How can the cost of DSL drop 50%? Can costings supplied by the Eircom be trusted?

Dangger

The annoucement of a 50% reduction in DSL costs means some cost somewhere has been written of by Eircom. It was obviously a cost they felt they could not write off in the initial price offering made in September 2001, or again in May 2002. So what has changed?

If such a dramatic cut in pricing is possible surely this casts greater doubt over costing information supplied by Eircom. Prior to the release of ADSL the ODTR cleared Eircom 's pricing model for release as being accurate, what was overlooked?

spongebob

can one get it from Comreg under an FoI request or is this commercially sensitive and therefore withheld.

java

Isnt the new offering "self install"? which will negate the need for an on-site visit by an engineer. Perhaps thats where the savings are.

MDR

simple answer

no they can't ...

matthiku

Originally posted by java
Isnt the new offering "self install"? which will negate the need for an on-site visit by an engineer. Perhaps thats where the savings are.

This is a one-off cost. It has nothing whatsoever to do with the monthly price and the overall costs.

(One could now cite the similarity with the TCO debate regarding the real longterm costs for PCs for companies, but I won't):D

neverhappen

Originally posted by Muck
can one get it from Comreg under an FoI request or is this commercially sensitive and therefore withheld.

As eircom are a monopoly when it comes to running the only fixed line network in the country, how can it be commercially sensitive to state the costs of running that network?

simple answer

no they can't ...

eh ???

BoneCollector

yeah i think i touched on this subject in another thread about feeding compettion and if someone was to offer close to ercoms wholesale price they would be force to reviel the true cost of DSL as they will have to drop the price to accomadate keeping existing customers...
as such would need to drop there whole sale offering price which would mean the competition could drop theres below again etc...

Only difference is ercom have jumped ahead and reduced below exisiting wholelsale price with goes to show ercom cannot! be trusted when they try to justify obviously overpriced products.

So though the ODTR said that they where happy that ercom was able to justify there whole sale price at over €70 euro its seem it was always artificial as we already knew, as ercom was using its mythical random number generator to spew out pricings.

Bard

Surely eircom themselves would argue that by standard economies of supply and demand, their original (higher) costs were based on expectations of very low demand, whereas now that they know that there is quite a demand for DSL, they can afford to drop the price.

It's also possible that as eircom are fairly new to the DSL game, they over-estimated their costs involved in supplying the product and have re-assessed this since then now that they've built up some experience in the process of supplying and maintaining it and figured out that it will actually cost them substantially less than they thought, enabling them to reduce their price and thus increase demand, and possibly make more money in the process.

... then again, maybe they're just counting on ComReg to get in the way of this proposed product seeing the light...

...then again... who knows, eh?!

SkepticOne

Originally posted by Bard
... then again, maybe they're just counting on ComReg to get in the way of this proposed product seeing the light...

I would rather they got the damn thing out.

I don't think we'll ever be able to get to the bottom of what has been going on in the past (well maybe years from now).

BoneCollector

I don't think we'll ever be able to get to the bottom of what has been going on in the past (well maybe years from now).

ROLL on eircomtribunal!

Fergus

I think the public is entitled to an explanation on this one. The existing wholesale price is clearly rubbish, which suggests eircom and the ODTR colluded to deceive the OLOs and the public.

Why should anyone trust the forthcoming new wholesale price for bitstream/DSL, or indeed the price for FRIACO? At the very least, a fully independent body should be providing a second opinion on eircom product costs.

dahamsta

which suggests eircom and the ODTR colluded to deceive the OLOs and the public

OUT ETAIN OUT!

Repeating myself?

adam

MDR

Is it no all purely basised on the business model they intend to pursue.

Eircom was promoting the idea that irish people 'weren't interested in the internet' and there was no 'compelling content/killer applications'. Therefore they wouldn't be targeting the product at the home users, instead it would be aimed at business/SOHO marketing.

The ODTR without the MRBI (or even IOFFL) stats to refut what Eircom has been selling go ... duh! ... em ... ok, they resolve the margin squeeze and all is rosey in the garden.

Under the new model they intend to sell to more users for less, twice the contention hence half the price ?

Fergus

ODTR 23rd August 2001:

The initial ODTR review of the eircom proposal raises possible concerns that cost orientation has not been proven. A schedule of these concerns will be provided to eircom.

The responsibility remains with eircom to ensure cost orientation of the proposed bitstream charges

ODTR 17th April 2002:

Based on information provided by eircom, the Director is satisfied that eircom’s new pricing structure meets regulatory obligations.

If retail prices fall, the position of other operators will need to be maintained by equivalent moves in wholesale pricing

vorbis

ah lads, eircom is now a private company. Would you expect such info from any other company? I'm just glad they're going to halve the price. Esat and co. are just looking for a quick buck off all this. Remember its Eircom who are incurring the main cost of upgrading to dsl.

