Monday, January 16, 2006

BellSouth: 'We REALLY Don't Get This Internet Thing'

MarketWatch columnist Frank Barnako writes about BellSouth's continuing failure to comprehend what this Internet thing is all about. Although, there may be a subtle change in BellSouth's strategy emerging.

Barnako quotes BellSouth chief technology officer Bill Smith as saying the company has been talking to content providers who might have an interest in paying network providers like the phone and cable companies fees to ensure a better user experience. Here are relevant paragraphs:
"Higher usage for broadband services drives more costs that we have to recover," he said in a telephone interview.

He suggested that Apple Computer might be asked to pay a nickel or a dime to insure the complete and rapid transmission of a song via the Internet, which is being used for more and more content-intensive purposes. He cited Yahoo Inc.'s plans to stream reality TV shows as an example.

"It's the shipping business of the digital age," Smith said, arguing that consumers should welcome the pay-for-delivery concept.
Barnako mentions that Mark Cuban also backs the idea.

While having providers whose services rely on high-speed delivery of content pay some money to theoretically pay for the cost of network building might make some sense (depending on the amount charged and the impact that has on access to content on the part of consumers), this is a somewhat different tune from the ones that BellSouth and Verizon had been singing earlier.

In their earlier rendition of this song, the network owners (phone and cable companies) would have made deals with service providers that would have purchased their packets preferred treatment over those networks. That sort of walled-garden approach to Internet access (AOL on steroids as designed by a roomful of Bill Olivers) would fundamentally alter the Internet as we have come to know it.

Smith's comments indicate that the idea is still evolving. It's better than it was, but still problematic because of the way it would erect barriers to market entry for startups. For instance, how much more capital would, say, search engine startups have to raise in order to be afforded the same kind of access to customers that established companies like Google, Yahoo! and others would have bought for themselves?

The Internet has revolutionized business precisely because it lowered barriers to market entry. What the phone companies are proposing, even in this slightly revised version of 'pay to play', would blunt the innovation edge that the Internet has brought to business. It is a clear example of the interests of the phone and cable giants not matching up with the interests of other businesses and consumers.

The core issue here is that neither the phone nor the cable companies have enough money to build the networks that their customers want built. They've come to this realization only after shutting off competitive providers (that is, revenue sources) from their networks. Now that they have their networks all to themselves, they are back out looking for new revenue sources and have hit on the idea of making the content providers pay.

Brilliant! Except for the fact that in so doing, they propose turning the Internet into something resembling cable TV — 500 channels and nothing on! And, since the phone and cable companies fantasize about being content providers themselves, would that not put them in competition against they very content providers that they are looking to as, in effect, partners in these new network buildouts?

Ask the Competitive Local Exchange Carriers (CLECs) and independent Internet Service Providers (ISPs) about the track records of the phone and cable companies' ability to cooperate with their competitors! I'll save you the trouble: the phone and cable companies fought cooperation at every step until they finally drove all competitive content providers from their networks.

Another question that needs to be asked is this: What kind of say are the phone and cable companies willing to provide these content providers in the design and operation of these improved networks in exchange for their helping to fund those improvements?

Here, again, the record of the phone and cable companies to allow any outside input in the design and operation of their networks is relevant.

In the end, it's pretty certain that the phone and cable companies will view these content providers as they view their current customers: cash cows whose views are not relevant to the operation of their networks.

So, Mr. Smith tries to makes it sound all so reasonable. And it would be were it not for the fact that the history of his company and his industry so vividly written for all to see.

If you believe his pitch, I've got some rising Louisiana marsh land to sell you! ;-)

No comments: