On Sat, 16 Apr 2005, Stephen J. Wilcox wrote:
For many folks too the falling price they buy transit for just means they are being forced to take that off their product sell prices so they dont actually make any more profit.. in which case there is no advantage to buying below cost services.
To quibble with the economic reasoning here:
What it costs you to provide service is dependent on what your costs are (by definition). What you can get your customers to pay you (the market price for your services) is far more dependent on your competitors' costs than on your own. If it costs your competitors less to provide a service than it costs you, they can undercut you. If it costs you less to provide a service than your competitors, you can charge what they charge and make a bigger profit than they do.
This means if your competitors are buying something cheaply, it doesn't help you. If you can buy something cheaper, it does help you. But it may only help you keep up, if the same pricing is available to your competitors.
The same goes for if your competitors are pretending to have lower costs than they do, although that's generally not a situation that can continue forever. I have no idea whether that's what Cogent is doing; I've seen the claim that bandwidth can't possibly stay as cheap as it is proven wrong too many times at too many steadily decending price points to put much stock in it.
In general I'd prefer to operate in a healthy marketplace, where all parties are making money, theres little risk of the supplier filing bankrupcty and I am getting reasonable customers service. That can only lead to growth of the industry, healthy businesses and healthy economies. Unforunately none of these things appear to be happening at the moment...
Customer service and risk protection may be in better supply than raw capacity. Perhaps there's a market for those services, that might differentiate those who do really well at it from those selling raw capacity cheaply. If not, that's a sign that either those providing cheap capacity are providing service their customers think is acceptable, or the customes don't want good service enough to pay what it would cost.
What we're seeing in *some* telecommunications markets -- those once seen as where the money was -- is that there's a huge oversupply of capacity, so it's not worth much. As long as it's not worth much, you aren't likely to see those who spent money on it as if it was worth something making money by selling it. That would seem to be the "fault" of those who built so much of it, or bought it for overly high prices. The good news is that the consumers -- those who are trying to use the stuff rather than just to make money from it -- are benefiting greatly. That's what we're all here for, right?
And the bit of good news for those who still want to build this stuff is that there are a lot of places where telecommunications capacity is still in very short supply. Those are generally places without much money, so there might not be all that much money to be made in some of them. But who knows... building lots of identical networks connecting the places with money doesn't appear to have been all that profitable either.
-Steve
