We'll wear dollar drop, say Internet companies

Local Internet service pricing is unlikely to rise - in the short term anyway - as a result of the dive in the value of the Kiwi dollar.

Local Internet service pricing is unlikely to rise - in the short term anyway - as a result of the dive in the value of the Kiwi dollar.

The value of the dollar affects the cost of everything from international bandwidth to hardware, but most of the businesses contacted by IDGNet say that they are more likely to respond by trimming costs and seeking export advantages than by hiking prices.

Dial-up Internet access has, indeed, been headed sharply down since Xtra set a new benchmark with its $24.95 monthly unlimited rate.

The new pricing levels will probably be protected by the impending arrival of cheaper bandwidth via the Southern Cross cable in November.

International IP bandwidth is currently scarce and hence relatively expensive. But Southern Cross Cable Network announced last week that it had reduced its US dollar pricing for trans-Pacific and trans-Tasman bandwidth by 20% in the lead up to the network’s service date of 15 November.

The new base price for a 15-year 155Mbit/s connection between New Zealand and the US is now $US10.4 million. Such a direct purchase of bandwidth will probably only be made by telcos, although Ihug is still weighing up its options.

Telecom Networks has yet to announce a pricing schedule for the new network, but Southern Cross spokesman Philip Clark said that when the new prices were announced in Sydney last week, carriers such as Telecom, MCI and Optus had indicated they would pass on savings.

"It may take a couple of months after their circuits are passed over by Southern Cross but they will hopefully drop prices to their customers as Southern Cross drops its prices," says Clark. "Southern Cross is doing its bit and would be hoping that the savings are passed on."

Telecom spokesman Stephen Ward says Xtra does not anticipate the drop in the Kiwi resulting in any upward price pressures in the short term "and longer term it would be balanced by fact that over time technology prices tend to come down."

The bandwidth squeeze has also already led major ISPs to offset costs with more extensive use of local proxy servers.

Ihug director Nick Wood says his company will be sheltered from the currency shift to some extent because it onsells satellite bandwidth in US dollars, mainly to Australian ISPs, "who will be squeaking more than us."

"Obviously it's annoying because it does change things," says Wood. "They were making noises that the NZ dollar was going to go up to 57 cents by Christmas, so no one's been doing too much forward cover buying because they've all thought that it would be silly to do it at 47 cents when it was going to be 10 cents more at the end of the year.

"We try and cover our butts wherever we can. That's why we started in Australia in the first place - if one market went down the toilet then hopefully the other one wouldn't go in the same week."

Wood says there will be no short-term effect on the cost of the dishes and cards required for its high-speed Ultra service because the company has already paid for a considerable quantity of stock.

Higher hardware costs are also the main issue for Auckland hosting and name service company 2Day.com.

"We're midway through a fairly major capital upgrade programme," says 2Day managing director Peter Mott. "All our product is high-end equipment and we're already paying a premium to have it. We're anticipating we'll go over budget on capital expenditure but at this point there's no indication that that needs to affect the pricing of our services."

Unlike many specialist hosting companies, Mott hosts locally rather than in the US and Mott says the fall in the dollar "makes our services appear more attractive to people who pay for things in the greenback.

"We have a few of those people. We don't actively market to them but we're about to launch a new product shortly that will be targeted at the US market. So it could help us. I'm just very concerned about stability. I don't mind it being low - what I don't like is it going up and down at great speed because it makes it really difficult to budget."

Web hosting companies - including WebFarm, WebDrive and Interspeed - who host in the US will be faced with paying more NZ dollars for the services they buy there, but are also likely to look for more export business.

Richard Shearer, managing director of the Taranaki-based WebFarm, says his company already has offshore clients and intends to further explore export business.

The cost advantages of hosting in the US remain, he says, and the company has already responded to price pressures by developing "tiered branding - so we have suites of lower-end services and higher-end services, with a crossover in the middle that'll allow us to reposition ourselves taking into account the change in the dollar."

The new bottom rung service, under the company's freeparking brand, will cost only $150 annually, paid in advance, with costs saved through the service being fully automated.

The dollar's fall will have mixed implications for the local branches of the major IT companies. Marketing departments - who usually receive their budgets in US dollars - will have more to spend, but hardware will be more expensive.

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