A question on a lot of minds is, with the cost of backhaul to Tasmania being so expensive (up to 30 times more expensive, compared to backhaul from Melbourne to Brisbane, Adelaide or Perth), how is Bigpond offering plans that are much below the cost other ISPs would have to pay?
Interesting question, fair question.
The logical answer is: They don’t have the same costs that Bigpond do. Naturally, that would have to be the case, in order for other ISPs to have a minimum cost that exceeds Bigpond’s retail price by more then 20%.
It makes sense. Every business, including Bigpond exist to make a profit. No profit, no point for most businesses.
It’s widely known that:
A 1500k port from Telstra Wholesale costs $34.00(ex. GST and ex. AGVC).
Backhaul apparently costs 30 times more to Tasmania.
Telstra’s Retail entities are required to do business via Telstra Wholesale, which includes Bigpond.
Internode ISP Staff have stated on Whirlpool the cost per customer of backhaul is anywhere from $80 – $300 per customer, more expensive than the mainland customers.
So, how are Bigpond providing mainland plans, that apparently cost $80.00 more than Mainland customers?
Thinking about this logically, and for a specific group, let’s just place some figures at hand to work with, and picture it.
10000 Tas customers.
10000 ACT customers.
Two plans, just for the case of logic, we’ll use both, Bigpond’s 1500k Liberty Plan, and Internode’s HOME-1500-Power10.
Both plans include roughly the same amount of data, Bigpond 12GB, Internode 10GB.
Prices as at now, are:
Bigpond Liberty: $79.95
Internode Home-1500-Power10: $49.95.
So, with those figures in mind, we can start working out what sort of costs it’ll be for Tasmania, using the inflated prices, for arguments sake, we’ll use the $80 figure for backhaul.
For Bigpond, this means they provide a Liberty service to Tasmania at $79.95 each.
For Internode, this means they provide a service to Tasmania at $129.95 each.
For Bigpond, this means they provide a Liberty service to ACT at $79.95 each.
For Internode, this means they provide a service to Tasmania at $49.95 each.
So, the total for services provided is:
Bigpond – Tasmania : $799,500
Internode – Tasmania : $499,500
Bigpond – ACT: $799,500
Internode – ACT: $499,500
To scale it some more, the port cost of the plans for each ISP is supposed to be $34.00, ex GST, ex AGVC to Telstra (must AGVC to Telstra to auth users, and so forth).
So both ISPs have minimum costs. Internode can, at a substantial profit, provide their $49.95 plan to the masses in Australia. However, doing the same plan in Tasmania isn’t viable, due to very expensive backhaul costs.
I’m chasing down a scale of costs to compare to, and discover why it’s so expensive, they have to stop providing plans to Tasmania.
Netspace have also been forced to do the same. iiNet also have ACCC disputes running.
The question that remains is, what the difference is on the scale as a percentage loss for Bigpond. If Bigpond are selling at a “loss”, then the ACCC do need to verify this to some degree (and not the “Operational Seperation” deal).
A recent episode of The Simpsons had “Fat Tony” stating (in regards to building his mansion): “You can really cut costs when you don’t pay for Labour, Land, Materials.. “. I think that’s the case with Bigpond. They don’t pay a dime to Telstra Wholesale. Getting the proof of this wouldn’t be too difficult, because there’d need to be invoices in Telstra Wholesale about Bigpond. Of much, much more interest would be the Financials of Bigpond. What costs do they really have..? We’ll find out soon enough, but here’s a ball park figure: $0.