Pricing Your Services

   Part 4 - Dedicated Access

Last week we discussed costing issues for Web hosting services—a major component of many ISPs' business. Today, we'll tackle the last of our three service categories: dedicated access.

by Jason Zigmont HowToSell.net [July 9, 1999]

In order to determine the cost of dedicated leased lines,you first have to make a distinction between point-to-point (PTP) and frame (or SMDS, ATM, or whatever non-PTP line you may offer).

The key in making money in leased line connectivity is oversubscription. The principle of oversubscription is simple: It's a gamble that not all of the leased-line customers want full connectivity at the same time. At what rate you choose to oversubscribe your bandwidth at is your choice; this may change, depending on whether the connectivity is PTP or frame.

Customers who purchase PTP connectivity tend to require more bandwidth. This may force you to operate at an oversubscription rate as low as a 2:1, therefore raising your costs—and your price.

Note: If you sell to ISPs, web hosting, or other resellers of bandwidth, they are likely to fall into this category, and it is normal to charge them a higher rate.

Assuming a 4:1 oversubscription rate, and a cost of $2,000 (including local loop, as always), then your bandwidth cost per T-1 would be $500.

Here's the math:

• $2,000 / 4:1 over subscription rate = $500/T-1 in bandwidth cost.

Equipment cost.
If you have a router dedicated to lease lines, then determining the cost is relatively easy. (I will assume this. If it is shared, then you need to determine what proportion of the router goes towards leased line, and what part to your own capacity.)

If you use a router that cost $2,500 and has 2 serial ports (one for connectivity in, one for outbound frame connectivity to your customers) and your 2 CSU/DSUs (one for each serial port) cost $500 each, then your total equipment cost would be $3,500. Assuming a moderately conservative 24 month depreciation schedule, your monthly cost for that router is around $145. If you serve 4 T-1 connections off of that router, your monthly equipment cost per T-1 would be $36.25.

Here's the math:

• $2,500 (for the router) + $1,000 (for the CSU/DSUs) = $3,500 (total equipment cost)
• $3,500 / 24 months = ~$145/month in equipment cost
• $145/month / 4 T-1s = $36.25 (equipment cost per T-1 per month)

More time consuming is determining the cost of maintenance, power and A/C for the router. To accurately determine the cost, you need to track the time (in man-hours) devoted to maintaining the router and multiply it by the cost per man hour. (Found by adding up the salary, benefits, taxes, etc of the employee, and dividing by the number of hours they work.) For power, you can actually find out what the amperage usage of the router is, and multiply it by the kwh you pay per month, and you will have your cost.

 —End

Part 1 - Dial Access Basics
Part 2 - Basic Operations Costs
Part 3 - Web Hosting

Questions? Comments? Contact the author or the editors.