Date: Sep 19, 2014
Disclaimer: All the content below here are guesstimation, and based on my limited knowledge. All these are for education purpose. Please do not ask me or correct me if I am wrong. It is not meant to be 100% right. The main thing is to investigate how real is this price tag of $49 for a 1Gbps. It is a research that I thought of doing for a long time. So, please don’t sue me if I said anything wrong.
Lately, I was reading the promotion by local Singapore ISP.
1Gbps for $49 or $49.99.
That is a huge marketing promotion for IDA. Because in Singapore, the Next Generation Broadband Plan has gone down so low. IDA is the brainchild of NGBN. They did a really good job. Big claps to them.
1Gbps is only less than $50/month nia.
Then, the ISP war begins.
So, my question is
HOW REAL IS THIS $49/month Price?
Are we being cheated?
Do we need such a big bandwidth?
Can our home network support this bandwidth?
Can our WiFi support the bandwidth?
Can our Router at home support the bandwidth?
In order for me to answer this question. I must VIRTUALLY build an ISP. To build a virtual ISP, I will need costing. Costing can come from Ebay (for equipment), Some Global Internet Pricing Website, and most importantly, IDA website for the costing of NGBN, OpenNet.
So, if you don’t want to understand the whole technical thing. You can skip the technical and go to the BIG CONCLUSION page. Please scroll down now.
There is also a simpler way to calculate and figure out.
TO BUILD A VIRTUAL ISP
We have to thank you IDA for making NGBN a reality.
IDA uses tax payers money, and funded the NGBN. So, all the tariff is available on the website.
They did a good job. My home has been on Fiber for 2 years now. And I have said good bye to the lousy Cable TV Internet and Copper ADSL.
So, after reading the costing document. These are the 4 important cost pages.
Then, I will try to build the Virtual ISP and check the costing.
This is the fiber from the exchange pull to your house/unit. It also tells you the 1:24 ratio.
This is the rack price for co location your equipment in OpenNet exchange.
This is the fiber charge from exchange to exchange.
You probably need 2x between 2 exchange because one for transmit and one for receive. So, the price is double.
This is the price from the Exchange to your ISP POP. You can’t use a split fiber here. It has to be a full dedicated fiber.
The Tail End Circuit To The Customer Home
In order for ISP to deliver the link to your home, they have to use OpenNet Fiber.
OpenNet is NGBN (Next Generation Broadband Network) which is funded by Government using our tax payers money.
So, the COST_A you need to know is the cost of OpenNet selling the Fiber to the ISP and the ISP build the Broadband to your home.
COST_A = $15 /month
ISP will need to put a switch at the OpenNet exchange, pay for power for the equipment, etc. That cost is only $590.19 /month for the rack colocation. It is been shared by all the home broadband users. The more users, the cheaper the sharing cost. This cost is negligible.
One of the high cost is, at what speed the ISP is going to deliver the broadband to you?
If it is 1Gbps per broadband link. Then, by right, they will need to use a higher end equipment (ISP switch) that has are cable to give you a full 1Gbps switch, and the capability of bring back the network back to the ISP POP.
The Likely Equipment ISP Will Use
You notice that blue box labeled ISP Switch . That cost money.
To the customer, it is all 1Gbps port. The cost is constant.
But the back haul network that the ISP may decide to use will cost money.
Be it a 1Gbps card, or a 10Gbps card, or a 100Gbps card.
I google ebay for a while and put down some estimation.
So, what do you think the ISP will put? I think they will go for option 2. They cannot just put a 1Gbps switch there. and let every one share.
This Area Has Other Condo & HDB
This OpenNet exchange going to server a lot of condos. Imagine the condo grows. And every switch are full. So, you got to have multiple switch at the 2nd level. And then, connect it up to the main gateway switch.
There will be another level of over subscriptions within that exchange.
We are not even talking about the ISP POP yet.
So, bear in mind, there will be Equipment cost. And this cost is shared among all users. The more users, the more longer you sign the contract, the more cost effective.
But there are two level of over-subscriptions.
For some ISP, they even place the THROTTLING machine here at the OpenNet exchange. Those machine can cost easily up to 100K per machine.
Why, because you control the pipe for your users, and then save on the backhaul traffic.
For our benefit, let’s give a fictional cost of $5 /month here.
COST_B = $5 /month
The End User Equipment
The end user, at your home, the ISP will give you a ONT. A optical Network Terminal. And they probably will give you a router too.
