Internet service providers (ISP) have targeted small and medium enterprise market segment as the place to be waging a price war that may not be beneficial for clients, according to Storm MD Tim Wyatt Gunning.
Storm, one of the smaller ISPs, has traditionally targeted the 64-kilobyte segment of the Internet market, an area that is generally ignored by its larger rivals as they have gone after the big corporate accounts that usually use the 128- and 256-kilobyte pipes.
Bandwidth oversell
However, with the advent of the licensing of a second national fixed line operator (SNO) to rival Telkom, it seems that ISPs are gearing for a drastic reduction in bandwidth costs and are now selling 64kb international services to smaller companies at about a tenth of the cost they buy them from international tier-one ISPs.
Wyatt Gunning says while all the ISPs have to buy domestic connections from Telkom, the international links are bought from overseas ISPs. Typically these links cost around R4 500 to R7 000 per month with added charges such as connection fees.
He says that some ISPs are selling 64kb connections for around R450 per month, plus additional charges, as they bank on the fact that many companies do not use their full bandwidth allocation all of the time.
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.
Wyatt Gunning explains how the over-sell principle works: "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". "
Full links - resend, resend
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.
He says 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 ADSL offerings in this country have similar appeal with similar pitfalls - the contention ratios (the oversell ratio within the ADSL network) can be as high as 1:50 for business users, and even higher for consumers.
The implication of this high over-sell ratio is an immediate and severe impact on the end service to the customer, says Wyatt Gunning.
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