While a fifteen-year friendship with Greg is not a prerequisite for guests on the pod, it sure makes for good conversation.
To kick off Season 3 of the podcast, Greg calls on longtime colleague Rob Schult—who also happens to be a Research Director here at TeleGeography—to draw the connection between the wholesale market and the enterprise retail market.
What should IT infrastructure and sourcing teams pay attention to in the wholesale market most?
You’ll also hear about IP transit and why the vast majority of enterprises are not buying it (even though the internet is increasingly a primary—or at least secondary—method of site connectivity in the enterprise WAN).
Subscribe to access all of our episodes:
Apple | Google | Spotify | Stitcher | TuneIn | Podbean | RSS
Key Takeaways
Geography is a Driver of Data Service Pricing
The cost of data services, particularly IP transit and Dedicated Internet Access (DIA), varies significantly around the world, heavily influenced by geography and various economic factors.
Prices are impacted by factors such as distance between markets, the cost and availability of submarine cable capacity and terrestrial backhaul, the level of competition, and local regulation.
For example, while 10 gigabit IP transit ports in developed markets like the U.S. and Western Europe can be in the range of mid-teens to low 20 cents per megabit, prices are considerably higher in places like Sydney (around $2.50 a megabit), Mumbai (about $4.70 a megabit), and especially inland African markets like Uganda (around $8 a megabit). This geographic variation means that multinational corporations planning global networks must recognize that costs are not uniform across countries.
Wholesale IP Transit Prices Are Continuously Declining Due to Technology and Scale, Which Eventually Impacts Enterprise Services
Wholesale IP transit is characterized as a high-volume, low-margin, commodity service where a packet is a packet. Prices are constantly falling, largely driven by improvements in technology (like transitions to 100 Gig and 400 Gig wavelengths) and increasing volumes of supply, particularly from new submarine cable systems and capacity upgrades.
This leads to significant economies of scale, driving down the unit cost per megabit. While prices can be lumpy, a baseline expectation for price erosion in IP Transit in most markets is around 20% year-on-year. Although there can be a lag, this downward pressure on wholesale costs is ultimately expected to influence the prices of enterprise services like DIA, which rely on this underlying infrastructure.
Understanding Wholesale Costs Can Help Evaluate Enterprise Internet Service Options like Broadband vs. DIA
Enterprises, particularly those without an Autonomous System Number (ASN) and BGP routing capability, typically purchase DIA or business broadband rather than wholesale IP transit directly.
DIA provides a dedicated, uncontended connection with carrier-grade SLAs, usually at a significantly higher price point than broadband.
Broadband, while often offering high stated capacities at much lower prices, is generally a contended service designed reflecting the local market's ability to pay, and its performance, especially for international traffic, may not match DIA.
A key metric to evaluate the suitability and potential performance of a broadband service for business needs is to compare its price per megabit to the wholesale IP transit price in that same market; if the broadband price is cheaper than the IP transit price, it suggests that the service likely involves significant contention and may not offer reliable international performance suitable for business-critical applications.