So, if the ISP WAIVED OFF your One Time Setup Fee, guess where they going to make the money from? Of course, get from your monthly fee.
That is why they want a 2 years contract.
These ONT may cost $54 per box.
These Router may cost $54 per box.
For a 2 years contract, these end users equipment could cost about $4.5 /month
COST_C = $4.50 /month
The ISP Network From OpeNet To ISP POP
I am guessing the ISP need to build a ring network.
To build a nice Ring Network of 9x OpenNet exchanges.
Also, if your ISP POP is outside OpenNet exchange, then, you need to buy another fiber from another Telco to make it Telco diversify.
TOTAL COST = 9x 2x $6000 + 2x $2300 + $12,500 = $125,100 /month
So, you need to have many many users to share this cost. If you have only 1000 users, each users will need to pay $125/month, and if your price is
very cheap, then, you going to make huge losses initially.
If you have 10,000 users, each users will pay $12.50
That is why the ISP is all out to get your business. Just to try very hard to achieve a break even point.
Let’s assume that you achieve a 10,000 users base.
COST_D = $12.50 /month If can be $6.50 for 20,000 users or $2.50 for 50,000 users
Take note that every exchanges you need to place equipment, and every exchanges you need to co-locate in OpenNet.
So, let’s put another fictional cost of Network Equipment.
COST_E = $5 /month
The IP TRANSIT
The local ISP need to buy from oversea ISP internet.
Smaller player ISP need to buy local internet from local bigger ISP players.
The ISP usually can get free peering to Google and Facebook and save 30% of their traffic.
This is where the over subscriptions comes in.
This is the last over subscriptions of ratio 1:10 or 1:20 or even 1:30.
COST_F = $10 /month
Not every one read email at the same time.
Not every one download movies.
That is why ISP can take advantages to save money by oversubscribing the users.
If my cost is $3000 /month for 1Gbps. To get a COST_F of $10 /month your oversubscription has to be 1:300 users.
1. Let’s add up guestimation cost.
COST_A = Cost of OpenNet Fiber = $15 /month (FIXED)
COST_B = Cost of Individual Exchange Network = $5 /month (mostly FIXED)
COST_C = Cost of Network Equipment at Customer home = $4.50 /month (FIXED)
COST_D = Cost of National Backbone of ISP using OpenNete 9 Exchange = $12.50 /month (VARIES against Number of Users)
COST_E = Cost of Network equipment = $5 /month (VARIES against Number of Users)
COST_F = Cost of IP Transits / Internet = $10 /month (VARIES against Number of Users and Quality of Users)
TOTAL = $52 /month for worst case, 10,000 users base.
2. Let’s assume, if large ISP is 50,000 uses. Than, the cost go down dramatically to $42 /month. I am very sure it can go down further. Don’t forget the price and revenue is much higher to Corporate Customer despite technology is exactly the same. For ISP business, Corporate customers are to save the business. Corporate users less bandwidth, as their Per Mb price of bandwidth is much higher. Corporate uses bandwidth in day time, where Consumer uses the bandwidth at night time. So, you don’t need to provision more bandwidth for doing corporate.
3. What does these figures mean.
A. ISP have to try all sort of method, to sign your 2 years contract.
B. Big ISP has cost advantages.
C. Small ISP will need to pay higher cost. But some may want to BUY customers. Make losses and get the customers.
E. Some Small ISP will not wiling to drop price, instead they give value add. Such as better throughput to watch IPTV.
F. It is not cheap to run an ISP business.
G. The big ISP always sit there to watch what the small ISP do. Their competitor drop price to $49. Then, they follow. They will never in the leading packs.
H. Those smaller ISP who cannot offer $49 for 1Gbps. Means they really cannot offer it at a loss. Nobody wants to do business at a loss.
I. Let’s say $52 or $42 is the cost price. What about Call Centre Cost? What about the day to day operation cost? Human Cost. I did not even consider those yet.
J. Can ISP allow their business to make losses? No, so they will have to squeeze the cost down.
K. The easiest way is to oversubscribe the users. For example, put 300 1Gbps users together and to use a real 1Gbps IP Transit/Internet.
4. There is an easier way of doing even simplest Guesstimation.
The IP Transit is $3 per Mb per month. So, a real real dedicated Internet of 1Gbps will need to pay $3000/month. So, if you are paying $49/month for it.
$3000 / $49 = 61.22
That means, without calculating the human cost, equipment and network cost. By simply buying Internet from the Tier 1 ISP in the world. and divide by your 1Gbps Price.
