Thursday, May 04, 2006

Net Neutrality: Why Does Telecom Want to Kill It?

First I must disclose that I hold, due to a previous job, shares in telecom equipment stocks. I stand to gain if telcoms start making more money and buying telecom equipment.
However, I support Net Neutrality and think that the current push by telecom companies to put toll lanes on the Internet is simply this: greed and stupidity.

If the telcos truly wanted to provide new, better functionality to the net community, they could present their ideas clearly and fairly and probably get a lot of buy-in. The telcos actions in Congress are nothing more than a naked power grab. Below I'll give one explanation as to why. But first:

AT&T CEO Ed Whitacre repeated comments to the Financial Times yesterday that he wants content companies to pay a QoS tariff. "I think the content providers should be paying for the use of the network - obviously not the piece for the customer to the network, which has already been paid for by the customer in internet access fees, but for accessing the so-called internet cloud."

"Now they might pass it on to their customers who are looking at a movie, for example," says Whitacre. "But that ought to be a cost of doing business for them. They shouldn’t get on [the network] and expect a free ride.”

Ummm... who exactly is getting the "free" ride? Am I the only schmuck who pay's his DSL bill?

AT&T is getting paid by both the *producers* of internet content ( The Googles, the Yahoos, the E-Bays ) and the *consumers* ( you and me. )

Many consumers are paying ~$19/mo for ~1Mb of broadband. You even want to *guess* how much E-Bay pays for access each month? In a word: Huge.

So what's got Whitacre on such a greed spree? Well, there are technical aspects such as Quality of Service (QoS) etc., but those are mostly being used as a smokescreens to the real problem (the one other than greed): laziness.

For years the telecoms have been pulling the Airline Trick. Everyone is familiar how , given an airplane with 100 seats, the airlines will sell 103 tickets. Airlines know from experience that 3 of every 100 people won't show up, will miss their flight, etc. So why fly with 3 empty seats (which costs them money) when you can overbook 3 extra paying stiffs to cover the loss? Sure they get caught with 104 people at the gate every once in a while, but usually they can pay off those exceptions with schwag to wait for another flight to try the whole thing again. This is basically what the telcos have been doing with your internet access for years.

Telecoms main customers pay big $$ for guaranteed service. If you look into your broadband contract (even even seen it?) you'll note that whatever rate your paying for isn't necessarily what you'll get. Sure at 3 a.m. on Good Friday you may get the 1Mb/sec you're paying for, but your "actual bandwidth" will likely be (read: will be) lower.

The big companies don't play that game. If E-Bay is paying $1M per day for 1 Tb of service (I'm pulling these number out of my ether but be assured, they're big), E-Bay has a team of lawyers and technicians to guarantee that they are getting every bit per second they're paying for. They're are also guarantees of service clauses in those contracts. For every second E-Bay doesn't get its guaranteed rate, AT&T pays a fine.

So AT&T spends a lot of time and energy making sure their giant customers get no less bandwidth than they're contracted for. But... what if there's a little left over that E-Bay's not using this second? Well, just between you, me and everyone else in the world, let's mention the open secret that telcos sell the "spare bandwidth" to others that aren't so picky about guaranteed service and are willing to pay smaller bills for "the scraps". If you're not paying internet bills in the order of thousands of dollars each month, then it's you. And me. And most everyone else.

So what's the rub? Well, for years now, the telcos have been selling bandwidth they didn't really have. They've been selling "spare" bandwith, 1-3 MB/sec, to just about anyone who'd stump up $20/mo. But with video finally becoming the norm on the internet, consumers aren't politely bursting a few kilobits here and there. They're clogging their lines with minutes and hours of multi-megabit downloads. With consumers actually *using* the bandwith they've purchased, the telcos are in the uneasy position of have to either:

a) admit to the customer that they're really not "entitled" to the bandwith the consumer thought the paid for (i.e. go read your contract and *stop using the 1Mb/sec you thought you'd bought*).

b) plumb more wires to provide the bandwidth they've already sold.

So 103 passengers are showing up and the telcos only have 100-seat planes. Oops.

What the telco to do? Buying the telecom equivalent of the bigger plane is *insanely* expensive, especially when done in the short term. Instead of slowly investing money over the years to slowly upgrade the lines, the telecoms have been playing pouty games with Congress and refusing to upgrade ( but that's another story). Now years behind in the game, they're looking at making upgrades in a few years at huge sums that would have been reasonably affordable if done methodically over the decades.

It's the same story that GM and Ford are currently facing. Instead of slowly upgrading car mileage over the years, Big Auto found it cheaper to buy votes against mileage increases in Congress. Sure, congressmen are expensive, but they're cheaper than actually doing work. With gas shooting above $3/gal, GM and Ford sales are plumbing new depths. Wise investment? Sure, if you're a CEO with a great golden parachute. If you're anyone else in the auto industry? Not so good. Leave America to foot the bill for restructuring if we don't like the idea of millions of Americans unemployed this Tuesday.

So Big Telco is taking the same tack. They're facing being *way* behind in deployed bandwidth -- bandwidth they're already *sold*, by the way -- and don't want to pay for the upgrades. What do do? Simple: buy congressment, get the rules changed and raise prices for everyone. A new internet tax will give them plenty of money to pay for the network upgrades.

Only we know they won't actually use the new windfall for that. The money will be funneled not to new deployment but to thank CEOs for garnering a huge windfall.

If telcos want to stay in business, make them compete like everyone else. They invest *their* money and they reap the dividents for *their* hard work, not yours.

Allowing the telcos to hike internet rates through this extortion is just as wise as paying Big Oil huge $$$ to "research alternative energy sources". How's that new Exxon/GM solar-powered car working out for you?

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