BoneCollector

Remember its Eircom who are incurring the main cost of upgrading to dsl.

yes well they`d wanna be upgrading with all the money there squeezing outa the irish consumer

this is not a blessing its an obligation.

vorbis

i never said its a blessing. Its not an obligation either. Esat and NTL aren't incurring those costs. They would be content with cherry picking say the cities and leaving the rest to rot. Eircom bb rollout has been pretty terrible but the competition have hardly covered themselves in glory either.

Fergus

Agreed that competition has been lousy, but eircom aren't just a private company like any other, they are a Significant Market Power according to EU telecoms legislation, so they therefore have numerous obligations including USO and offering wholesale access to their network at true cost-based prices in any reasonable manner requested by OLOs.

dahamsta

ComReg puts this - unofficially for the moment - down to a cost writeoff, which I presume refers to the exchange upgrades. Obviously this was the logical answer, but to be honest I find the idea of Eircom writing off costs like this at the expense of first movers offensive. I mean, obviously this happens in every marketplace, but the sheer scale of it here is very worrying.

adam

Ardmore

Originally posted by dahamsta
ComReg puts this - unofficially for the moment - down to a cost writeoff, which I presume refers to the exchange upgrades. Obviously this was the logical answer, but to be honest I find the idea of Eircom writing off costs like this at the expense of first movers offensive. I mean, obviously this happens in every marketplace, but the sheer scale of it here is very worrying.

The number of 2,000 subscribers to Eircom DSL has been bandied about. If you assume an avarge "take" from each of them of €1,000 since the service started (was it only last April that the product was officially launched?) then that's only €2 million or so. This is peanuts compared to the sort of money Eircom claims to be spending, so the only way they are ever going to generate enough revenue to pay for the infrastructure is to increase the number of subscribers.

10 times the subscribers at half the price makes sense, because the incremental cost of each additional user is a lot less than even the new, lower price (if/when it actually arrives).

The big problem here is that there isn't enough seperation between the people who own the infrastructure and the "retail" wing of Eircom. If there was real seperation, the infrastructure people whould have been out selling bitstream to UTV and other OLOs as fast as they could, so that they could begin to get a return on their investment.

De Rebel

Originally posted by Muck
can one get it from Comreg under an FoI request or is this commercially sensitive and therefore withheld.

Are there any angles on slapping an FOI on this?

This pricing thing stinks. There has been a lot of noise from ComReg recently about cost oriented pricing. If this is a cost based price, and the costing is done by Eircom, then there is probably still lots of fat in it. And if €45 excl VAT is a viable retail price for always on 512/128 it sets a serious standard for flat rate to live up to. It must also impact on i-stream pricing. And if flat rate is priced at around half the price of the entry level DSL then it comes in at 22.50 excl VAT.

I get to see a lot of people using the internet in their own environments, I cannot believe that the average expenditure at present is below 22.50 excl VAT.

SO what s going on????

I'm sure Eircom have done the numbers using their pricing model, but at first glance I just cannot see where the rebalancing is. It looks to me like Eircom will see a huge revenue drop from this. I just cannot fathom it. And all without a fight. In fact, they shocjed just about everyone by "launching"

Anyone?

SkepticOne

"The number of 2,000 subscribers to Eircom DSL has been bandied about. If you assume an avarge "take" from each of them of €1,000 since the service started (was it only last April that the product was officially launched?) then that's only €2 million or so. This is peanuts compared to the sort of money Eircom claims to be spending, so the only way they are ever going to generate enough revenue to pay for the infrastructure is to increase the number of subscribers."

Given the small number of customers at Eircom's price point, if anything they are selling at way below cost.

At a hearing in Brussels, an Eircom representative tried to argue that demand only got slightly greater if Eircom reduced their price and Eircom would make less money. However, since the MRBI report, it is now known that at typical european prices, demand is far far greater. Most people could have predicted this anyway.

It can only be concluded that Eircom was never actually seeking a return on its investment in DSL but rather that its concern (while there was little external competion) was to protect lucrative dial-up, ISDN and leased line revenue and prevent competition by maintaining a high bitstream price (thus forcing competing ISPs to provide a similarly unattractive service).

I would love to see the demand profiling that they submitted to the ODTR when justifying their prices.

neverhappen

Originally posted by De Rebel
Are there any angles on slapping an FOI on this?

SO what s going on????

I'm sure Eircom have done the numbers using their pricing model, but at first glance I just cannot see where the rebalancing is. It looks to me like Eircom will see a huge revenue drop from this. I just cannot fathom it. And all without a fight. In fact, they shocjed just about everyone by "launching"

Anyone?

For one thing its not launched yet. Those bad people at comreg could well hold the whole thing up with that pesky requirement for a cost-based wholesale price...

