Will the price cuts filter through? - Updated: 13:00
Along with the news already released earlier of price cuts at the wholesale level for the end user connections, BT have also advised their customers that there will be a price RISE on the 155Mbps BT central product. This relates to a rise of £10,000 in the connection fee, and a £5000 rise in the Annual Rental. This rise will be designed to soften the blow of the cuts on the end user products. To quote BT,
"On a per end user basis the increase in the BT Central 155Mbit/s price equates to approximately a 10p – 12p increase per month. However, when combined with the base BT IPStream price reductions, there is still clearly a significant net reduction in the end to end price per end user."
These prices should be updated on the BT price list soon.
It is unknown as yet whether ISPs will be able to pass these price reductions on fully, following this news. There should be no doubt that most ISPs will reduce the cost of the Office and Engineer range of products, but a reduction to the End User on the Home 500 is looking bleaker still.Update - 13:00
Adrian Mardlin, Technical Director of Nildram added the following:
"BT's cost per user calculations for the Central pipe cost increases are based on their 8,000 users per 155Mbps central pipe estimates," which is the figure given for the maximum number of sessions on a Central pipe.
"More realistic figures are 3,200 users, and realistically, ISPs will be looking at writing off the setup charge in year 1. Therefore, increase in annual costs in year 1 are £15,000, which when divided by 3,200 and then by 12, gives a cost increase of 39p per user per month."
These figures do sound more sensible. When the discount schemes are calculated into this, these costs are partially offset, e.g. £20,000 saving for every set of 13,000 end users. If placing these on four BT Central pipes, which are ordered afresh, this would equal to a £60,000 rise in costs for the first year, but with only a £20,000 saving from the discount scheme, leaving an extra £40,000 that will most likely be passed onto end users at about 25p per connection. Hence, price reductions on the Home products seem more and more unlikely. If ISPs were to cram users onto the pipes, it would breed a more realistic figure to avoid increased costs. For example, 6,500 users on each of two pipes would equal only a £10,000 rise in costs on the first year. Run with even more users, and it is almost break even again.
Is there still a threat?
The BT Datastream products have been in the news a lot recently with ISPs such as Internet Central and Nildram to name but two bringing news of 1Mbit and 2Mbit products at a 50:1 contention ratio. The price changes announced today by BT may hence bring some strain on these ISPs to be able to continue the existing business model, particularly with some of the problems of our thoughts that there are only 74 exchanges to each ATM connection.
A glimmer of hope may still exist, for these players. BT have announced today that plans are in place to increase to 622Mbps the size of the ATM interconnects that can be used as Access Links as well as for the In-Span Hand-over products. This means that the limit of 74 virtual paths per link should increase hopefully to something more like 300, assuming the technical capabilities can handle it.
Also an advantage to Datastream End Users is the drop from 12months to 3months of the contract, which if passed on to users, will mean that they’ll be able to swap out easily if they find their provider is having problems. This is always an advantage particularly as these products are largely new and unseen in this market place.
Continuing on the 622Mbps theme, a new higher bandwidth 622Mbps Central pipe has been announced as a trial to commence on 30th of April. This would allow larger ISPs to add more users per central pipe, and hence reduce the costs. One thought in my mind relates to the reliability of these links. It has been known before for entire Central Pipes to go down, and if this does happen on a 622Mbps link, then it will affect a lot more people. It would hence be harder to balance the problems off onto other Central Pipes that may be in place without adversely affecting all your ADSL customers. This may also cause ISPs to hold off on the take up of these pipes particularly in the trial stage. Only time will tell how providers will go.