T3 / DS3 Downward Price Trend

Reliability or lowest price?

Analysts say that while DS3 / T3 price trends have been moving downward, there is still a significant price gap between T1 and T-3 links. According to Gartner's Rickard, the difference is still in the range of a "four to five times multiple." MCI argues, however, that a "DS1 equivalent" measure overstates competitive inroads in a market by placing disproportionate weight on entrance facilities (which are usually DS3 circuits) where competitive entry has been greatest. Because the price of one DS3 circuit is less than the price of 28 DS1 circuits, even though they provide equal capacity, MCI argues that measuring competitors' market presence on the basis of revenues gives a better indication of the extent to which competitors have made significant inroads into the market in question. "We agree with MCI" says the Federal Communications Commission.

The history of leased line prices in recent years does reveal a strong downward trend in prices. Significant impact in recent years has been the expansion of Ethernet fiber. According to Business Week, private line prices have fallen by 80% between 1989 and 1994, and this is consistent with Bertrand competition. (Definition: A Bertrand competition is a bidding war in which the bidders end up at a zero-profit price.) During the same period there has been a dramatic increase in the use of term and volume discounts. AT&T offers customers a standard month-to-month tariff for T1 service and charges a non-recurring fee, a fixed monthly fee, and a monthly rate per mile. Customers who are willing to sign a 5 year contract are offered a discount of 57% off the standard month to month rates. Smaller discounts apply to customers who choose shorter terms and lower commitment volumes: a one year term commitment to spend $2000 per month obtains a discount of 18%. The overall trend towards lower prices masks a more complex reality. There are two types of tariffs: 'front of the book' rates, which are paid by smaller and uninformed large customers, and 'back of the book' rates, which are offered to the customers who are ready to defect to another carrier and to customers who know enough to ask for them.

Competition has been heating up since deregulation in 1996. The number of companies offering service has exploded. With more competition in the marketplace service providers have to reduce their prices to attract customer and keep them from going to competitors. Service providers are desperate to keep margins but even more desperate to keep adding customers. This competitive arena has created a buyers market for DS3 lines and pricing is as favorable as it has ever been!

A final reason for the reduction in DS3 pricing is the fact that equipment costs and the cost of supplying the bandwidth have decreased. This means that companies can supply the bandwidth at a lower cost. As bandwidth usage continues to increase as a result of bandwidth hungry applications like video on demand and graphic heavy applications the price of bandwidth will continue to drop. The only factor that seems likely to inhibit prices from falling much further is the "last mile" or the connection from the users premise to the service providers' POP (Point of Presence). If you're searching for a T1 line, make sure you use a broker that can help you with your search, in real time, and offer insight on industry news, specials and discounts a provider may be offering.

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