Focus on data caps 'one-eyed' - ISPANZ

ISPs don’tmake a lot of money out of providing the underlying broadband service but to claim theirprofits lie in data caps is “one-eyed”, says ISPANZ president Jamie Cairns.

Cairns wasreacting to comments made by Crown Fibre Holdings CEO Graham Mitchell whoclaims in the March edition of TelecommunicationsReview that ISPs make more margin out of data caps than selling theunderlying access on the broadband.

“There is a market expectation for price to theend-user, and with immovable underlying access-charges it is obvious that thereis little room to make money directly on the access component.  So no, Ido not disagree with the statement that ISPs make more money from upper-layerservices than access.  But boiling this down to data caps, specifically,is very one-eyed," says Cairns.

ISPANZ has35 members, and is the industry lobby group for ISPs with notable exceptionsTelecom and TelstraClear. Cairns says it is a “flawed assumption” to claim thatISPs don’t differentiate international and national traffic, as his membersoffer a range of options.

“Anysuccessful ISP will know full well their ratio of international to nationalon-net traffic consumption. Per GB charges will generally take these ratiosinto account. You will also see that some of our members do indeed offeruncapped national data transfers. Some offer uncapped international. Some offerdedicated international internet capacity. In essence if you shop around, you’rebound to find an ISP that charges for traffic in the manner that you require.”

During researchfor the article TR asked the top 12ISPs in the country whether they differentiated between national andinternational traffic and compiled their responses into a table (see Marchedition out this week). Only Snap and Actrix offer plans that differentiatebetween national and international traffic, although some ISPs, such asWorldxChange and CallPlus, provide off-peak free usage and Telecom offers aplan with no data caps.

In an email to TR, Cairns writes about the article: “The implications of high margins, theestablishment of a Crown investment company being the catalyst to revolutionarypricing and a crushed ISP business model, and a misinformation about nationaltraffic traversing Los Angeles, are sensationalist and throw-away comments. I’m not sure what thisis supposed to achieve, nor if these were actually Graham’s comments?”

Neither TR, nor Mitchell refers to a “crushed”business model, which implies that there won’t be a business case at all. Howeverthe opening paragraph raises idea the Government’s Ultra Fast Broadband networkis “set to smash the business model of most NZ ISPs”. That’s because, ifsuccessful, a fibre to the home network could create an entirely differentparadigm to the one that ISPs function under today. In other words, it may notbe necessary to impose data caps for domestic traffic in order to increasemargins and a faster fibre network will mean that more traffic is hosted in NewZealand rather than in offshore data centers – thereby reducing the need forexpensive international connectivity.

In the Marchedition of TR, Maxnet marketing andproduct manager Wayne Voss says the company would be in favour of free domestictraffic, if this is what the government’s fibre network could deliver. “It wouldpotentially open up a whole new ball game by side-stepping the dominantincumbent network providers in New Zealand. They currently control 70-80% ofthe domestic data connections that run the length and breadth of the country.”

Vossalso provides an insight into the current environment.

“It’s difficultfor service providers to provide free domestic traffic across the board whenyou’ve got the likes of the two of the largest networks in New Zealand –Telecom and TelstraClear – unwilling to peer at these exchanges with othermid-tier networks like ourselves. Instead they charge us for the privilege ofexchanging traffic with their networks,” Voss writes.

“In Maxnet’s case, because we have two large data centersthat serve up a lot of content to the rest of NZ, we are serving up morecontent to the Telecom and TelstraClear networks than we receive from them. Soit’s rather ironic that we are charged for this traffic.”