers don't overload usage at any peak time. What has been discouraging for me is not the data caps but that the through puts are a fraction of international standards.

The model SA is used to is limitation of data or price per data. the pricing that Suveer presented let's a person do a conversion from throughput to data usage by calculating the total amount of Gibabits available on an STM-1 circuit over a 24 hour period but this assumes 100% utilization which is not the case (hence why i said an apples to apples is difficult).

I have been the biggest proponent of SA needing more bandwidth because ultimately those through puts aren't what they should be (and i don't like living in a capped data world when i visit - FYI my girlfriend blew through 9 Gb/s in 10 days on her first trip to SA because she was downloading TV shows every night on ITunes - without our knowledge). But to some extent, SA is much better off, furthermore, carriers are re-investing in the national and metro networks and are using some of the savings from SEACOM to make those investments. i do understand frustration of the trickle down effect (and SEACOM is dependent on SA becoming a big broadband market) but i do believe that carriers and ISPs are making necessary investments now to launch a much bigger broadband world going forward. ICASA and the Altech case opened the door for that competition and we are starting to see it.


Brian Herlihy

[Sting]

Thanks Brian, great first post and good to see you here!!

[rpm]

Hi Brian

Thanks for the valuable feedback and giving us some hope that we are well positioned to improve the state of broadband in the country. I hope your girlfriend did not use a mobile broadband connection for her series downloads :) In future you should drop het off at the Neotel data centre for direct SEACOM access – you guys build the cable after all ;)

[poolmania]

you contention ratio is proball somthing like 20:1

I knew I was missing something. Thanks.

[pmbellis]

Firstly, kudos to MyBB for these figures, they certainly shed a lot of light on the subject.

Now, unfortunately, I realise that cheap broadband is a pipedream for a long time to come. If R30.00/Gb +/- is the bottom figure for International bandwidth, then I don't see the retail price dropping much below R50.00/Gb in the near future. Even when the other cables come online, won't they have the same sort of pricing structure?

How do other cables (USA to Europe, for instance) compare with their pricing? Does anyone have a similar breakdown for them?

[greggpb]

Dear All,

it is very interesting to read all of these posts. i think some very good points are being made but also would point out that there are multiple ways to look at pricing to the end user.

first, I come from a very different pricing structure in the US. We don't have the concept of Gigabit caps or pricing per data. we price on the throughput we receive from our carrier with unlimited rights to download data. The SEACOM model is also based on throughput, therefore our pricing and the end user pricing in SA are not an apples to apples comparison.

If we look at the throughput model for a minute to the end user, you have to look at the total cost as formulated below:

end user price = last mile + metro area access/national access + international access + services / (divided by) contention ratio. In other words, when you do the calculation of the SEACOM cost to the carrier, (as someone pointed out), you are doing it on a 1:1 contention ratio. This is not the service level that a carrier provides you (anywhere in the world) but better service level agreements have better contention ratios. The pricing model i am used to from the States (as an end user) would get anywhere from a 20:1 to 30:1 contention ratio - best in class i 10:1. To complicate the matter, carriers will do different contention ratio for different parts of the solution (i.e. last mile, metro, international) and use statistics to hope the customers don't overload usage at any peak time. What has been discouraging for me is not the data caps but that the through puts are a fraction of international standards.

The model SA is used to is limitation of data or price per data. the pricing that Suveer presented let's a person do a conversion from throughput to data usage by calculating the total amount of Gibabits available on an STM-1 circuit over a 24 hour period but this assumes 100% utilization which is not the case (hence why i said an apples to apples is difficult).

I have been the biggest proponent of SA needing more bandwidth because ultimately those through puts aren't what they should be (and i don't like living in a capped data world when i visit - FYI my girlfriend blew through 9 Gb/s in 10 days on her first trip to SA because she was downloading TV shows every night on ITunes - without our knowledge). But to some extent, SA is much better off, furthermore, carriers are re-investing in the national and metro networks and are using some of the savings from SEACOM to make those investments. i do understand frustration of the trickle down effect (and SEACOM is dependent on SA becoming a big broadband market) but i do believe that carriers and ISPs are making necessary investments now to launch a much bigger broadband world going forward. ICASA and the Altech case opened the door for that competition and we are starting to see it.


Brian Herlihy

Thanks Brian, very informative.
++Rep for taking the time to respond on a public forum without going through a PR company

[Gaz{M}]

you contention ratio is proball somthing like 20:1

Even more sickening is that this uncapped bandwidth is simply unused business bandwidth that sits idle at night time which has already been paid for by some company. Mostly pure profit in my opinion.

