A sample SEACOM cost calculation

Cotention Ratio = the number of people 'contending' (competing) for a unit of bandwidth.

So if we have a contention ratio of 20:1 on a 1Mbps pipe, that means 20 people are all competing for a piece of that 1Mbps. So if only 1 person is using the pipe, he gets 1Mbps, but if all 20 people are using the pipe, they each get 50kbps.

Because browsing and downloading smaller files only uses your internet connections for a few seconds every minute, you should not feel like you are impacted much by the othe 19 people using that 1Mbps. However,if everyone is downloading non-stop, then 50kbps is the max you will see. This is known as "end of the month" syndrome, where everyone is downloading as fast as possible to use up the last bit of their monthly cap.
 
LLU is the local loop... the network between you and your DSLAM and Telkom. Its what Telkom own and what we still have to pay for.

Your average DSL costing looks like this

R175 +- for your telephone line
R150 for your connection to the ADSL network (ie Your speed 385 etc)
R69 for your cap (1 gig)

At the moment the only thing that SEACOM can influence is the R69 per gig. The price you pay per gig depends on a lot of things, shaping, ping etc.
 
Sorry to burst this discussion a bit, but the way a business will manage these costs has nothing to do with the direct cash flows shown in the OP.

The money to lease the line for 20 years will most likely be borrowed, the loan being paid off over 5/10/20 years.

Then the line will be considered an asset of the ISP and will be "depreciated" over the length of the useful life of the lease, being 20 years. So to put rough estimates on it, 5% of the cost will be expensed each year, plus the maintenance costs and interest on the loan.

Ignoring interest(not knowing how this would be financed), the cost would then be R1,805,250 for the line per year and R1,444,200 for maintenance.

This works out to R3,249,450 per year / 150Mbps / 12 months
= R1,805.25 per month for a dedicated 1 Mbit line for first 4 years..
= R1,604.67per month for a dedicated 1 Mbit line for years 5-7..
and = R1,504.38 for rest of the lease.
 
mjwitter said:
Sorry to burst this discussion a bit, but the way a business will manage these costs has nothing to do with the direct cash flows shown in the OP.

The money to lease the line for 20 years will most likely be borrowed, the loan being paid off over 5/10/20 years.

Then the line will be considered an asset of the ISP and will be "depreciated" over the length of the useful life of the lease, being 20 years. So to put rough estimates on it, 5% of the cost will be expensed each year, plus the maintenance costs and interest on the loan.

Ignoring interest(not knowing how this would be financed), the cost would then be R1,805,250 for the line per year and R1,444,200 for maintenance.

This works out to R3,249,450 per year / 150Mbps / 12 months
= R1,805.25 per month for a dedicated 1 Mbit line for first 4 years..
= R1,604.67per month for a dedicated 1 Mbit line for years 5-7..
and = R1,504.38 for rest of the lease.
Click to expand...

Precisely my thinking... time to get my actuarial brain in action with drawing up a business plan..
 
Nerfherder said:
LLU is the local loop... the network between you and your DSLAM and Telkom. Its what Telkom own and what we still have to pay for.

Your average DSL costing looks like this

R175 +- for your telephone line
R150 for your connection to the ADSL network (ie Your speed 385 etc)
R69 for your cap (1 gig)

At the moment the only thing that SEACOM can influence is the R69 per gig. The price you pay per gig depends on a lot of things, shaping, ping etc.
Click to expand...

R150 for your connection to the ADSL network (ie Your speed 385 etc) <-- so this would be what guys like DFA can influence if u lease capacity from them? is my assumption correct?
 
We can only hope... but the LLU unbundling process is taking too long.

At the moment DFA will only make things other than ADSL cheaper.
 
mjwitter said:
Sorry to burst this discussion a bit, but the way a business will manage these costs has nothing to do with the direct cash flows shown in the OP.
Click to expand...

Exactly the kind of insight we need. Thank you.

I'm just concerned that smaller ISPs will not do things this way and use the initial 3 year expenses on their balance sheets as justification to keep prices high.
 
Gaz{M} said:
Exactly the kind of insight we need. Thank you.

I'm just concerned that smaller ISPs will not do things this way and use the initial 3 year expenses on their balance sheets as justification to keep prices high.
Click to expand...

if they do that they will definately lose market share.. some1 needs to come up with a model that will cater for all spectrums of the market.

you can have a "small cap" account of 10-15gig for around 99 a month right up to 4mbps uncapped for around 599pm ( i'm talking true uncapped not the fake throttled useless accounts we have now for 999pm)

that wud be progress wouldnt it...
 
DFA Costing

From what I have seen from Dark Fibre Africa so far, it is not the leasing of bandwidth, but the leasing of an ENTIRE fibre Pair (point to Point).

