| International Internet Connectivity15
The cost of IIC comprises two elements: the transmission link from Egypt to the United States, and the IP port. Although it is quite common for an ISP to get the transmission from one carrier and the IP port from another one, most of the Internet connections in Egypt, as well as their IP peering ports, are offered via FLAG for the reasons explained in the above paragraph.
Traditionally, Egyptian NSPs used to lease bandwidth capacities via either FLAG or SEA-MEWE 3. Four years ago, the leasing price for a 45 Mbps link was US$150,000 per month versus US$230,000 for a 155 Mbps one. Two years later, the prices were reduced by almost 30% to reach US$165,400 per 155 Mbps per month. Today, the leasing price for a 155 Mbps link is around US$100,000 per month.
By early 2003, FLAG and TE reached an agreement with the local NSPs allowing the latter to own the bandwidth instead of leasing it. This model is known everywhere as Indefeasible Right of Use (IRU) which is a long-term lease of a certain bandwidth capacity of an international cable. The IRU contract between the local NSPs, TE and FLAG allows the NSPs to lease the capacity for 15 years. Under this model, the NSP was able to acquire a 155 Mbps for US$3.675 million. With continuous support from the government as well as the rollout of nationwide broadband services, demand for international bandwidth increases, hence prices have rapidly decreased over the past couple of years reaching US$1.25 million, which is the present IRU price for a 155 Mbps link.
Although the IRU model puts a lot of burden on the cash flow of the NSPs, which need to pay the full amount up front, it seems to be more economic compared to the leasing model. On the other hand, the IRU model is quite rewarding to FLAG, not only because it collects the whole payment upfront, but also because it retains its customers for quite a long time. So, the model seems tempting for both sides and therefore all Egypt's international Internet bandwidth today has been contracted based on the IRU scheme.
By depreciating the IRU numbers over a fifteen year contract period, it turns out that the monthly charge for a 155 Mbps link is around US$7,000. However, this is a theoretical calculation because the bandwidth value decreases over time so linear depreciation does not work in this case. Therefore, operators either do depreciation over a shorter period of time such as 4 years, or calculate the depreciation value in a descending manner.
In addition, the cost of the IP port for a 155 Mbps link is in the range of US$7,000 to US$10,000 per month based on the negotiations between the local NSP and the IP provider (FLAG in most cases, UUNET and Teleglobe in few cases). As a matter of fact, the NSPs usually negotiate with their IP providers for better peering prices according to the ratio of the inbound versus the outbound traffic. However, in some cases the ratio is around 1.4:1 though the minimum price that an NSP can get for peering is US$7,000 per 155 Mbps per month which is quite a considerable amount.
To calculate the total value paid in US$ by Egyptian NSPs for international Internet bandwidth, the following assumptions are taken into account:
The current IRU price for a 155 Mbps which is US$1.25 million
An average price for a 155 Mbps IP port which could be US$8,000 a month
Depreciating the IRU number over four years
The results are as follows:
The IRU price per Mbps per month is US$168
The IP port price per Mbps per month is US$52
This gives a total of US$220 paid per Mbps per month
Since the international capacity is currently 3.345 Gbps, it turns out that the total amount paid in international bandwidth is US $735,900 per month. Needless to say that this figure is calculated based on a best case scenario in which the minimum prices of the present time are taken into account, while most of the capacities were acquired in the past for much higher prices.
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