[AcidRaZor]

Dear All,

it is very interesting to read all of these posts. i think some very good points are being made but also would point out that there are multiple ways to look at pricing to the end user.

first, I come from a very different pricing structure in the US. We don't have the concept of Gigabit caps or pricing per data. we price on the throughput we receive from our carrier with unlimited rights to download data. The SEACOM model is also based on throughput, therefore our pricing and the end user pricing in SA are not an apples to apples comparison.

If we look at the throughput model for a minute to the end user, you have to look at the total cost as formulated below:

end user price = last mile + metro area access/national access + international access + services / (divided by) contention ratio. In other words, when you do the calculation of the SEACOM cost to the carrier, (as someone pointed out), you are doing it on a 1:1 contention ratio. This is not the service level that a carrier provides you (anywhere in the world) but better service level agreements have better contention ratios. The pricing model i am used to from the States (as an end user) would get anywhere from a 20:1 to 30:1 contention ratio - best in class i 10:1. To complicate the matter, carriers will do different contention ratio for different parts of the solution (i.e. last mile, metro, international) and use statistics to hope the customers don't overload usage at any peak time. What has been discouraging for me is not the data caps but that the through puts are a fraction of international standards.

The model SA is used to is limitation of data or price per data. the pricing that Suveer presented let's a person do a conversion from throughput to data usage by calculating the total amount of Gibabits available on an STM-1 circuit over a 24 hour period but this assumes 100% utilization which is not the case (hence why i said an apples to apples is difficult).

I have been the biggest proponent of SA needing more bandwidth because ultimately those through puts aren't what they should be (and i don't like living in a capped data world when i visit - FYI my girlfriend blew through 9 Gb/s in 10 days on her first trip to SA because she was downloading TV shows every night on ITunes - without our knowledge). But to some extent, SA is much better off, furthermore, carriers are re-investing in the national and metro networks and are using some of the savings from SEACOM to make those investments. i do understand frustration of the trickle down effect (and SEACOM is dependent on SA becoming a big broadband market) but i do believe that carriers and ISPs are making necessary investments now to launch a much bigger broadband world going forward. ICASA and the Altech case opened the door for that competition and we are starting to see it.


Brian Herlihy

Thanks Brian, just a quick note on SA Telecoms. Telkom was state owned until the late 90's when they broke off and became a "private" company.

My great grandad and grandad paid for the network Telkom is using to capitalize and overcharge us with. Having these companies re-investing my cash into their networks to keep charging me over-the-top prices just so they can provide better infrastructure *to who knows* is a bit stupid.

I would love to see your pricing model that you're used to and have implemented for Seacom be used in South Africa. It has long been discussed here that we would rather have shaped and uncapped access internationally OR unshaped and capped access.

We currently pay good money per GB but have to make do with shaping as well. And pay a premium to be unshaped. The two shouldn't go together.

I hope to see more posts from you in future as it's a breath of fresh air having someone as high up as yourself be involved in a forum that Telkom didn't even dare touch or acknowledge for the past 7 years

[ambo]

How do other cables (USA to Europe, for instance) compare with their pricing? Does anyone have a similar breakdown for them?There isn't really a comparison to be made there. In the US and Europe most (more than 90%) of the traffic that they use is what we would refered to as 'local-only'.

[boerseun]

From what I can read the cost of R325 per month per Mbps does not mean that 1MB of bandwidth cost R325, it means that 1Mbps costs R325 per month. So basically You can get 1MB/s uncapped at R325 per month!!

[poolmania]

From what I can read the cost of R325 per month per Mbps does not mean that 1MB of bandwidth cost R325, it means that 1Mbps costs R325 per month. So basically You can get 1MB/s uncapped at R325 per month!!

But it doesn't cost that. The article clearly said that it costs +R700 per month and that doesn't include all the other extra charges that come on top of it. Read it again slowly and carefully.

[Cloud]

But it doesn't cost that. The article clearly said that it costs +R700 per month and that doesn't include all the other extra charges that come on top of it. Read it again slowly and carefully.

Ok, I might be wrong, but at 20:1 contention, even if it costs R1000 for 1mbps per month - that's still only R50 per month per user correct?

At 30:1 you are looking at R33 per 1mbps per user per month - uncapped.

So a 4mbps uncapped line should cost about R132.

I could be wrong.

[SaiyanZ]

Firstly, kudos to MyBB for these figures, they certainly shed a lot of light on the subject.