So if you have CPE that will burst 10GB/s down the fibre, or 100MB/s down the Fibre, you pay the same price. OH, and the pricing I have seen is price per metre, as the crow flies. (Google earth is your friend here)

I think ISP to ISP peering, and corporate HQ to DR Site connectivity is going to get very interesting.
 
mjwitter said:
= R1,805.25 per month for a dedicated 1 Mbit line for first 4 years..
= R1,604.67per month for a dedicated 1 Mbit line for years 5-7..
and = R1,504.38 for rest of the lease.
Click to expand...
But this assumes 100% capacity utilisation from day dot.

An often overlooked risk with the IRU model is that your real cost per Mbps/month is not related to the capacity you have, but rather the capacity you've sold.

During your ramp up period you will not have sold 100% of your capacity, but your certainly going to be paying for it. Therefore the price per Mbps/month for the capacity you have sold will be greater as it still has to carry the full capacity cost, thus pushing up your service pricing.
 
mjwitter said:
Sorry to burst this discussion a bit, but the way a business will manage these costs has nothing to do with the direct cash flows shown in the OP.

The money to lease the line for 20 years will most likely be borrowed, the loan being paid off over 5/10/20 years.

Then the line will be considered an asset of the ISP and will be "depreciated" over the length of the useful life of the lease, being 20 years. So to put rough estimates on it, 5% of the cost will be expensed each year, plus the maintenance costs and interest on the loan.

Ignoring interest(not knowing how this would be financed), the cost would then be R1,805,250 for the line per year and R1,444,200 for maintenance.

This works out to R3,249,450 per year / 150Mbps / 12 months
= R1,805.25 per month for a dedicated 1 Mbit line for first 4 years..
= R1,604.67per month for a dedicated 1 Mbit line for years 5-7..
and = R1,504.38 for rest of the lease.
Click to expand...

Remember not all traffic is international.

...and international usage of your pipe can be heavily reduced through caching of international content on local servers.

I'm not sure what the contention ratio ends up being at the international potion of the network, but i'm guessing it may be alot higher than 20 to 1.

But then i'm just guessing.
 
jak3 said:
But then i'm just guessing.
Click to expand...

A lot of guessing going on here! (Not just you, jak3 ;-))

The sums aren't all that difficult.

1 No way will you be able to pay your IRU off over 20 years. SEACOM will accept three years, in 12 equal quarterly payments, with the 5% deposit at 8% interest. Nedbank (their bankers) want a 45% deposit if you go to them, and charge 14% interest, so forget that. I know, I did!

2 Around R8000 / Mbps per month for the first 3 years is about right. Rermember, that's dedicated international bandwidth. You are buying a contended ADSL connection from your ISP. That means that it's being shared. That's why you can get a so-called 4 Mbps account for ~ R3000 per month. The real total cost of that 1 Mbps (which approaches R50,000) is being shared with a bunch of other people, as was correctly pointed out.

3 Apart from the operational costs of running a company, your biggest single cost is local transit, not international transit or carrier service (Surprise! Telkom were lying, all these years)

4 Caching won't save you more than 30% of all traffic, at best.

5 You have a very rich Daddy if you can afford to run a new company at a loss for the first three years

6 Yep, paying for all the capacity that you initially bought, but not selling it all initially is the real killer.

7 DFA has nothing to do with your ADSL line, unless of course you're happy to fork out R20,000 or so for the installation charge to your home? DFA is important for your backhaul connections, but not including your IPC connection to Telkom's ADSL cloud, which will cost you R420,000 per month for a 155 Mbps ATM circuit. Plus VAT, of course.

Does that cast a little light?
 
Wimbo said:
4 Caching won't save you more than 30% of all traffic, at best.
Click to expand...

Thanks, I was wondering about the various tricks to save on bandwidth usage by clients.

For a small ISP, 30% of 10 000 gigs monthly traffic, would be about 3000 gigs saved, at a cost of R15/gig = R45 000 saved monthly.

For a medium sized ISP, 30% of 100 000 gigs monthly traffic, would be about 30 000 gigs saved, at a cost of R15/gig = R450 000 saved monthly.

Actually, a small ISP pays about R43 per gig for 10 000 gigs, so the saving is R135 000 per month.

The larger the ISP, the less they save per gig, but the more they save in volume and price per gig.

Thus, it balances out, as an ISP grows.
 
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rubble said:
http://www.ibeast.com/content/tools/band-calc.asp
155Mbps pipe could bring in about 45,000 GB and cost as mentioned is ± R30 per GB. Customers buying 100GB traffic at 10c / MB are paying R100 per GB = a 75% margin, not bad business
Click to expand...

Are you perhaps making the extraordinarily rash assumption that submarine carrier costs are the sum total of the cost of your broadband connection? Actually, SEACOM makes up about 30% (depending on the size of your IRU) of the total transmission costs, which in turn make up less than 50% of the total costs of providing service.
 
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