You are already sharing with almost 61 people.
So, 1000Mbps divide by 61 people = ideally, you get 16Mbps allocation if all 61 people uses the internet at the same time.
Got it???? Do you think, if you factor in the human cost, the equipment and network cost, you are sharing with 61 or 100 or 200 people?
5. At home, the ISP probably know that you won’t be able to user 100Mbps if your switch is 100baseT switch.
If your WiFi is still 802.11a/b/g, even if you have 1Gbps coming in, it is restricted by the 11Mbps, or 54Mbps restriction of WiFi technology.
Even you buy a AC1200, do you really get Mb traffic via Wifi? NO. It is only in the lab that they can produce that kind of result.
Look at my home. I got 200Mbps coming into my kitchen by ViewQest.
But after it goes into my Power Ethernet Homeplug (Sineoji), it left with only half the speed.
That means, if I can buy 1Gbps. My iMac still going to get this 107.23Mbps speed because of the lousy design of my home network.
I consider myself quite good in designing network. But sometimes reality is… do you want to see the UGLY cable run, cable boxing from the front door to your TV console or network cabinet? Do you have money to renovate your house to hide these cable runs? If no, you will be like me trying very hard to improve the network form one point to another.
But I am sure 99% of the consumer users know nothing about cable, internet, network, Homeplus and so on. So, they can only be at mercy of the big ISP.
Big ISP will lure them with a lot of plans. They might get discount price for multiple mobiles, but they are heavily short change in their Internet.
6. It is not cheap to run an ISP as you can see from my Virtual ISP model. It all depends on what you need. Do you want to relax at home and watch 20 episodes of Korean TV series without seeing any buffering. Or you can afford to pay lots of $$ to watch “Traffic Lighgt” TV? My conclusion is, the 1Gbps at $49 plan is the biggest scam of all. You might get the full speed on day 1, but as time past, more users sign up, you will get lousy speed again due to oversubscription ratio. IDA define 1:24 from exchange to your door step, but they did not state requirement from exchange back to ISP POP and go to Internet.
Traffic Light ISP earns a lot of money. Just look at their annual report. They always find ways to earn your money.
Smaller ISP wanted to do something different. They want to do better. But the cost is high. The Internet to China cost is between $100 to $200 for 1Mbps and per month price. Compare to $3 per Mb per Month US Internet. That is very huge cost. So how smaller ISP survive is based on their commitment to serve better the customers. If smaller ISP only wanted to get in more customers but not improving the service, then, they will eventually face with their doom too.
Finally, I completed this small little project and I gain a lot of knowledge thru this learning too. It is fun and good to know the costing. I always wanted to know, I always trying to figure out. I am glad I done a rough calculation and verify my point of view. hahahaha
I just shoot this video a moment ago. And you will know why although I only have 100Mbps Internet in my home, but my Xiaomi MiBox can give me the highest HAPPINESS of all. You really don’t need a 1Gbps to do this. HaHaHaHaHaHa….
After you watch this video, you try do the same thing on an Android TV Set top box and tell me how your Traffic Light ISP compare to this. HaHaHaHa.. Have fun ya! Happy F1 Festival.
Check out how all the video been tested, how the apps been tested, how I fast forward can play the movie fast. How HD the quality it delivers. Thru various different apps. The sport channels may be a bit jerky… but all is because of the servers.
Interesting post. I'd like to give feedback/dig deeper though.
1. Can you elaborate how you get the cost for COST_D? a detail explanation the cost components of that calculation will be very helpful
2. Big telco like singtel and starhub also have their own ip transit and since other player pay to them, so likely this cost is negligible
3. COST_B for throttling machine should be consider as investment, right? thus the cost could be negligible. The calculated cost should be depreciation cost/year split by number of subscribers.
4. The key is user usage behavior.
ISP normally have multiple price plan. Thus, the pricing for 100 Mbps plan will subsidize the 1 Gbps price. And likely the 1 Gbps plan will be more oversubscribed than the 100 Mbps since the real usage will never reach 1 Gbps. And the more people, due to their greed/misinformation, will subscribe to 1 Gbps plan while only using like 100-200 Mbps. Watching netflix super HD only utilize 6-8 Mbps.
Unless user is heavy downloader/torrent user, 100-200 Mbps is already overkill. That's also one of reason why telco do throttling for torrent.
Cost_D numbers are plucked out from IDA pricing on OpenNet. It's on the Ida website, public info.