The rapid price fluctuations of Internet services in the last few months may be inadvertently fuelling a price war which, unfortunately, bears no good news for businesses.
Ultimately, a price war should serve to benefit the end-user. Fine in the case of a tin of baked beans on a store shelf, as the customer can see quite clearly that he is getting exactly the same product, the same size tin and probably the same number of beans. It's clear that the customer is not taking the brunt end of the price drop.
However, in the case of an ISP solution like a leased-line connection to the Internet, the product is a highly complex solution that can be altered depending on the client's requirements, or - in the case of a price drop - at the service provider's discretion. Unless the customer has a thorough technical understanding of the product, a leased-line discount can appear as a truly excellent deal. But, unlike the can of baked beans, the offering does indeed change, which may only be detected after the customer has made use of the newly offered service.
Let's look at the example of a straightforward 64K international connection offering. If the price of this offer drops to way below the industry average, the consumer could easily be lured by this seemingly one-shot deal.
In reality, the same piece of international bandwidth would have to be resold to consumers six to ten times over in order for the service provider to maintain any profit margin. The normally accepted over-sell ratio for international bandwidth is between 1:2 and 1:3. Higher than 1:3 and users can expect to experience delays.
The over-sell principle works as follows. As an Internet service provider, you may have many customers connected to your PoP (point of presence), with one or two uplinks to the wider Internet. The maximum capacity of this uplink "pipe" is less than the sum of the maximum capacities of the customer "pipes". This works because it is very seldom that customers are making 100% use of their pipe at exactly the same moment. When they do, and the uplink "pipe" is full, the connection slows down while data is buffered and subsequently abandoned with requests to customer routers to "resend" the information.
The higher the oversell, the more often the uplink "pipe" congests, for longer. The service provider is able to charge less per customer, without needing to buy more bandwidth for the uplink. Customers think this may be a good deal - even if they are told it is oversold, but often find the experience less than satisfying.
This deal will look particularly attractive to price-sensitive users who cannot justify paying for a good leased-line connection, but would be lured by the possibility of having guaranteed bandwidth at a fixed monthly cost and the advantage of having one at a minimal cost.
The implication of this high over-sell ratio is an immediate and severe impact on the end service to the customer. Suddenly the customer finds his connectivity reduced to that of a 16k connection or lower, because so many others are trying to use the pipe they are sharing. Mail will be longer delayed in coming through from overseas, and browsing and downloading files may become impossible with Internet Explorer timing out.
Maintaining its positioning as a low-cost voice and data solutions provider, storm acknowledges that affordable prices are important to their customers. However, this should not be to the expense of great service or customer experience.
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