Thursday, February 16, 2006

Counterattack: The Bells as Network Hogs

There's been a huge outcry about the regional phone companies' ongoing demands to be allowed to change things so that they can "manage" the internet in order to charge specialized "services" a fee for prioritizing their product, or the product of corporations who pay a special fee, over the rest. That's a big change over the current system. Today we get what is called "best effort" services. Carriers toss all the information into the pipe and do the best they can.

The idea is to change the payment plan from one in which both consumers and providers pay for the amount of bandwidth they think they need to one in which they do that AND pay a special fee to actually get usable service. Inevitably this means that premium priority service will occupy bandwidth formerly used to provide "best effort" for all. Non-premium services will suffer; the incumbents will have to rob from the common pool to create fancy services they can charge for.

As noted here recently, the better way to deal with bandwidth constraints on video and internet telephony is to provide more bandwidth. (Shock: Federal Representative Talks Sense)

Which, finally, brings us to the the inspiration for this post: a BusinessWeek article, "Is Verizon a Network Hog?" While the Bell companies, including our less-than-beloved BellSouth, are screaming like stuck pigs about how unfair it is is that they've not getting paid enough and trying to make firms like Google and Vonage sound like bandwidth hogs for using bandwidth they've paid for to provide customers with services over bandwidth they've also paid for some folks are beginning to notice what is really happening and who's really snatched up all the available bandwidth on the Bell's part of the network: the Bells.

According to Marvin Sirbu, an engineering professor at Carnegie Mellon University who examined the documents, more than 80% of Verizon's current capacity is earmarked for carrying its service, while all other traffic jostles in the remainder...

As consumers try to search Google, buy books on Amazon.com (AMZN), or watch videos on Yahoo! (YHOO), they'll all be trying to squeeze into the leftover lanes on Verizon's network. ... 'The Bells have designed a broadband system that squeezes out the public Internet in favor of services or content they want to provide,' says Paul Misener, vice-president for global policy at Amazon.com.
The service referred to is Verizon's new cable TV service--a service which closely echoes the traditional cable model. As I understand it, it is simply true that these systems use a single framework to provide both TV and Internet. At some point you have to trade channels for internet bandwidth. --This constraint is the chief immediate reason that Verizon is limits the bandwidth it sells consumers. (Of course the basic reason is that they built the system to provide video and much prefer to sell you an expensive specialty service rather that cheap commodified bits. A point also discussed in the "Shock" post linked to earlier.)

An interesting -- and smart--feature of Lafayette's planned network is that it will separate cable and internet functions. Channels and Bandwidth will be functionally independent and the time will no doubt come when that be a major competitive advantage. BellSouth's IPTV plan for offering cable-like services is a joke in terms of bandwidth. From the day they launch they'll have to make hard decisions to make about how to dedicate the roughly 20 megs they'll have available. Two HDTV channels per household and not much internet or 1 HDTV channel and healthy bandwidth. Neither choice will appeal to the wealthy consumers they really want. Cox has a lot more headroom. By killing a few channels they could pump up the bandwidth. But they'd have to kill channels. By contrast LUS would not have to do any such thing. Frankly, I doubt that being able to offer more channels to upper end packages wouldn't be that much of a draw and won't afford LUS a big advantage by itself. But suppose LUS were to offer a smorgasbord of channels to choose from as one or two freebie add-ons to every tier? Channels that only a few folks want but that those folks want passionately. I'd not be surprised to find that a LOT of people, given otherwise similar packages, would choose an LUS offering that allowed them to add the soccer channel or a Chicago station or a fine arts channel or the fisherman's channel to their package. These oddball channels are cheap. Cox can't do it because they don't have the space. But offering that level of "customization" could turn into a huge differentiator for LUS. (This is what's becoming known as a "long-tail" marketing strategy. See the seminal article in Wired.) Something like that could turn LUS' huge bandwidth advantage into a real competitive advantage.

Bandwidth is good. The guy with the most wins.

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