Exetel chief questions cost savings from Pipe cable

In a blog post, Linton said that one of the main advantages being touted by Pipe's entry into the capacity market - that of reduced IP bandwidth costs - may not provide the commercial advantage ISPs are hoping for.

IP bandwidth costs, he said, are "relatively insignificant in the whole internet provision equation".

"The ongoing problem with operating any commercial business is to ensure that your actual costs of buying the 'building blocks' you need to deliver your services are not going to either send you broke or put you at a commercial disadvantage vis-a-vis the companies you compete with at the moment or in the future," Linton said.

"There are many other parts of the 'building block' equation of delivering internet services that can be much more easily addressed.

"Depending on the buying power of the ISP it costs something less than 50 cents per megabyte in 'raw' cost to ship data to an end user before amortisation of the equipment and the other costs associated with running the ISP's business."

Linton said Exetel had committed to use Southern Cross via Optus "for our IP needs" for at least 10 months.

"[But] we will see what happens in the IP marketplace between now and next March when we review our IP contracts," he said.

"Where IP pricing will be next year is not even guessable."

Despite the IP bandwidth claim, it appears Linton will still follow the success of early Pipe adopters closely - if only to see whether their early alignment with the cable operator pays off.

"I can only hope that the ISPs supporting Pipe don't get too much of a pricing edge for the risks they are taking," he said.