In a world first, the Solomon Submarine Cable has been offering volume-based wholesale pricing over its international and domestic submarine cable systems for some months.
Wholesale customers have a choice. They can have either conventional capacity pricing or volume pricing. Instead of charging for bits per second (throughput or bandwidth), volume pricing charges for bytes (traffic). It is simple – just a fixed price per month plus x cents per Gigabyte (GB). The Entry level version of volume pricing on the domestic (SIDN) and international (CS2) cables has no monthly recurring fee. The Basic volume pricing plan has a lower charge per GB with a fixed monthly charge.
Volume pricing will be a game changer for the Solomon Islands and leads the world.
FAQ 1: “How is the pricing different?”
Answer: Traditional bandwidth pricing assumes scarcity. It divides up the fixed bandwidth of an international transmission pipe in defined fractions. Each buyer is guaranteed a throughput speed (Mbps, megabits per second). The larger the purchased capacity, the lower the cost per Mbps. But the buyer has to forecast the number of its users, the speeds it provides them and what excess usage it is prepared to pay for if demand exceeds purchased capacity. This form of pricing will continue to be offered by SCC.
With volume pricing the wholesale customer is not charged for bandwidth used but for the volume of traffic. Speed is not rationed. This is possible because capacity on the submarine cable systems deployed with the generous assistance of the Australian Government is abundant. When the Solomon Islands relied on satellites, international capacity was under 3 Gigabits per second. On the new Coral Sea submarine cable to Sydney the potential capacity is 20,000 Gigabits per second.
FAQ 2: “Why would a wholesale customer opt into volume pricing?”
Answer: Volume pricing lowers entry barriers because there is no need to commit to any level of capacity. In fact, capacity and speed will be unconstrained. There is no congestion on the international link. With volume pricing, every byte is profitable. You pay only for what you use. It is simple as you do not have to forecast the number of users and the speeds they want. The only constraints on speed will be in the access networks and customer devices.
FAQ 3: “What happens when you have to connect with other cables?”
Answer: A cable operator providing international connectivity over several international cables can still offer volume pricing over several segments even if it has to transit another cable operator offering only capacity pricing. A cable operator is the natural aggregator for its wholesale customers and so has better control of capacity purchases on other cables.
FAQ 4: “Will volume pricing make submarine cables more competitive with satellites?”
Answer: In many situations, like the Pacific islands, you need both. But with the new submarine cables and their abundant capacity, submarine cables have a significant cost advantage in providing international connectivity which is best exploited using volume pricing, as indicated above.
FAQ 5: “What does it mean for end users?”
Answer: Any network is only as good as its weakest link. International connectivity used to be the bottleneck but with abundant capacity and volume pricing, speed is not constrained in the international link. To get the increased capability to end users, fixed and mobile access networks need to be upgraded so that users can move from to 2G to 4/5G mobile handsets and expect to enjoy great broadband.
For more on this innovation, see the 5 minute video at https://deridder.com.au/ptc21/
This 2008 paper is being re-posted as it may be referred to in future articles and papers.
Wholesale pricing should be simple. NBN pricing is not, and it is getting more complex. But Bob James and I have proposed how to get things back on track and reset the sector for success – measured by broadband being fast and affordable for consumers, at least slightly profitable for retailers and losing as little as possible for the NBN.
A slightly shorter version of this opinion piece was published in Communications Day on 9th April
NBN – Time to take the gloves off
Following-up on my previous post “Pricing for Abundance”, I prepared a short video for a “poster session” at the Pacific Telecommunications Council conference in January 2021. This is the biggest annual gathering of the submarine cable industry in the world and it is normally held in Hawaii. This year it is a virtual on-line conference.
The “poster” advertising my presentation and the video are below.
Small island nations that have relied on satellites for international connectivity are now being connected by submarine cables that have infinitely more capacity. The hope is that these cables will lift the social and economic development of the economies connected. This hope is more likely to be realized with the adoption of wholesale traffic pricing based on the capacity abundance brought by the cable system rather than historical wholesale bandwidth pricing, which assumes capacity scarcity.
Reductions in the wholesale cost of international connectivity are more likely to be passed on to end users if there is retail competition. The proposed wholesale pricing model facilitates increased retail competition.
These ideas are explored in a case study of the Cook Islands, which is a member of the Manatua Cable Project.
This a preprint. The final paper appears in the AJTDE Volume 8, Issue 3, Paper 344 at http://doi.org/10.18080/jtde.v8n3.344