Update 2016

This page was originally written in 2006 and at a time when most of the UK's backhaul traffic was sent over BT wholesale's MSiP network. Being an ATM network much of the backhaul was restricted to just 155/622 Mbps pipes.

Since then BTw has rolled out their 21CN network to the vast majority of exchanges. In addition to a whole new topology, the new backhauls use SDH & WDM for more efficient bandwidth and allowing 10/100 Gbps backhauls segmented into various S-VLANs.

BT wholesale's investment in 21CN cost hundreds of millions of £ and is still ongoing to reach the very furthest exchanges, but it is something that needed to be upgraded before the rollout of 'fibre broadband' to ensure sufficient capacity for the higher speed requirements.

The combination of 21CN's higher capacity and more exchanges being deregulated brought down the cost for ISP bandwidth charges, so the figures below no longer are strictly true. 

There are still a few 20CN exchanges in the UK, although some of these may have FTTC services whereby the cabinets may be served by a head-end exchange. The cabinet's local network (fibre spine) will hook-up directly to an exchange that may be in a different town and totally bypass the local exchange.

Note: The figures below do not apply to 21CN, but the article has been left in place as a historic reminder how how broadband in the UK has progressed.

Looking back 10 years later, it is interesting to see that my prediction of a two-tier system did in fact come true.  5 or so years ago it made a very big difference to broadband pricing depending on which exchange you were connected to.  
This 2 tier system is still in evidence to a lesser extent today and some ISPs either charging more or refusing to take customers at smaller exchanges where they dont have a prescence or is not yet deregulated.

Earlier this year (2006), I wrote a capacity report for another site which commented on the costs involved for an ISP in the UK. The report was rather long and specific and I thought it would be beneficial to do a *cut down* version which was more generic and applies to all IPStream ISPs.

There have been comments on several forums from 2 camps of thought, some say that ISPs charge too much, others say that certain ISPs are not making enough profit to be able to sustain a decent service.

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An IPStream ISP in the UK has 2 major expenses to pay out for each customer that they provide adsl to. Both of these are out goings to BT Wholesale.

1. Port Costs - Rental costs for your phone line being connected to the Exchange DSLAM
2. Central Pipe Costs - To carry adsl traffic from the BT Network to the ISP Network.

Port Costs

Paid to BTw each month and for having your phone-line connected to the adsl DSLAM at your local exchange. Covers the cost of BT exchange equipment, and carrying of traffic over the ATM backhaul.

Charges:

 

BT CBC End User Port costs
Type	ex VAT	inc VAT	Frequency
New Connection.	40.00	47.00	One off
Migration.	11.00	12.93	IPStream
Ongoing Rental.	8.50	9.87	Per Month

Central Pipe Costs

Paid to BTw and is the price of a Central pipe which carries traffic from the BT network over to the ISP. This basically equates to bandwidth (GBs used by customers each month) traffic. An ISP has to ensure that they have sufficient capacity so that their customers can download at their maximum speed. BTw Centrals cost 100's of thousands/millions of pounds per annum.
Most ISPs will use multiple 622 Mb pipes.

Charges:

BT CBC Central Pipe - L2TP Passthrough
622 Mbit/s	ex VAT	inc VAT	Frequency
Connection.	175,000	205,625	One Off
Ongoing Rental.	1,496,760	1,758,693	Per Annum

Other ISP Costs

As well as the above 2 major expenses ISPs will also have to pay, premises, staff, transit, co-lo and equipment costs.
ISPs will need to purchase many powerful servers and routers. For eg a fully equipped Juniper ERX could cost in the region of £100k. An ISP will need 1 of these for each Central Pipe that they have.
Transit fees are paid to the likes of Level3 and Cogent, whose routing is used to get and route our connection with various other parts of the world. Transit providers for example will route between London and the US.

So how much does it cost?

~ Capacity (BT Central Costs).

