From: John Brothers <johnbr@atl.mindspring.com>
Date: Thu, 22 Aug 1996 13:20:38 +0800
To: cypherpunks@toad.com
Subject: Re: telco's vs x-phones
Message-ID: <1.5.4.32.19960822023217.00729710@pop.atl.mindspring.com>
MIME-Version: 1.0
Content-Type: text/plain



I think you both have good points here.  I will redo the math.

At 09:19 AM 8/21/96 -0700,  Brian D Williams <talon57@well.com> wrote:
>In a reply to Vipul Ved Prakash, Jim Bell wrote:
>Siecore plain vanilla 36 fiber singlemode list $ 1.82 a foot, $5.46
>a yard.  

Jim said $10/meter, so about 50% of his estimate.


>
>>Each fiber pair should be able to handle approximately 1 million
>>conversations at current data rates, or a total of 18 million
>>conversations for that 18-pair cable, or 9.5 trillion 
>>conversation-minutes.
>
>At current data rates (OC-48 Sonet) 32,256 voice channels per
>fiber, 580,608 total for the fiber.

Ok.. I think we're talking apples and oranges.  Jim uses the term conversation,
which I assume is a 3 minute duration of time.  Your OC-48 handles almost
precisely 1 million conversations per day.   (32k DS0 x 24 * 60 * 20)

So I can see where he could come up with 18 million conversations.  I
have no idea what a conversation-minute is.  Perhaps another measure
would be the total number of conversations per year.

18 million/day * 365 = 6.5 billion conversations per year.

So I believe he is off by a factor of 1000+ at this point, but then the
fiber is half the cost he thought it was, so its really only 500+.


>>Multiply this cost by 10 for right of way, trenching, repeaters,
>>and other auxiliary hardware, or $100 per meter.  This is probably
>>just a ballpark estimate, but...
>
>Off by a factor of at least 10 not counting switching equipment.

So, assume that he's a long haul carrier, and doesn't have to buy any
switching equipment.   Still, based on  $500/meter, that means 
that this network cost about 2.5 billion to build.

So if the system was running at full capacity, 24/7/365, the LD will have
to charge $0.50/conversation, or $0.15/minute to make 2.5 billion per year.

Even reaching 10% of that capacity is unlikely at $5/conversation.

Which, clearly, isn't happening.  I assume that either I have made a 
mistake in my calculations, or the costs of laying fiber has been 
grossly overestimated... Or, that since no-one is going around and buying
up 5000km right of ways, Sprint, MCI, AT&T and co. can lay fiber
much more cheaply.  If we assume $50/meter, it will cost 250 million, and they
will have to charge $0.015/minute to break even at 100% capacity, or 
$0.15/minute at 10% capacity - and we know Sprint charges less than that,
but if they can get more than 10% of the capacity --- although it is doubtful.

My best assumption at this point is that we don't have to make back the entire
cost of the fiber per year to make a profit.  if we only have to earn 20%
of its value to make a 10% profit, it would bring the price down to
$0.075/minute, and if we were to get OC-768 systems invented, we could reduce
that to $0.005/minute, which is approaching the values that Jim derived.

So, I hate to say it, but it looks like long distance is more expensive
than Jim (or I) thought.  But, in a few years (say, 5) it will approach
ridiculously cheap.  We can expect at that point that either
a) All (or most) long distance will be over the Internet
b) Internet phone will vanish as regular long distance becomes a flat fee
   like local service.

---
John Brothers 
   Do you have a right not to be offended?