On Jan 21, 2008, at 8:20 PM, Roderick Beck wrote:
> Tom,
>
> With all due respect, what are you trying to say in
simple, clear
> English?
>
> It is plain wrong to claim the DWDM can explain today's
prices on
> the Atlantic
Is it? Sorry, how do you explain it then? An unanticipated/
undiscounted DWDM-driven windfall in salable supply (1),
plus
competition (2), plus financial distress (3), plus
"innovative"
transactions (4) are my prime suspects; the fact that every
increment
of private line capacity sold or otherwise transferred is
fungible
and can be further multiplexed just accelerates the (2-4)
dynamic. I
believe that the same thing -- (2) leading to price
collapse, leading
to (3) -- would have happened even if there been only two TA
cables,
assuming of course that (2) still applied -- maybe even if
there were
only one cable with enough upgradeable fiber pairs. Sure,
"overinvestment" played some marginal role, but
each new facilities
platform added a multiple to the available supply,
1x, 2x... 8x...
whereas DWDM advances that really kicked in only after gen1
entepreneurial cables were already planned if not in the
water, added/
continues to add exponents
(1x)^4, (2x)^6... (8x)^n?
> and that DWDM allows providers to make sufficient
ROI..
I didn't say that; I did say that I don't know how to
define, much
less calculate, "sufficient" ROI.
Sufficient for what? When is "sufficient" ever
sufficient, assuming
you can extract more?
If I can build one house, and rent it, manage it, and and
maintain it
at an overall return that will enable me to subsidize 100%
of the
purchase of another identical lot and identical materials
and labor
to build a second house, then maybe I'll decide that that's
not
really sufficient, e.g., because people demand bigger houses
today,
or maybe I think I could squeeze harder and get enough for
three
houses, or maybe four... Which one is
"sufficient"? What if I've
already got a lot of empty houses, but the market for
housing won't
deliver prices that satisfy my preferred sufficiency test?
I have to believe that the financial authorities (public and
private)
will recognize these new, previously undiscounted
developments, and
find a way to integrate this new, previously unrecognized
abundance
into the broader economy -- e.g., by bankrolling future
capacity
builds (when there is real demand) even though their
builders can't
promise and won't deliver bubble-era returns. I have to
believe it
because I'm not cynical or paranoid enough to buy into any
worldview
that would lead to other assumptions. I might be proven
wrong -- but
if I do I'd have to start wondering about all sorted of
things,
e.g., the 200mpg combustion engine, etc...
TV
> About 70 percent of the operating costs of a
TransAtlantic cable
> are undersea maintenance and undersea maintenance costs
are rising
> (think fuel costs).
> You can spread those fixed costs over more waves as
DWDM improves,
> but it is not enough in general.
>
I was comparing initial build/launch capex to the
incremental capex
required for upgrades (granted these costs vary by platform/
technology generation).
I'm not surprised that a large/rising share of opex is
O&M. The fuel
component of O&M isn't incrementing in parallel with
additional
capacity sales, so why isn't expansion of the de facto
sponsorship
pool one way to offset the rising costs?
TV
>
> Sent wirelessly via BlackBerry from T-Mobile.
>
> -----Original Message-----
> From: Tom Vest <tvest eyeconomics.com>
>
> Date: Mon, 21 Jan 2008 18:51:24
> To:Mark Newton <newtoninternode.com.au>
> Cc:roderickbecktmo.blackberry.net,owner-nanogmerit.edu,"Geoff
> Huston" <gihapnic.net>,"Matthew
Moyle-Croft"
> <mmcinternode.com.au>,"Randy Bush"
<randypsg.com>,"Andy Davidson"
> <andynosignal.org>,"Andrew
Odlyzko"
> <odlyzkodtc.umn.edu>,nanogmerit.edu
> Subject: Re: Lessons from the AU model
>
>
>
>
> On Jan 21, 2008, at 6:10 PM, Mark Newton wrote:
>
>> On 21/01/2008, at 10:49 PM, Tom Vest wrote:
>>
>>> In the absence of competition (and esp. in the
presence of risk of
>>> empowering competitive entrants), supply has no
general/necessary
>>> effect on prices at all.