Now, unfortunately, I realise that cheap broadband is a pipedream for a long time to come. If R30.00/Gb +/- is the bottom figure for International bandwidth, then I don't see the retail price dropping much below R50.00/Gb in the near future. Even when the other cables come online, won't they have the same sort of pricing structure?

How do other cables (USA to Europe, for instance) compare with their pricing? Does anyone have a similar breakdown for them?


The R30.00/GB is calculated with a contention ratio of 1:1. Normally the ratio is around 20:1 so it would be R1.50/GB. With a ratio of 30:1 the price would be R1.00/GB. Much cheaper than we're paying for right now. Add in costs and a profit margin of 100% and R2.00/GB is reasonable at a contention ratio of 30:1.

[TeleGuru]

I'd like to highlight some things that I've read that most of the poeple here, who I assume are all quite intelligent, seem to have missed.

1.) Seacom Proffit Margin
Its just interesting that no-one has picked up on this yet.

Seacom is selling 1 x STM64 (10 Gbps) IRU for $99m, which is also the level at which you get the "best price" (R325/Mbps/Month calculated using Seacom Maths, at 100% utilisation from day 1 and assuming the money was free to borrow).
They have a Total of 1280Gbps, which is 128 x STM-64s.
The cable cost them $600m to build.


So if they sell 6 x STM-64's they basically have all their money back that they paid to build the entire cable, while they still have an additional 122 x STM-64's left, which is then essencially "free" for them.

Using Seacom Maths again, that gives them a 2011% profit margin.
Cost: $600m / 128 (STM-64s) = $4.69m/STM-64.
Profit Margin = (Sales Price - Cost) / Cost * 100 = ($99m - $4.69m)/$4.69m * 100
Profit Margin = 2010,8%

And people are calling Telkom greedy?


2. Cap vs Contention
I've also seen that people are confusing two different concepts:
Usage Based (Capped) based Costing
vs
Contention / Oversubscription based Costing

You have to choose either the one, or the other, but you cannot apply both.

Usage Based:
Capped Accounts / Usage Based Accounting is another way of oversubscribing your customers. While a 1Mbps link being used at 100% 24/7 wil lbe able to transfer 331GB/month, a 1Mbps link being used for usage based accounts will only transfer about 220GB/month. This is as a result of the mindset subscribed below, where you need to have space capacity in your network at all times. A usage based network, running at 100% utlilisation, will provide a horrible service.

The mindset for this type of Service Porvider is usually: How do I need to build my network to enable my customers to download as much as they can, in as little time as possible, seeing as I get paid for what they use. In essence: The slower my network, the less money I will be able to generate. To make more profit, I need to have enough bandwidth at all times.

Contention:
If you have 10 x 4Mbps Uncapped ADSL Subscribers which you serve using a Single 8Mbps pipe to the internet, you are effectively oversubscribing your customers 5:1. They are open to use as much as they like, but between them, they will fight for bandwidth on the 8Mbps pipe to the internet.

The mindset for this type of Service Porvider is usually: What is the minimum amount of bandiwth that I need to purchase, in order to provide a "good-enough" service to my customers, and be just "good-enough" for them not to complain. My income is fixed, independant of hum much my customers consume, to increase my profit, I need to reduce my input costs.

Hope my coments were usefull to those interested.

[MFour]

Very interesting indeed. Asuming SAT3 works on the same sort of principle, it again just illustrates how badly we have been done in by Telkom all these years, and that with the blessing of Gov. So they charge us for a unshaped, uncapped service which they resell to us as a capped, and shaped service, so severely limited that you can hardly call it broadband. Sad really.

[poolmania]

Ok, I might be wrong, but at 20:1 contention, even if it costs R1000 for 1mbps per month - that's still only R50 per month per user correct?

At 30:1 you are looking at R33 per 1mbps per user per month - uncapped.

So a 4mbps uncapped line should cost about R132.

I could be wrong.


So let's see:

A STM-1 (155Mbps) on a 1 year lease:

R737 446...... SEACOM Price
R12 000........ Cross connect fee
R9 000.......... Rack space
R755 000....... Local transit
R15 662........ London transit

Total R1 529 108 per month for a 155Mbps pipe to London.

Or R10 195 per Mbps per month. (With 150Mbps usable bandwidth)

1Mbps = 331 GB per month

So R10 195 / 331GB = R30.80 per GB

----------------

If the ISP buys an STM-1 IRU instead of leasing the capacity, then the cost is roughly R969 000 per month or R6462 per Mbps per month = R19.50/GB

There is your answer.

So at R10,000 per Mbps per month at a 20:1 contention ratio would be R500 per month.

