Measuring bandwidth bang for the buck

Every now and then, I’m reminded that all the cool technology I write about boils down to a single number: a line item on the CFO’s budget. In other words, whether the technology is MPLS or VPLS, HSPA or WiMAX, at the end of the day the CFO is going to ask: “How much am I spending on this? And what kind of bang for the buck am I getting in return?”

This isn’t as easy to compute as it sounds, because bandwidth isn’t a pure commodity. Not only does it vary considerably by geography, but how it’s packaged can affect how it’s priced and can be used. (Companies don’t use Internet-based VPNs precisely the way they use their business WANs, for example.)

That said, even a handful of data points can be illuminating. For example, on average, the overall cost of T1 access to MPLS services (from all major carriers) works out to $900 per site per month, or $600 per Mbps.

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Every now and then, I’m reminded that all the cool technology I write about boils down to a single number: a line item on the CFO’s budget. In other words, whether the technology is MPLS or VPLS, HSPA or WiMAX, at the end of the day the CFO is going to ask: “How much am I spending on this? And what kind of bang for the buck am I getting in return?”

This isn’t as easy to compute as it sounds, because bandwidth isn’t a pure commodity. Not only does it vary considerably by geography, but how it’s packaged can affect how it’s priced and can be used. (Companies don’t use Internet-based VPNs precisely the way they use their business WANs, for example.)

That said, even a handful of data points can be illuminating. For example, on average, the overall cost of T1 access to MPLS services (from all major carriers) works out to $900 per site per month, or $600 per Mbps.

Is that good or bad? That depends — it's certainly a dramatic decrease from a decade ago, when T1 access to frame relay (MPLS was still experimental) ran $2000 and more, for a whopping $1,333 per Mbps.

But if you compare with newer technologies, such as carrier Ethernet, the benefit’s not so clear. Providers such as Cogent and Reliance Telecom are offering low-cost, high-quality Ethernet services, and mainstream providers such as Verizon and AT&T are following suit (Verizon announced GA of its carrier Ethernet offering last year, and AT&T recently did the same). The key point here is cost: Cogent’s pricing at $1000 per 10 Mbps access — or $100/Mbps.

Carrier Ethernent and Layer-3 MPLS aren’t directly comparable services: Each has strengths and weaknesses with regards to the other. But it’s still illuminating that the net effect of moving to Ethernet is a dramatic cost reduction.

Another interesting point is how that rate compares with consumer bandwidth prices. $100/Mbps is between two and three times what consumers pay for DSL or cable modem access, which putatively offer 1M to 5Mbps for $100/month or less.

Again, the comparisons aren’t exact — for one thing, very few consumers actually receive the full bidirectional 1M to 5Mbps capacity, whereas virtually all businesses do (or they quickly replace their providers!). And, as noted earlier, Internet access isn’t the same thing as business WAN services.

But still… it’s enough to make you sit back and think for a bit. What else should you be doing? For starters, make sure every contract you negotiate includes a “technology refresh” clause that specifies that if an alternative technology that significantly affects bandwidth costs comes along during the life of the contract, you can either request (and receive) a transition to that technology, or terminate the contract without penalty. Another good idea: look into aggressive deployment of less-expensive technologies and offerings (such as IP VPNs) for regions of the network where they may be a good fit (remote branch offices and users, for example). Above all, keep an eye on that bang for the buck — because you can be sure the CFO is, too.

Read more about lans & wans in Network World's LANs & WANs section.