>>> So excess capacity of a product that is
completely monopolized (or
>>> priced by cartel fiat, ala OPEC or SC) is
largely irrelevant.
>>
>> It goes a bit deeper than that when the monopoly
can compound the
>> problem my artificially constraining capacity by
underspending on
>> infrastructure (e.g., only lighting one pair on a
multi-pair cable)
>>
>> So infrastructure spending can (and does) affect
the price.
>
> Hi Mark,
>
> So you're saying that if a cable owner/monopolist
simply lit another
> fiber pair, that would cause them to reduce prices?
> This mistakes a contingent symptom or tactic or
mechanism -- i.e.,
> the intentionally misleading public explanation
("we're sold out") --
> with the real cause/strategy/motives behind
"artificially" high
> prices...
>
>> We get that every day in .au (Transmission on the
monopoly route
>> between Melbourne and Hobart costs 3 times more
than transmission
>> between Sydney and LA; and other potential cable
operators have
>> always known that the monopoly has an excess of
supply hidden away
>> somewhere which they can roll out at bargain
basement prices if
>> a competitor ever arrives in the market)
>>
>>> [ housing ]
>>> Come to think of it, our sector has been
struggling with its own
>>> roughly similar terms-of-exchange crisis since
about 2004-2005...
>>> arguably driven by very similar prior
circumstances as well...
>>> worth investigating a bit further perhaps...
>>
>> I think the dominant factor that the American
internet sector has
>> been grappling with goes back further than that.
It has its origins
>> in the dot-com boom, when lots of people who didn't
have any real
>> money rolled out enormous infrastructure buildouts.
When they
>> inevitably went broke their infrastructure was
bought at cents in
>> the dollar, enabling the current generation of
Internet companies
>> to behave as if the infrastructure they're using
was a lot cheaper
>> than it really is.
>>
>> So hardly anyone has been selling below cost, but
almost everyone
>> has been selling below replacement cost.
>
>
> This makes perfect sense for resources that are not
subject to
> "multiplexing effects" -- esp. unanticipated
(undiscounted)
> multiplexing effects.
> Put it this way: how would you define (much less
calculate)
> "replacement cost" for an asset whose
financing was predicated on a
> useful of capacity of (x), but which, with fractional
additional
> investment relative to the original outlay, can be
leveraged to
> deliver (x)^4-n capacity -- with n yet to be
determined? Must every
> increment of the now vastly larger resource be priced
as it would
> have been assuming the "original" max cap?
How much must the
> "replacement cost" replace? The original (x)
capacity? The as-yet
> indeterminate (x)^n capacity? The originally
anticipated/full
> scarcity-based/monopoly-backed profits?
>
>> So everyone can extract profits for years, making
out like bandits
>> as they grow in to the
>> excess capacity that was installed between 1999 and
2001, and they
>> won't have a day of reckoning until they run out of
capacity and
>> find that they haven't been earning enough from
their networks to
>> service the debt they're going to need to take out
to perform the
>> next round of infrastructure upgrades.
>>
>> Example: You cannot seriously expect me to believe
that the price
>> of transatlantic connectivity actually reflects the
cost of laying
>> cables across the Atlantic. It defies common sense
that a Gig-E
>> tail from NYC to bond is priced within an order of
magnitude
>> of a Gig-E tail from NYC to Boston.
>
> Once you get acquainted with the power of that ^n,
you'll believe 
> Unfortunately, your location gives you few
opportunities to
> familiarize yourself.
>
>> Metered charging systems are, to me, evidence of a
realization that
>> the business model underlying much of the
Internet's last five years
>> is unsustainable. You guys might think they're a
novel and
>> unwelcome arrival at the moment, but give it a few
years and we'll
>> see what happens 
>
> If fine-grained metered pricing comes to the rest of
the world, it'll
> be because people roll over for it (you guys weren't
given a choice).
> If/when that happens, I'll be lobbying my local gov to
turn over the
> water infrastructure to me so I can replace it with
> household Evian vending machines; and I'd recommend you
all get in on
> the ground floor in the air market ASAP.
> Better be quick though, because the revolution will be
just around
> the corner...
>
> TV
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