$200m cable "will not bring down broadband prices"

$200m cable "will not bring down broadband prices"

Summary: Experts have warned broadband prices may not be on their way down, despite the opening of a AU$200 million cable link.

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Experts have warned broadband prices may not be on their way down, despite the opening of a AU$200 million cable link.

Construction of Pipe Pacific cable-1 (PPC-1) is expected to be complete by mid-2009, Pipe Networks announced yesterday, and will link Australia directly to existing cable systems in Asia, the US and Europe via an exchange in Guam.

Speaking at the launch yesterday, Broadband Minister Stephen Conroy voiced his support for the project, saying that the cable will form an important link in the chain for Australia's new fibre-to-the-node network, while Pipe and ISP iiNet both suggested that the increased capacity enabled by the cable would put downward pressure on broadband prices.

"I'd like to see what they're basing that on," said Sheryle Moon, CEO of the Australian Industry Information Association (AIIA). "I wouldn't say that increased capacity automatically translates into lower prices, it depends on whether or not there's a latent demand for the bandwidth; we may find that by 2009 the demand has increased so much that it doesn't make such a huge difference."

It's one cable eighteen months down the track; how it will affect retail broadband pricing is absolutely impossible to say right now.

Guy Cranswick, IBRS

Moon added that executives from both Pipe and iiNet are predicating such claims on the assumption that increased bandwidth delivered by the cable will increase competition and drive prices down.

"What we don't know at this stage is whether there will be any surplus or not," she said.

Guy Cranswick, senior analyst at consulting firm IBRS, also queried the pricing claims. "In terms of actual home delivery to someone on a broadband plan you mightn't see much difference, because there are so many variables involved when it comes to things like access speed such as exchanges and load sharing," he said.

"As for being a critical part of the national FTTN network, it's also too hard to say at this stage because some of the details surrounding that project are themselves a little vague," he said.

Despite some concerns over whether the cable will bring down prices, AIIA CEO Moon said the network will bring benefits: "It will definitely have a positive impact, and speaking for the industry I can say that we're excited about it."

"There's been a long held belief that the existing cable links were choking," she said.

IBRS's Cranswick claimed that there was no way to tell what effect the cable will have on the broadband market by the time of its completion.

"You're talking about one factor affecting a complex market. I can't see that there's going to be anything immediate, and by the time it's finished any number of market forces will be acting on it," he said.

"It's one cable eighteen months down the track; how it will affect retail broadband pricing is absolutely impossible to say right now."

Topics: Broadband, Government AU, Telcos, NBN, Asean, EU, Tech Industry

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Talkback

13 comments
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  • PPC-1

    The PIPE cable will allow increased customer data allowances at the same price. This is a boost in value for the consumer.
    anonymous
  • Who are the stupid people?!

    The cable will invariably bring down prices, because there will be 3 companies competing for the market, where there isn't much demand, so they'll all have an oversupply (as they do now anyway).

    The only difference is, a third is coming along and saying, ok, now I want some, so the others will have to compete harder on price (all 3 will), in order to fill those cables.

    The cables are FAR from capacity, of the capacity available, it is understood just 50% of SXC is currently used, and with an upgrade, they'd push that down to 25% of the total capacity is used.

    The prices will come down purely due to PIPEs 50% cheaper attack., leaving the other two to match it, or get reduced income.
    anonymous
  • No facts

    The comments from the industry folks are merely opinion. There are no facts to support their argument.

    A cable such as Pipe's, given their product history and market position will allow us to understandwhat the true cost of carriage to AU really is.
    anonymous
  • PPC-1

    Did these so called experts take note of the announcement?
    An ISP agreed to a long term contract based on a cost approximately 50% less than current prices. Whilst this ISP could just pocket the savings, it seems highly unlikely considering that they've advised the market of this.
    anonymous
  • It's nothing to do with the capacity.

    Its the increased competition that will reduce prices.

    There is plenty of capacity on the existing cables, the owners (Optus, Telstra, NTT, TNZ) just price it out of ISPs reach.
    anonymous
  • Yep

    Quite true about the increased competition. We see it already with the fact that Bigpond and Optus run their own cable networks. Despite no other ISPs having access (read: freeloading) off them, pricing for cable plans continues to be far more competitive than ADSL1, which is provided in most cases by only one company - Bigpond. This is also backed up by ADSL2 being far more competitive than ADSL1 due to ISPs installing their own equipment in exchanges in preference to relying on Bigpond.

    Having as many intercontinental links as possible is the ONLY way to provide real competition instead of regulated freeloading at the hands of the ACCC and conspiracy theories from the Loony Left.
    anonymous
  • Well informed debate

    It's a good thing these industry groups are manned with well-informed people releasing comments with well researched data to back them up.

    I mean; 3 providers of the same service couldn't possibly be cheaper than 2 right? even if all 3 cables *were* at maximum capacity a third entrant wouldn't possibly try to undercut the others and oversell just to get more market share, we never see that happen in the internet industry, they just charge more!

    ps. If after 18 months even the new link is at capacity the moment it has switched on (hah!) doesn't that mean the prices will be cheaper (not necesarily than now; but cheaper than a future with only *2* cable providers with less bandwidth???)

    *shakes head*. /sarcasm
    anonymous
  • Speed increase

    Some are touting a speed increase also i dont see this happening with the existing infrastructure it is like connecting a fire hose to then end os a straw there will be bottlenecks galore. Value for money will come in increased usage allowance perhaps, if the cost of draging data across the ocean is reduced by the cables installation
    anonymous
  • isps priced to make money at current data flows

    a drop in the cost of data will make isp's hemerage money. mostly because isps markup on connections will drop per connection due to a increase in compotion in the isp market place.

    theres only so much money in the market and a large percentage of the costs do not directly relate to international broadband costs.

    a drop in staff costs and taxation would probably have a far grater effect than a 10% rate cut in data costs
    anonymous
  • PPC-1

    And again, the AIIA shows it's blatent misunderstanding of the bandwidth market in Australia.

    Today's high prices aren't caused by the lack of surplus bandwidth - there's plenty available, on both AJC and SX. It's quite apparent that the excess cost is a result of the duopoly which the two incumbents hold, being SXC (partly owned by Optus/TNZ) and AJC (owned by Telstra/Reach).

    PPC-1 is a tremendous acheivement and the fact that AIIA are 'talking it down' is disgusitng.
    anonymous
  • Price might not go down

    It all depends how much Pipe is charging, and to whom Pipe is providing the bandwidth to. If they are charging as much as Telstra and Optus, then it simply makes no difference.
    anonymous
  • If I were an ISP...

    And there is a new pipe promising half the operational cost of what I'm paying right now, the best thing for me to do would be to use that pipeline and keep charging the same (market) prices. Higher profit margins. Yum.

    So yes, it's competition that drives prices down (i.e. when some 'moron' on the same pipe decides to undercut my prices), and the cheaper pipeline is an enabler.
    anonymous
  • Sweet Illusion

    What you've failed to take into account is the increase in bandwidth that video will increasingly use.
    anonymous