Maybe eircom knew the game was up on their per-second pricing model when the friaco order came and decided that they could make more out of dsl (still expensive for what you get what with caps etc), so moved in to take the market ?

dahamsta

The big problem here is that there isn't enough seperation between the people who own the infrastructure and the "retail" wing of Eircom.

Preaching to the converted Ardmore.

adam

SkepticOne

Originally posted by dahamsta
ComReg puts this - unofficially for the moment - down to a cost writeoff, which I presume refers to the exchange upgrades.

It does not make total sense to me. Even if they did spend a lot of money upgrading exchanges (maybe they used gold plated tape measures and such), then it would still make sense to price ADSL such that it maximised return on investment. This would have involved a much lower price than the mad one they came out with.

Fergus

Or alternatively eircom were/are structuring their implementation to achieve a very low rollout and justify high costs. But they are meant to be supplying wholesale access for all operators, and not dictating in advance how much retail uptake their should be.

De Rebel

Originally posted by SkepticOne
It does not make total sense to me. Even if they did spend a lot of money upgrading exchanges (maybe they used gold plated tape measures and such), then it would still make sense to price ADSL such that it maximised return on investment. This would have involved a much lower price than the mad one they came out with.

I agree with that. But as you said, maximising DSL revenue/ROI was never an objective. Preserving dial-up revenue was. And now this complete about face. Take for example ISDN. No more need in most houses for that - no need for two lines and no need for high speed. A DSL line does it for you. So they get a sh1t load of high speed boxes handed back. But much more important. ISDN rental + per minute billing (free or subscription) must be more than Analog line rental + DSL in the majority of houses. Thats just one example.

I just do not understand this price. And certainly not without a major fight. And they came out with hands in the air volunteering it??

There is a distinctly verminous odour about this. Unless I am missing something.

SkepticOne

Originally posted by neverhappen
For one thing its not launched yet. Those bad people at comreg could well hold the whole thing up with that pesky requirement for a cost-based wholesale price...

Though, if we want a choice of ISP for the service (for example one with no cap), then this will be essential.

Maybe eircom knew the game was up on their per-second pricing model when the friaco order came and decided that they could make more out of dsl (still expensive for what you get what with caps etc), so moved in to take the market ?

The other possibility is that some external pressure was brought to bear on them.

Another gloomy possibility is that this is all posturing in order to get some concession somewhere else. Maybe a big Government contract or a relaxation on price caps. Of course, I'm very reluctant to speculate as this could endanger the actual possible launch of the proposed service.

spongebob

Originally posted by SkepticOne

Another gloomy possibility is that this is all posturing in order to get some concession somewhere else. Maybe a big Government contract or a relaxation on price caps. Of course, I'm very reluctant to speculate as this could endanger the actual possible launch of the proposed service.

A few points about all this

1. The original ADSL (the trial kit) is 3 years old and up for writeoff. So is most of the network FRIACO will run over as well .So all thats involved is the marginal cost of running it, on the books it is worth nothing.

2. There is a big government contract to Keep. Remember the palaver that died down very quickly (mysteriously so) in Late Oct / Early Nov 2002 when Eircom was caught offering al fresco unpublished discounts to certain punters, esp the government. Whatever happended there.

3. In a fit of its usual arrogance the Rat may have conjured up a financial model to explain this ......which backfired badly when the same financial engineering principles were applied elsewhere on their product line.

4. Comreg is comparing them more and more to the European peer group ....gives Comreg to use other Regulators figures and not having to figure it all out themselves. This is the Efficient Operator comparison method. This factors out the Biddies in the back office doing feck all.

M

dahamsta

Another gloomy possibility is that this is all posturing in order to get some concession somewhere else.

One possibility that was postulated to me this morning was that Eircom may be /trying/ to get Esat BT into the Four Goldmines. There's all sorts of possible reasons for that, and I'll let you guys speculate, but here's one to get us started: Perhaps they're worried that with ComReg's new "powers" and a seemingly efficient Minister in charge, they would have a better chance of bleeding metered access a little longer with a civil action.

Pure speculation, of course. YMMV.

adam

SkepticOne

Originally posted by Muck
A few points about all this

1. The original ADSL (the trial kit) is 3 years old and up for writeoff. So is most of the network FRIACO will run over as well .So all thats involved is the marginal cost of running it, on the books it is worth nothing.

I agree, but my earlier point was that regardless of what costs are loaded into the service, high retail costs are not justified if they actually lower return on investment. DSL is such that there is a high initial cost associated with enabling the exchange and then a (relatively) low marginal cost per user. From day one, it would make sense to start getting this return. Now, I've no problem with Eircom losing money if that is their choice, but the high bitstream price meant that competing ISPs were prevented from offering attractive services to consumers. Did ComReg really have no power to prevent such abuse?