Bandwidth Co-op Brings Cheaper Prices

A bandwith co-operative has brought the fiber optic Internet to rural New Mexico using a business model that could succeed where the RBOCs, many alternative LECs, and the federal government have already failed.

by Max Smetannikov [February 14, 2003]

New Mexico is now home to an ambitious fiber co-op which brings the benefits of metropolitan competition on bandwidth prices to the country, seemingly having figured out how to bring broadband into rural areas—something the RBOCs, many alternative LECs, and the federal government failed to do.

A brainchild of four New Mexico-based entrepreneurs, the co-op, which will go live on February 15, 2003, is essentially a mechanism for rural ISPs to buy transit services at competitive prices. A 45 Mbps DS-3 supporting IP from Albuquerque to Clovis, a city 300 miles away, is $8,000 a month. The same DS-3, terminated locally in Albuquerque, is $1,800, a price more typical for a major city.

The business plan underlying the co-op is to buy a DS-3 connected to the Internet in Albuquerque (the link has been already provisioned by Sprint), and then to send IP traffic out to far flung regions over an ATM network run by Qwest. Regional players can tap the ATM network via local loop in their cities.

Instead of paying $8,000 to get a 45 Mbps connection to the Internet, a regional player could get a 20 Mbps private virtual circuit from most any location in New Mexico to Albuquerque for less than $1,000. Bottom line: instead of paying up to $900 per Mbps, ISPs participating in the exchange stand to lower their bill to $200 to $400 per Mbps.

The co-op doesn't just help ISPs obtain access to higher speed connections. Many win financially by making their network design more efficient and thus lowering their existing bandwidth bills.

"With the co-op, we are doubling capacity and save $900 a month," said Dave Cates, president of I-Net of New Mexico. Cates is one of four co-founders of the co-op, along with John Brown of Chagres Technologies; John Gonzales of Tularosa Communications; and Michael Spinn of Spinn.net.

The issue that these four ISP veterans are tackling is that of rural business development. True, New Mexico is different from some states in that it has a state-wide ATM network run by Qwest. Note that this is not Qwest's IP backbone, which Qwest, as an RBOC, has no right to resell within its territory for another couple of months at least—Qwest is in the process of getting long distance approvals fixing that from the FCC.

Even if Qwest starts selling bandwidth across New Mexico, the economics would stay the same for small ISPs. As ISP-Planet reported in the past, bandwidth prices are much lower in major metro areas than in rural America because urban ISPs get to buy bandwidth at exchange points, whereas rural providers have to backhaul their bandwidth while paying—or choosing not to pay—large amounts of money for distance sensitive network services, like $8,000 for a DS-3 in I-Net's case.

The idea of closing ranks to buy bigger pipes and through that get bigger network savings—and, possibly, enough pipe to experiment with new services—is an experience other rural ISPs could replicate after New Mexico. The co-op founders believe their for-profit organization will add a lot of momentum towards making their state more attractive for economic development in the near future.

To facilitate addition of new members, the process of setting up the co-op ran in parallel with setting up an exchange in Albuquerque where co-op participants would connect to the fiber they buy as an aggregate buyer; and large carriers would terminate their long distance networks to sell DS-3 class pipes. The exchange, predictably dubbed IXNM, goes live on Saturday, offering carrier neutral colocation and interconnects.

The exchange also opens the door for small carriers to participate in peering, and to have a say in where in the hierarchy of Internet connectivity Albuquerque belongs. Before the exchange went live, ISPs had little say in how New Mexico was connected to other areas of the world that local businesses considered strategic. In other words, if Asia-Pacific-to-New Mexico business were to boom in the state, Albuquerque could still be the 50th hop on Sprint's networking map for traffic originating from Tokyo.

Not any more. John Brown, who is the point man for IXNM, is talking about interconnecting the exchange with a direct link to telco hotels in Los Angeles and New York as soon as more ISPs joint the co-op and more bandwidth is needed. (Two additional carriers are expected to join within weeks.) Being connected to major peering facilities like Equinix and the University of California's LAAP would enable local New Mexico ISPs to peer with some of the carriers colocated in Los Angeles and New York, introducing players like I-Net to the peering game for the first time.

IXNM members could peer with each other within New Mexico as well. Combining peering—which is important to establishing direct and inexpensive international links—with inexpensive transit would make New Mexico an attractive outsourcing location.

"In the grand scheme of it all, we'd like for New Mexico to become a well connected state—if you are two hops away from Japan, that is attractive to doing software development, webhosting or other kinds of online new media types of business," said Brown. "The dirt is cheaper here."

Bandwidth brokers say the co-op will have a fundamental effect on network competition and consequently bandwidth prices in New Mexico.

"The co-op philosophy—that they can now transport bandwidth to local areas while splitting the cost—enables them to purchase more bandwidth," said Dan Pilgrim, president of Phoenix, Arizona-based BandwidthFinders, a bandwidth brokerage firm.

In BandwidthFinders' analysis, before adding in ATM transport fees, the co-op members got their Sprint DS-3 at about $222 per Mbps, with a $10,000 per month circuit split between four of them.

— End