An ISP using CBC has to pay for central capacity whether or not it is used. Under perfect conditions the maximum capacity on a 622Mbps central is calculated as follows:-

Downstream: 622 / 8 (Bits) * 60 (secs) * 60 (mins) * 24 (hours) * 30 (days) / 1000 (GB) = 201,528 GB
Upstream: 311 / 8 (Bits) * 60 (secs) * 60 (mins) * 24 (hours) * 30 (days) / 1000 (GB) = 100,764 GB

Calculating the cost per GB is no mean feat and is subject to many variables therefore we have used the following method which gives an indication of the minimum cost to an ISP if their pipes were maxed out 24/7. Under-utilised pipes will cost much more than this.

For the calculation I have used the following formula:-

var bt622cost = 1758693/12; // £ per month
var totalthroughputpm = 622 * 1.5 / 8 * 60 * 60 * 24 * 30 / 1000;

622 * 1.5 gives us the value for up and downstream which is the total throughput on the pipe
dividing by 8 gets the MBytes rather than Megabits
* 60 gets the mins
* 60 gets the hours
* 24 gets the days
* 30 gets the month
/ 1000 gives us the GB figure. (plusnet and BT Radius monitoring use 1000 rather than 1024).

var costpergb = bt622cost / totalthroughputpm;

as an additional variable we also show the downstream only figure
var gbdownstream[1] = gb[1] * 2/3;
which is the same as
622 / 8 * 60 * 60 * 24 * 30 / 1000;

which equates to 49p total GB used or 73p per each GB downloaded.
This figure should be used as a guideline only and depends on too many variables, such as whether the ISPs pipes are being fully used 24/7, and whether the ISP gets any bulk discounts.

Remember that regardless of your bandwidth usage, the ISP will still have to pay the BT port cost each month, so lets add these together, and put the results in a table which will give you an idea of how much an ISP has to pay to BT Wholesale alone depending upon usage based on a 622Mb central inc VAT.
Don’t forget that ISP’s will have a lot more costs on top of this such as equipment, staffing and other transit costs.

Conclusion

The decreasing of costs to the end user has meant many more users can get broadband. At the end of the day IPStream ADSL has always been designed to run as a contended product. Without the sharing of bandwidth then the true cost would be one heck of a lot more :(

It seems like the days of users being able to download all and sundry are drawing to a close, and those that assume they can because they think they "are paying for it" need to perhaps think again. There is no way any IPStream ISP can sustain too many heavy users without funding from other sources. Until BTw reduce the price of their Centrals then there is nothing much going to change. The only other alternative is an increase in prices across the board and then the low usage users (who are in the majority) would feel hard done by.

The advent of higher 8Mb speeds draws near, and I cant help but wonder how this will affect the end user experience. BTw prices are exactly the same for these higher speeds, so they are perhaps reliant on extra revenue from the ISP Centrals. This in turn makes it harder for ISP’s - it’s obvious that a few users will use more bandwidth simply because they can get things faster. The wholesale costs remain the same to the ISP, therefore they can’t provide this additional bandwidth without either imposing exactly the same "caps" as on the lower speeds, or charging the customer more for the product. Many astute users are also very well aware of what impact these higher speeds may have on exchange congestion.

So is this ADSL of the future? Have we had it good for too long?
Well it certainly seems like it :/ - the early adopters of ADSL certainly did, but then again the costs were so much more and the speeds a lot less than today... and BTw had a different charging method. BTw’s charging method for the Central Pipes is considered by many to be overpriced and perhaps out of alignment with many other EU countries.

Before we start blaming BTw too much for this situation there is a lot more in it. Firstly the fact that BTw have managed to make ADSL available to the vast majority of the population. There is also another side to this story too, in that BTw can’t reduce their prices right now which is down to something called the "Margin Squeeze Test" which has been enforced by OFCOM.
OFCOM has basically ruled that BTw cant reduce their prices to below rates that would give them an unfair advantage over any other telecommunication company. There are already many good articles that have been written about the MST - a good place to start would be AdslGuide if you wish to know more.

So is LLU going to be a savior? That is debatable - more users are adapting to their higher speeds, and will they be in a similar position to what BTw is today? There will come a point when the LLU "centrals" start to fill. LLU could result in a two-tier adsl system in the UK, as they aren’t made to enter into the less profitable exchanges. There are many exchanges and users that will be left out in the cold. :/

© Kitz 2006

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November, 2006

BT outlines new wholesale broadband pricing.