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Tuesday, June 09, 2015

Apples to apples to apples to apples

As promised, today we'll look at comparing the cost of fiber leases (lit and dark) to self-provisioning and bandwidth service agreements.

I tried to build a spreadsheet that broke out every conceivable cost.  Under a normal contract, you would probably be leaving the vast majority of them blank, but I think PIA is going to be instructed to ensure that all costs are being considered, so you should be prepared to defend every number in there, especially blanks.  You can see that in my hypotheticals, I didn't fill in every number for every type of service.

How to use my spreadsheet?  Fill in the yellow blanks from amounts in the bids you're considering.  Feel free to leave blanks for amounts not included in the bid.  (The spreadsheet assumes that you've already selected the most cost-effective solution in each category, so there is only space for one Dark, one Lit and one Self-Provisioned.)  You can fill in grey blanks, too; I greyed them out just because I thought it was unlikely that your contract would have those fees, but they're still included in the calculations.

Notice the tab for the BandwidthNeed worksheet.  It's basically yesterday's worksheet, and here serves 2 purposes.  First, the cumulative costs are copied into the Cumulative Cost area of the CostCalculation worksheet, so you can compare to the costs to your leased solutions.

The second purpose of the BandwidthNeed worksheet is to give you a basis for stating future bandwidth needs.  You'll need that to figure out when you'll need to buy new electronics.  If you look at the sample numbers I put in, a 1 Gbps connection is projected to be enough until Year 11.  I rounded it down to Year 10.

The handling of upgrades is a little clunky.  For lit fiber, I assumed that equipment would be leased (or included in the cost of the bandwidth), so it's just a matter of"determining" how much the monthly fee will change.

For dark fiber leases and self-provisioning, I assumed that a bandwidth upgrade would probably mean an equipment purchase.  So over in cell H8, you'll see that I'm anticipating an equipment purchase in Year 10 (120 months into the contract).  There are two rows, so you can put in a second upgrade if you want.

You'll notice that there are 3 terms available.  In the first row of each term, in column F you'll put the length of that term in months.  (Note that if your term is not divisible by 12, there will be an error in the Annual Cost for the year during which the term ends.) Fiber contracts often have 2 terms; the initial term, when you're paying off upfront costs, and subsequent term(s), when you're just paying maintenance.  I added a 3rd term for flexibility.  In the hypothetical contracts I put in, I have an initial term of 5 years, because the hypothetical dark fiber lease has 5 years of higher fees paying off most of the cost of stringing the fiber, then a much lower fee for the next 15 years.  Then I have the second term end 10 years into the contract, where I'm anticipating the upgrade to 10 Gbps will increase the Monthly Cost of the lit fiber lease.  The Monthly Cost of the dark lease and self-provisioned don't change, but you'll notice that the equipment purchase from H8 bumps up the Annual Cost in Year 10.

Some shortcomings of the spreadsheet:

  • Only allows 2 equipment upgrades
  • Only allows 3 terms
  • Doesn't do a present-value calculation 
  • Only one contract of each type can be inserted
  • It's way more intimidating than I'd like it to be, since most of it will be blank
  • Contracts with terms that are not whole years will cause a miscalculation; for example, if your first term is 42 months (3.5 years), the spreadsheet will act as if it were a 48-month (4-year) contract.
Any feedback on the spreadsheets would be welcome.

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