If someone buys the capacity over the 20 year lifespan, then it would be about R350 per month.

This is however looking at the exact price. Of coarse it would be higher than that as ISP's need to add on their profits.

That's the way I understand it.

[Gaz{M}]

Using Seacom Maths again, that gives them a 2011% profit margin.
Cost: $600m / 128 (STM-64s) = $4.69m/STM-64.
Profit Margin = (Sales Price - Cost) / Cost * 100 = ($99m - $4.69m)/$4.69m * 100
Profit Margin = 2010,8%

And people are calling Telkom greedy?

Don't forget that SEACOM currently has around 80Gbps lit capacity. The 1.28Tbps capacity would require many more interface cards across the network at each landing station, at a large additional cost. So technically, you can't use the 1.28Tbps in your cost calculations.

If you use 80Gbps = 8 x 10 Gbps @ $99 Million, you get $792 million which is roughly the cost of the cable plus a margin and over 20 years, remember.

[Gaz{M}]

The R30.00/GB is calculated with a contention ratio of 1:1. Normally the ratio is around 20:1 so it would be R1.50/GB. With a ratio of 30:1 the price would be R1.00/GB. Much cheaper than we're paying for right now. Add in costs and a profit margin of 100% and R2.00/GB is reasonable at a contention ratio of 30:1.

One thing i don't quite understand is this usage vs. bandwidth argument. If I am an ISP and I have 100 000 customers on 3GB packages, don't I need 300 000GB worth of data at a minimum per month to serve them all? Using the contention reasoning, you are saying I only need (30:1) 10 000 GB to serve these customers? Or in effect, a 30 Mbit pipe 24/7?

I do see that having a 100% utilized pipe would give a pathetic, slow service to everyone at peak times, but how do you dimension otherwise?

If you look at things from the other angle, saying you have 100 000 customers on 512kbps ADSL @ 30:1, this means you need 1.7 Gbps to serve them. But look at all the wasted capacity:

1.7Gbps @ 100% 24/7 = roughly 500 000 GB per month = 5GB per person, not 3GB.

This whole cap model is a mess.

[TeleGuru]

Don't forget that SEACOM currently has around 80Gbps lit capacity. The 1.28Tbps capacity would require many more interface cards across the network at each landing station, at a large additional cost. So technically, you can't use the 1.28Tbps in your cost calculations.

If you use 80Gbps = 8 x 10 Gbps @ $99 Million, you get $792 million which is roughly the cost of the cable plus a margin and over 20 years, remember.

Hence my reason for saying the calculation was done using "Seacom Maths", as they are constatly leaving out details, which have a significant impact on the true answer.

That being said, the cost of an upgrade is $2 000 000/STM-64 (assuming it lands at every country along the way), that is an additional $240m.

Re-doing the calculation, then gives your a profit margin of:
($99m - $6.56m) / $6.56m * 100 = 1409.1% Profit.

And if they sell all 80Gbps now, they even by your numbers, they would have paid for the entire cable, and the additional 120 x STM-64's would still be "free"

[Gaz{M}]

Wow, undersea cables are a real money spinner! No wonder 3 more are on the way...

[Gatecrasher]

The R30.00/GB is calculated with a contention ratio of 1:1. Normally the ratio is around 20:1 so it would be R1.50/GB. With a ratio of 30:1 the price would be R1.00/GB. Much cheaper than we're paying for right now. Add in costs and a profit margin of 100% and R2.00/GB is reasonable at a contention ratio of 30:1.

Not so, because you can't sell 20x or 30x 331Gb on a single 1Mbps pipe. Your service would be shocking. and your customers would burn down your business. The average Joe with his 3gb would only reach 1/20th or 1/30th of his cap. The real price is much higher than R30/gb, because the 331gb used in the calculation assumes that the pipe is being utilized at 100%. That is very unlikely.

The two killers in the STM-1 calculation are

Seacom Lease R737 446 (Which is similar to Telkom's SAT-3 of R800 000)

and

Local Transit R755 000.

On the IRU model, the Seacom cost for STM-1 drops to +-R500k including maintenance, if the cost of the pipe is fully expensed over 5 years, which is more reasonable than 20 years. So ISPs buying their pipes should be able to provide the bandwidth somewhat cheaper. I think there is a lot of room for these prices to fall further given that the limited price savings to local consumers is unlikely to spark a huge increase in demand. We are going to see some very empty cables unless prices fall a lot further.

And of course the real killer is the Local Transit of R755 000 (R5 000 per month per 1Mbps). This is where we are all being seriously ripped off. This is where the regulator should be stepping in and slicing away the fat.

