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Link: Wholesale Internet Bandwidth Prices Keep Falling – GigaOM

Note: These are prices for transit bandwidth, ie what you pay in a datacenter. Pricing for connections from the customer prem are not dropping at this rate.

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  1. Price of end user access is mostly the cost of the access network. Nevertheless, the drop in cost occured on this segment as well.

    I was responsible of the first commercial ISP in Italy, a company growing 100% YOY, and profitable. (later listed on the stock market and then consolidated in BT and delisted).

    In 2000 we had our best year, revenues with contracts signed with previous year prices and IPtransit costs dropping 50% (IPtransit was most of the cost, at that time). The company was structured to grow 100% YOY and hence anticipated investments and costs, as it did since 1994. (think of >6months advance recruiting of techs and sales staff)

    The following years were a nightmare; sales reps, instead of acquiring new customers, struggling to renegotiate customer contracts in competition with newcomer operators who benefited from (and bet of) the continuing cost base decline.

    just to give you a feeling, retail price of 2Mbps access was aprox 200MLire in 2000, it was aprox 2Mlire in 2002. 2 orders of magnitude in less than 3 years.

    in 2000 we initiated a major company restructuring. when we made money of connectivity (up to 2000), the company was 70%sales 30%techies. This because if a customer used more bandwidth, we just opened the faucet and earned more.

    In 2004 the company was 75%techies and 25% sales, selling people’s experience (security, management, outsourcing, business continuity) on top of best european-level data centers built from 2000 onwards (many awards came for this).

    bottom line was hurt for some 3-4 years but topline growth, although slowed down, continued quite evenly. revenues were some 40MEur in 2000, they were >80 at the end of FY 2007/08.

    connectivity sales dropped from being 90% of the revenues in 2000 to less than 10% in 2007. with 0 help from state or any other source (as a matter of fact, lobbies were in favour of traditional telcos, fighting against us).

    why do I tell all this story ?, because this news of IPTransit price hides a virtually unknown economic internet-related crisis: connectivity price drop. Remember UUnet, BBN or PSINet in the US ?

    it’s not only the media industry being redefined by the Internet, but the ISP market itself has been redefined.

    what to do ? roll up the sleeves, innovate, don’t fear of being aquired (eventually leaving your top seat (I resigned from the BoD in dec 2006)), do simply not cry foul and hope someone else will solve your problems.

    That’s the technology, baby. The Technology is exponential, not linear ! And there’s nothing you can do about it. Nothing!

    Posted by Stefano Quintarelli | October 9, 2008, 6:09 AM