Question on 95th percentile and Over-usage transit pricing

[patrick at ianai.net (Patrick W. Gilmore)]

On Sep 21, 2011, at 9:58 PM, Pradeep Bangera wrote:

> I have a fundamental question regarding 95th percentile pricing. I will
> make some prerequisite assumptions to set $/Mbps values before posting
> my actual question.
> 
> Eg., For 1Gbps commitment, I will pay roughly $3/Mbps. Similarly for
> 10Gbps, 100Gbps I may pay $2/Mbps and $1/Mbps.
> 
> This appears like a sub-linear economy of scale pricing model followed
> in transit pricing.
> 
> Now if I commit 1 Gbps over a 10Gbps provisioned link, I will pay fixed
> monthly fee of $3000 for the 95th peak not exceeding the committed rate
> of 1Gbps.
> 
> Now if my 95th peak is above the committed rate, say, 2Gbps or 4 Gbps or
> 8 Gbps, I believe I have to pay: $3000 + [over-usage_bandwidth_charges]
> monthly.
> 
> Question: Does this over-usage bandwidth charge a linear cost function
> or is it sub-linear like the committed bandwidth pricing? I mean, will
> it cost me the same $/Mbps as over-usage charges for all 2Gbps, 4Gbps
> and 8Gbps 95th percentile peaks? or is it
> 
> Over-usage_charges(2Gbps) > Over-usage_charges(4Gbps) >
> Over-usage_charges(8Gbps) ?

This answer is going to suck, but it is the truth.  In short, the answer, like so many things, is:
	IT DEPENDS

When you sign a contract, the overage can be more, same, or less depending on what you negotiate.  Of course, what you can negotiate depends on your leverage.  If you you have a lot of traffic, or desirable traffic (e.g. inbound traffic), then you can negotiate favorable terms.  If not, well, not.

Typically, 1 Gbps commit is not enough to garner a favorable rate on the overage, so expect to pay at least the same as the commit rate on overage.

If you have a lot more, you can negotiate tiers.  E.g. The first 10G is $X/Mbps, but if you hit 20G, you get charged 20000 * $Y (where Y < X, obviously).  This can lead to interesting situations where 19 Gbps costs more than 20 Gbps.  But dems da breaks.

-- 
TTFN,
patrick