[AcidRaZor]

Just a quick note to TeleGuru:

In South Africa we have capped, shaped and contented bandwidth. Even unshaped bandwidth is contended & capped but comes at a premium.

So to be clear on that, we do understand the difference between capped. However, we stuck with 1:1 contention ratio for the sake of keeping things simple and the fact that Seacom is usage based.

Trying to convert the usage based figures into those we've grown accustomed to is what we're doing. People want to know "how much per gig" and I'm pretty sure ALL companies will still have the "per gig" pricing model for the future as long as Telkom has it's grip on the LL.

The math gets a bit complicated (for me at least) when trying to work out contention ratios (which would bring down the true cost per gig) as well.

We assume the usage would be maxed out 24/7 which, pointed out by Seacom CEO, isn't always true. Thus, only speculation from our side as to how much it would cost... as indicated by him, it would probably be even cheaper because it won't be fully utilized.

With Seacom we're seeing usage based pricing, not capped based pricing, which would possibly indicate something interesting to happen in the future. Especially with Internet Solutions busy testing it and already having the Uncapped Express+ accounts, I won't be suprised if the usage limits during business hours will be lifted (or increased substantially) or even the price being cheaper at the end...

[Seamus6917]

At this point a part of me is thinking this is surely a lost cause...

For Brian... (There is a face-to-face apology owing to you if I am wrong).
I have seen so much BS about Seacom by now that I could easily envisage Zoe D. Catz as being the author or your post.

Smoke and mirrors... And not even enough honour for the prestige...

[Empiricism Philosopher]

@ Seacom CEO or informed persons I was wondering, is there money to be made if you would build us the last mile cables too our homes as well?

Dark Fiber Africa seems to being the metro and intercity connections.

What cables too end users do they have for people in the USA that is cheaper than copper, easy and fast to set up? I am asking as you are the cables expert and in this industry.

Seeing that you are in good relations with our industries now?

Thank you.

[Tns]

Relative to this article; how?

From Seacom to providers' PoP can totally bypass Telkom's network.

From ISP to consumer - that's another matter...

and who's infrastructure are mostly in use? mmmm?

[klasvaakie]

To be honest...cheaper bandwith being sold to resellers (IS and others etc.) basically means just one thing. Profit margins will go up when prices stay the same. There is actually no need for caps...it's to have a higher profit margin...and lets face it...were getting bent over backwards and TBH, we deserve it...we actually buy this crap...in three years I am moving to germany and good riddance...I will be done with telkom, I will be done with all these bs isp's and I will be done with paying through my nose and then complaining about it. Personally...and any isp who is reading this...I know u can actually give us affordable ADSL coverage without a cap...but lets face it...u wont because it would mean a smaller profit margin

[ChrisMos]

I wonder if it will be possible to force ALL role players, to the last km, to publish their pricing breakdown to reveal the true situation why we are still paying these exorbitant prices (both GBs per month as well speed). SEACOM appears to be the only truly transparent organisation so far.

I wonder if Telkom will be prepared to this or are they afraid to reveal this information?

Perhaps we can use the Access to Information Act to force everyone participating?

[Lightscribe]

Your posts seem quite imprecise and confused and hardly very "expert". Maybe if you were to give us a proper analysis, specifying who is paying whom when you refer to "costs" and referring to your sources of information, we could make more sense of what you are saying. For starters, as you seem to admit in your last post, normally bandwidth ( elsewhere ) is sold in speed-of-connection per month, not by how much you choose to ram through said connection.

I remember doing a brief analysis of the costs of the international connections, converted artificially into "cost per GB", and came to the conclusion that Telkom's cost was between R4-R7 per GB or somewhere around there IIRC, fully connected to overseas backbones. Yours is about R28, which looks way too high. Remember, the true "cost" is not the exorbitant fee demanded by Telkom in its position of govt.-entrenched monopoly, so as to rape the South African consumer to bolster the exchequer and provide fatcat salaries and cars for layers and layers of incompetent management appointed for political expediency.

:)

[SaiyanZ]

A couple of questions after looking at SA's ISP costs:

1. How do overseas ISP's offer uncapped 8mbps lines for R350, line rental included?
2. What is the difference overseas in terms of the ISP's costs?

[Weasley]

A couple of questions after looking at SA's ISP costs:

1. How do overseas ISP's offer uncapped 8mbps lines for R350, line rental included?
2. What is the difference overseas in terms of the ISP's costs?

Telkom and there ipconnect thing