[AusNOG] Carrier Independent Peering Exchange

[Mark Smith]

On Fri, 18 Dec 2009 09:23:58 +1000
"Dan Irwin" <dan at jackies.com.au> wrote:

> Mark Smith wrote:
> 
> >TPG do have a commercial incentive to stop their competitors peering
> >using their PIPE peering infrastructure, 
> 
> First of all, TPG don't have any say, let alone any incentive. Remember,
> TPG don't own PIPE, SPTel do. It just happens that SPTel also own TPG,
> and TPG's former owner, David Teoh, is in control of SPTel (and
> therefore TPG and PIPE).

SPTel being the owners of TPG have an incentive. Companies exist to
make as much profit as they can for their owners. If reducing their PIPE
subsiduary's profit would enhance their TPG subsiduary's profit, such
that the aggregate profit to SPTel is greater, then why wouldn't they
be willing to do so? Would you want to accept the business risk of your
competitor's parent company not doing something that is detrimental to
your business? I'm not sure I would.

I'm certainly not a lawyer, however a structure where SPTel gained the
benefits of ownership of PIPE, but didn't and couldn't have any control
over it would probably allay some of the concerns people have. From
what I understand, a trust structure might allow that, with PIPE being
held within the trust. SPTel would be beneficiaries of the trust, but
independent trustees, who would have final control of what the trust
does, might create the level of independence that people would be more
comfortable with. (Again, I'm not a lawyer :-) )

> 
> Next, Why would SPTel want to destroy the value of the PIPE Ixes? SPTel
> paid 300 million plus for PIPE. Why would they have any incentive to
> destroy the business model Bevan and Steve have successfully built up
> over the past decade or so?
> 
> While I can understand people's skepticism, the reality is nowhere as
> bad as what some people here have suggested.
> 

As I said, it's about the worst case, not the probable case, and
part of achieving network service availability and quality (which
includes ensuring future operational costs are predictable and
expected) is about protecting against possible worst cases.

ISPs gain very significant financial benefit from peering verses
transit, so even one month's increased transit costs while moving to a
different peering point at short notice could be a very significant
cost that SPTel could choose to incur on their TPG subsiduary's
competitors. With the industry as competitive as it is, that increased
temporary transit cost could force some ISPs into a cash flow negative
situation that they may not have the cash reserves to be able to
recover from.

Alternatively their service quality could suffer so dramatically that
their customers desert them in droves. With plenty of ISPs out there,
the threshold at which customers choose to change ISPs would be lower
than one where there were only a few major players in a market. TPG is
likely to pick up some of these deserting customers.

However, if you're so confident that it won't happen, you could start
to offer insurance to PIPE's customers to cover that situation. As long
as the insurance is cheaper than the alternative infrastructure and
the costs and consequences of having to get out of a PIPE IX, possibly
in a hurry, it'd be money for jam.

Regards,
Mark.