How Pipe Networks' cable will bring down bandwidth prices

Stuart Corner
Tuesday, 26 May 2009 18:01

IT Industry - Strategy

Pipe Networks' PPC-1 submarine cable, due to come into service in September, has been preceded with the expectation that adding a new player to the 'Gang of Four' - Optus, Telstra, Verizon Business and Telecom New Zealand - that between them own all the submarine capacity out of the east coast of Australia will significantly reduce prices. However, according to TeleGeography, distance and low demand relative to other routes are also major drivers of price.

TeleGeography maintains a wholesale bandwidth pricing database that tracks international bandwidth prices globally. Senior analyst, Erik Kreifeldt, told iTWire "the median monthly lease price for a STM-1 (155Mbps) circuit between Sydney and Los Angeles is $US40,000 compared with $US12,000 for Los Angeles–Tokyo. Part of the reason for the difference is that there is much more capacity available between Los Angeles and Tokyo than Los Angeles and Sydney, which corresponds to lower unit costs, and subsequently prices. The cable path between Los Angeles and Sydney is also much longer, which corresponds to higher cost and subsequently price...There are fewer suppliers of capacity between Los Angeles and Sydney than between Los Angeles and Tokyo, which corresponds to higher prices."

According to TeleGeography bandwidth prices on international routes can differ by several orders of magnitude. For example the $US40,000 per month that buys 155Mbps from Sydney to the US would buy 3 x 10Gbps wavelengths between London and New York; but a mere 2Mbps between Johannesburg and London.

Pipe Network's PPC-1 cable will certainly increase the number of suppliers, but according to TeleGeography, its configuration will reduce its costs compared to existing systems. TeleGeography research analyst, Alan Mauldin told iTWire, "The key to lowering international capacity prices lies in lowering the unit cost of capacity. Given that Australia has relatively small capacity requirements and is geographically remote presents some challenges in doing this...Pipe's cable is a fairly short link to Guam where PPC-1 can interconnect with other international cables...Pipe is only taking on the cost/risk with this one relatively short segment and then able to leverage the capacity on other submarine cables that land in Guam to get their customers traffic to the US and other destinations.

"The cables connecting Guam to Asia and the US aren't just carrying Australian capacity sales alone but are aggregating demand from a variety of other locations. As a result, the higher capacity on these cables leads to lower unit costs. Lower unit costs from Guam to the rest of the world benefit from Pipe's ability to offer lower prices."

He added; "The approach Pipe has taken is similar to what Telstra did with Endeavour. Telstra didn't build their own cable to the west coast of the US; they just built it to Hawaii. This kept their costs low and allows them to benefit from the multiple other cables that land in Hawaii to route capacity to the US mainland."