Pricing Your Services

   Part 2 - Basic Operations Costing

Having detailed outsourced PPP costs and user-to-modem ratios in our first pricing column, today, we'll examine a number of other basic ISP operational costs.

by Jason Zigmont HowToSell.net [July 2, 1999]

Equipment costs
Depreciation schedules are an important factor in determining monthly equipment costs per user. Unfortunately, unlike some unnamed telcos, ISPs can not depreciate their equipment over a 30 year schedule. Check with your accountant about the finer points of depreciation schedules and their effect on taxes and the like. For purposes of this discussion, we'll assume a moderately conservative schedule of two years (24 months).

Using a 2 year depreciation schedule, and assuming a per-port cost of $240 and a 10:1 modem-to-user ratio, your basic equipment cost per user would be $1 per month.

Here's the math:

• 2 years * 12 months = 24 months.
• $240 per port /24 months = $10/port/month
• $10/port /month /10 users/port = $1/user/month

Access line
Next question is on the access line, CT1, or PRI. If your cost per CT1 is $480/month., and there are 24 lines (ports) in a CT1, and a user to modem ratio of 10:1, your cost per user would be $2 per month.

Here's the math:

• $480/mo/CT1 /24 lines/CT1 = $20/line/month
• $20/line/mo /10 users/port = $2/user/month

If you are paying rent or co-location cost on your equipment, you would use the same equation as above.

Access costs
When figuring the cost for internet access (from your provider) per user, the math is interesting. A lot of people have tried to figure out exactly how many dial-up users you can have per T-1, but it is a gamble and changes depending on what speed the users connect at, what speed they sustain, and how much traffic they sustain. I'll show you the equation, but your best bet is to look at your MRTG graphs and decide for yourself.

A T-1 can transmit data at 1.536 Megabits per second. This doesn't take in account overhead or packet loss, however. For absolute accuracy, you'll need to calculate the exact packet loss and overhead. I'll leave this to you techs; for purposes of this discussion, I'm going to pretend they don't exist.

If you are only doing dial-up (i.e. no frame customers), you need to figure out how many ports/users it takes to saturate a T-1 during peak times. If you figure on users actually using their full bandwidth (let's assume average throughput of 33 Kbps) then you would get 46 users/ T-1/ second.

The problem with the equation is that they do not actually sustain that bandwidth. If the users average using the full 33 Kbps 10 minutes out of an hour, you get a 6:1 bandwidth ratio. That gives you 6 users per hour of full usage. 46 streams times 6 users per hour gives you 276 users using full streams per hour. Since there are 4 peak hours per day, and 276 users using full streams per hour, 1104 users can have full streams in every peak period. Since there are 30 peak periods per month, and 30 days in the month, the cost for the T-1 per month is split among 1104 users. Figuring a cost of $2,000/month for a T-1 (including local loop) then each user is responsible for $1.82 of that T-1 per month.

Here' the math:

• 1,536 Mbps * 1,000 = 1,536 Kbps.
• 1,536 Kbps / 33Kbps = 46 concurrent 33 Kbps streams/second.
• 60 minutes/hour / 10 minutes of full usage/user/hour = 6 users/hour of full usage.
• 46 streams * 6 users/hour = 276 users/hour/T-1
• 4 peak hours * 276 users/hour/T-1 = 1104 users/peak period
• 1104 users/peak period * 30 peak periods/month / 30 days/month = 1104 users
• $2000/month/T-1 /1104 users = $1.82/month/user

So, using our assumptions, your cost for PPP access is $1.82 per user per month.(This does not include setup costs or maintenance.)

go to page 2: Ancillary services costs