Why you should know about a contention ratio on NBN…

You might not be surprised to hear this, but I like talking to people about the internet, even if they’re not customers of ours. A comment I’m hearing more and more is that people are feeling their internet is getting slower.

This set me thinking about the disconnect between what most people think they are buying, with what they are actually getting when they connect to the internet.

If you follow the telco industry you’ll be aware there are lots of discussions about poor internet speed, particularly at peak times of day (5-9pm). Even the ACCC has opened an investigation into whether telcos are fairly representing their products. As people increasingly connect to the NBN and choose higher speed plans, they’re even more disappointed when they don’t get it, particularly at peak times.

Surely the NBN was supposed to fix all this?

To understand what’s going we need to delve into some of the inner workings of how the internet is delivered, and particularly the way the parts are paid for by your provider.

There are essentially 2 parts to the cost behind an internet connection…

1) The NBN or ADSL connection itself at your premises – also known as “the tail”. This is almost always a fixed charge, regardless of your usage, levied by whoever owns the physical line (NBN for fibre or Telstra for ADSL). NBN charge slightly higher rates for faster connections. This connects you to a point where NBN or Telstra hand off the connection to your provider. In the case of the NBN this is called a “Point of Interconnect” or “POI”, in the case of ADSL it’s usually your local telephone exchange.

2) From there, your provider has to rent (if it doesn’t already own) bandwidth or space on various fibre optic cables to carry the data back to the actual internet. This is called backhaul. Providers are charged per Mb/s of bandwidth that they order up front. There needs to be enough bandwidth to carry the traffic that the provider expects (or is willing to pay for!). You may have heard of NBNCo’s controversial “CVC Charge”… this is essentially an additional backhaul cost charged per Mb/s for the connection to the NBN network.

While the first part is fixed and easy to pass on to the consumer as part of the monthly fee, the second part is trickier. The obvious solution is just to add the number of subscribers, multiply by their individual speeds and purchase enough bandwidth to cover this. So if you have 10 x 100Mb/s subscribers you just get 1000Mb/s of traffic right?…

Unfortunately not.

The reason? Because this backhaul bandwidth that your carrier pays for is expensive.

Depending on where the connection’s coming from (e.g. if you live in Tasmania like I do), it wouldn’t be surprising to be paying $100 per Mb/s per month. So that 1Gb/s connection would be costing your provider $100,000/month, just to support 10 subscribers!

It’s also not necessary to buy that much bandwidth. Just as there’s no need to provide enough space on the highway for everyone to drive at the same time, there is no need to provide enough bandwidth for all the subscribers to download data at the same time. So ISP’s buy much less of this backhaul bandwidth than they theoretically need.

So while consumers are worried about what speed they’re buying, the real question is what is the right amount of this backhaul bandwidth to ensure you get the connection you need at a fair price?

Unfortunately, this often comes down to economics. As a provider competing in the marketplace for subscribers who shop around for cheaper and cheaper plans, there’s a strong temptation for providers to skimp on purchasing enough of this expensive backhaul. They skimp to keep their costs down so they can charge you less. Unfortunately, the result is what we see today. At peak periods, just as the roads clog up during rush hour, everything slows right down as your traffic competes with everyone else’s traffic over the limited amount of backhaul that your provider has purchased.

Most plans have a monthly download limit (measured in GB), once you reach that limit, your connection slows right down. This slow down effectively limits each subscriber’s average (monthly) download speed, in turn limiting how much of this precious backhaul you can use (on average). For example, 100GB equates to roughly 0.3Mb/s averaged over the month. So if you sign up to some fancy 100/40 NBN plan with 100GB of usage, you aren’t going to be using it very much! However, there have been an increasing number of “unlimited” plans available on the market, enabling subscribers to use their connection for much more of the time. Right now the telco industry is banking on the fact that most people won’t use that bandwidth too much of the time and won’t put too much pressure on their backhaul.

Unfortunately we’ve been here before and it didn’t end well. Remember Vodafail of 2011? Essentially telcos were providing many GB of data with their mobile plans secure in the knowledge that few people would ever use this capacity in the network. Enter smartphones and suddenly people starting demanding to use capacity that they had paid for but the mobile networks didn’t have. While Vodafone had a very public failure the other networks really struggled to cope.

So how do we fix this mess?

Something has to give: either the price of this backhaul comes down to more reasonable levels (which is unlikely given how little competition there is in the backhaul market), or consumers realise that if they want a network that actually performs when they need it, they will have to pay more.

The biggest problem for consumers is how do they actually measure this (before signing up to a 2 year contract, only to find their provider has a highly oversubscribed network). In the industry we do have a measure for this – it’s called “Contention Ratio”. Simply put it’s the ratio of the total bandwidth that could theoretically ever be used (the 1Gb/s above), divided by the actual bandwidth provided. The lower the number, the less you are sharing the precious backhaul with others. A good provider will aim for between 200:1 and 100:1. Sadly it’s not uncommon to see some as high as 400:1. I believe that much like the new supermarket standardised pricing, the ACCC should be forcing providers to reveal this information.

At Launtel we’ve had to make this choice with our own NBN service. Given that we exclusively supply businesses, we found they had a need for a high performing network and were willing to pay for it. So we’ve decided that we would rather charge more for a network that performs the way people expect. Indeed for our corporate grade 100/100 plans we’re guaranteeing to keep the contention ratio below 20:1.

There’s nothing wrong with sharing…but are you sharing with so many people, the service you have left isn’t good enough to do what you need?

If you’d like to enquire about an internet connection with a low contention ratio, contact Launtel.