Ask LH: Will The NBN Make Data Centres Cheaper?

Dear Lifehacker, Will the introduction of the National Broadband Network (NBN) decrease bandwidth costs for data centres and therefore bring Australia lower VPS or dedicated server costs like those you find in America? Currently you can't even get a 1GB VPS for under $40, while I just bought one for $19 a year from a US provider. Any insights? Thanks, Bandwidth Blues

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Dear BB,

Tricky question, and one where it's hard to give a truly definitive answer (especially since the final form of the NBN will alter if there's a change in government after this year's election). However, a combination of factors suggest that the answer to your question is "perhaps eventually, but not directly".

There are several points to consider here:

  • Bandwidth costs are often cited as the major reason for the higher prices seen with Australian server hosts and data centres. "Bandwidth is a cost which is higher in the local market," Rackspace ANZ country manager Mark Randall said. "We can't avoid that." However, bandwidth isn't the only factor. Australia has higher hardware costs and minimum wages, both of which can also lead to higher business expenses and hence charges.
  • Having said that, hardware prices and bandwidth prices have consistently fallen during the internet era. That has been the case in both Australia and in other markets. The odds of scoring a $19-a-year server five years ago would have been much lower.
  • The NBN doesn't change infrastructure outside Australia. Even if our prices did fall, that doesn't mean prices might not also fall in other markets because of their own infrastructure projects).
  • Large data centres will generally have high-speed connections (purchased from business-oriented telcos) right now; they're not waiting around for the introduction of the NBN, though undoubtedly some will renegotiate deals if they can score better prices.
  • Latency and population don't intersect happily. A US-based data centre will always have a latency advantage in its home market, and with a population more than 10 times the size of Australia, any overseas customers are often a bonus. Australian hosts will typically push their location as a selling point — it means faster performance and local support — but the addressable market is smaller, and that often means higher prices.
  • Price isn't everything. Support is just as important. That doesn't mean a cheaper provider will always offer worse support. It means that price should only be one factor you consider with any kind of hosting or server deal. Check support options, particularly the hours which it is available.

Despite the internet making it easier to compare prices, we haven't entered the era where everything will cost the same in every market (and I suspect we never will). But a key point is this: no matter where you choose to purchase server access, having a faster connection in your office or home will make that server easier to utilise. If it also makes some Australian hosts more price-competitive, that's an extra benefit.

Cheers Lifehacker

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    I think by killing off competition and discouraging infrastructure investment the NBN will ultimately make broadband more expensive. And NBN won't help uncompetitive Australian Data Centres that just don't have the economies of scale and have the some of the highest power, labour and infrastructure costs on the planet. The only thing Australian Data Centres have going for them is lower latency.

      So how exactly will the NBN (an infrastructure investment) discourage further infrastructure investment?

      Is it a bad thing to sell a service that is light speed times faster than other technologies?Oh dear how will dialup compete with optical fibre? Won't somebody think of the dialup and how the optical fibres will kill of the competitors...

      It's a good thing.

    I run a hosting datacenter in Australia and I can tell you with a fair degree if certainty that the NBN will not affect pricing one bit. Data costs have already dropped, and vary from $20/megabit to $150 depending on the guaranteed speeds you subscribe to (dedicated bandwidth nationwide is more expensive than shared oversubscribed bandwidth such as what's normal for domestic broadband and the NBN).

    Right now in 2013, the two biggest costs are wages, rent and electricity. It is cheaper to throw away a $10,000 server after two years and buy a new one and take advantage of the better performance per watt. Now do to maths on the server density you need to earn back that $10k plus pay the expenses, when selling individual VPSs at $20/month.

    Wages are borderline nuts as well. A first level phone support person costs minimum $60k/year. Engineers $80k plus.

    To give you a $40 VPS is a struggle. Roger you one for $20 I'd have the datacenter in Malaysia and tech support in India.

    Things are only cheap out if the USA rIght now because the exchange rate is dollar for dollar. When it was 65c to the dollar your $20 VPS Would actually be $35.

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