Internode’s Data Pricing: One Expert’s View

Earlier this week member “Amfony71” posed this question in the Whirlpool Broadband forums:

Why is Internode so expensive? Why does $/GB go UP the more I use? If feels like a penalty designed to discourage high bandwidth users. Well bugger that, that’s the future, so why am I with an ISP discouraging that?

I thought it worthwhile to re-post the response from Internode’s Managing Director, Simon Hackett.  It relates directly to my analysis in How Much Quota Do Internode Customers Actually Use? as well as answering Amfony’s specific query.

If you’d like a reason for that, I’ll give you two of them (below).

They both start to break down the myth that a Gb has a specific cost, when in the real world that average cost is the result of blending multiple cost sources that are not evenly distributed across all plan sizes equally.

So here are those two reasons:

1) The cost of downloads within tiered download plans are driven by the average downloads per month (as a percentage) of the quota offered at that plan tier.

As the download quota sizes go up, the percentage utilisation (hence the actual underlying cost to service that tier of plans) rises.

If you think this over, its hardly surprising – the higher a quota selected, the more likely the customer selecting it will be intending to push that quota right to 100% every month they can. The attitude increasingly becomes ‘I paid more, I’m going to find something else and download it, because I want to feel warm and fuzzy about using 100% of my quota’

2) The higher the total downloads, the higher the proportion that came from overseas

This stands to reason too. In the first (say) 5Gb, a substantial proportion of it will be more ‘locally’ sourced (email and files exchanged with other Australians; Access to Australian web sites etc). The more and more you go past that level, the more and more of the data concerned is from elsewhere on the planet (long story short).

So, the higher the quota, the higher the proportion of the Gb’s that were sourced via overseas links, which are the most expensive component of our end to end data chain (except for Telstra AGVC’s, but, well, ‘its good to be a gorilla’).

You asked for reasons, and I’ve provided them. The flip side is that we’re sustainable and damn high performance – and proud of it.

If some other ISP has got some magic bullet that we don’t (and/or hasn’t done the same sums, and/or doesn’t believe the above and wants to sell on another cost model) – thats up to them. And your buying decisions are up to you.

Our stance is to provide a rocking Internet service at a price structure that makes sustainable sense to us. The rest truly is up to you. We believe (and we hope, and intend, to stay), worth the money – because quality services require quality investments in their delivery.

Regards,
Simon Hackett
MD, Internode

So it sounds like I was on the right track in terms of increased utilisation as customers move up tiers.  But there were certainly some complexities, in terms of multiple cost sources, that I had failed to consider.

Oh, and Simon… “High Performance Internet” is the King William Street mob!

Advertisements

2 Responses

  1. what bullshit, Internode has had to borrow expensive private capital to pay for their expansion, which makes his business more expensive to run.

    so much for your exhaustive research

  2. ??? raising capital in a large business is just a standard part of doing business. Your insinuation is that ‘node (by some measure) has (disproportionately) higher overhead costs and they are being passed onto the customer , and if so that’s just total bollocks.

    For the publicly listed companies, all of the majors have debt funding, and I can *promise* you for all the private ones out there, most will be gaining access to capital to help manage cashflow and growth.

    So yeah, you pay more for equity funding, but relatively speaking we all do.

    And there’s no need for swearing now…

    Adam

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: