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Net Neutrality
I have spent some time watching the Senate Commerce Committee hearings on whether telcos and cable companies can charge web services a fee for delivering service to their customers.
I have blogged about this issue before and I will reiterate that this is about jealousy and greed plain and simple.
Let’s take Google since they are front and center in this debate with Vin Cerf representing them before the Senate. Users love Google. Google gives them a lot of value and its free. Even the ads are relevant. One of the reasons people pay Verizon, Bell South, and AT&T a monthly fee is so they can use Google.
Google is a value added service that runs on the carrier’s networks. It ADDS VALUE to their networks. Without it, the carriers would have a LESS VALUABLE service. And yet they want Google to pay them for improving their service. This is nuts.
Let’s talk about bit torrent. It sucks up a bunch of bandwidth on the carriers networks. But it sucks up less than video streaming. It’s a more efficient service than what came before it. The carriers should be happy that Bit Torrent showed up. It makes consuming video more popular. It’s going to drive demand for more bandwidth, which at the end of the day is what the carriers sell.
Let’s talk about Skype. It’s a fantastic service. It is more efficient than VOIP services that don’t run on P2P networks. And it is ten times easier and better to use than the crappy plain old telephone service (POTS) that still generates most of the revenues for these carriers. Skype tells me if the person I want to talk to is available BEFORE I make the call. And it lets me IM with the person if they are on another call. Why didn’t the carriers invent this service? Because they were getting fat and happy by charging exorbitant fees for bad services.
If the government lets the carriers get away with this greedy move, I will discontinue Internet service from any carrier who seeks to get paid by the value added services. And I will encourage everyone else I know to do the same.
Surely there is some new carrier eager for AT&T’s customers who will align themselves with these value added services. I’d rather buy my Internet access from a company who understands how valuable Google, Bit Torrent, and Skype is to me and how much of a commodity their Internet access is.
Frankly I don’t really care what the government concludes on this issue. Because I am confident that the market will speak. The web services companies aren’t going to stand for a tax without putting up a big fight. And they have way more customer loyalty than the carriers. Who has a better brand – Google or AT&T? Skype or Verizon?
What the carriers need to do is develop better and more reliable services. EVDO is a good example of something they’ve done right. Give us more bandwidth in more places with more price/value options. Why don’t we have a 12mb down/3mb up Internet service in NYC? Apparently they have it in France. Why doesn’t Verizon spend money on developing that service? I’d glady pay more for a true high bandwidth service. That’s how the carriers should be looking at things. But instead they are trying to take money from the wrong side of the table. And it’s not going to work.
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» Net Neutrality from aTypical Joe: A gay New Yorker living in the rural south.
A VC: One of the reasons people pay Verizon, Bell South, and AT&T a monthly fee is so they can use Google. Google is a value added service that runs on the carrier’s networks. It ADDS VALUE to their networks.... [Read More]
Tracked on Feb 9, 2006 7:42:29 AM
» Fred Wilson on Net Neutrality from Nyquist Capital
I like Fred Wilsons blog. Its eclectic and good reading for both business and pleasure. He wrote something on Net Neutrality today, and how carriers are discussing charging for incremental tiered services.
I have blogged about this issue ... [Read More]
Tracked on Feb 9, 2006 9:19:17 AM
» Network Neutrality: The "Value Added" Myth from Trial By Fire
Let's get this straight: Network Neutrality assures that no online service adds value to anybody's network. It was surprising to see Fred's post this morning on Network Neutrality. Fred is one of my blogging icons, but to say that Google [Read More]
Tracked on Feb 9, 2006 6:10:01 PM
» Net Neutrality from Perceptric Forum
Here is a blog from the VC Blog about the issue raised in Perceptric Forum a week or so ago.
We ... [Read More]
Tracked on Feb 10, 2006 3:29:56 PM
» Network Neutrality: The "Value Added" Myth from Trial By Fire
Let's get this straight: Network Neutrality assures that no online service adds value to anybody's network. It was surprising to see Fred's post this morning on Network Neutrality. Fred is one of my blogging icons, but to say that Google [Read More]
Tracked on Mar 28, 2006 1:22:49 AM
Posted February 9, 2006 in Venture Capital and TechnologyComments
But Fred, have you seen the restrictions on EVDO in the Verizon contract? You're not allowed to run VOIP on it!
Now of course this stuff won't stand in the long run, but for now that IS what one signs up to when becoming a customer.
-Motts
Posted by: Motts McGregor | Feb 9, 2006 7:32:33 AM
The problem is that the market doesn't work too well when customers only have one broadband provider to choose from. For instance, I really only have Comcast as an option; Qwest thought they could reach me at first but then decided I was too far away from a CO.
There's a couple Utah startups doing wireless broadband-ish service, though. Companies like these are probably the only hope for competition in many markets.
Posted by: Jonathan Ellis | Feb 9, 2006 8:09:14 AM
You're angry, Fred - and so you should be. But I'm also an optimist (I have to be - here in Australia we don't even have a semblance of competition in telco infrastructure!) and I think an unreasonable land grab by the telcos will also be untenable in the medium to long term. Nothing is more guaranteed to provide some alternatives to existing infrastructure (e.g. wireless over the last mile) than a whole bunch of pissed off people voting with their feet!
Posted by: Ric | Feb 9, 2006 8:26:50 AM
This may have a silver lining. If the telco and cable companies get too greedy, they will open the void for competitors to race through.
We all know legislation is 2 steps behind technology, and by the time the big boys catch up, they will be in bankruptcy and the market will be more efficient.
The most dangerous thing that can happen is the telcos do just enough to keep people satisfied. They have so far and that is why innovation on bandwidth has suffered.
Posted by: Tom | Feb 9, 2006 9:02:13 AM
"Frankly I don’t really care what the government concludes on this issue. Because I am confident that the market will speak."
Love that quote - very Reaganesque. Great post too - right on.
Posted by: css | Feb 9, 2006 10:45:00 AM
These guys are hoping to get their money's worth from legislators they have helped out financially.
Calusion, cahoots, America!
Posted by: jackson | Feb 9, 2006 12:02:05 PM
It's desperation time for the traditional telco players. AT&T is a pure IP company at this stage-Ma Bell!!
Unfortunately, the issue is in the political realm where logic and intelligence are avoided at all cost.
Posted by: Tom Labus | Feb 9, 2006 12:33:21 PM
Whenever I see a phone company exec talk about charging content providers like Google, I think...those guys must be desperate. Time to short phone stocks and buy cable.
Think about it, from the cable company I get Internet, HDTV, and add Vonage for better phone service than Verizon at a lower price. The only thing missing is cell phone. And if Virgin Mobile can resell Sprint, how hard is that?
In order to move their crappy DSL, Verizon has to mark it down to under $20 a month, if you're lucky to be close enough to the CO. Offering TV is just a pipe dream. So these guys look at the investment they have to make and say, oy, how they hell can we compete and retain our traditional monopoly rent? And then cast hungry eyes on somebody with some profits ripe for a cashectomy.
Can you imagine what would happen if Verizon decided to charge Google for most-favored-nation access in any way consumers would actually notice? It's not exactly NY Yankees vs. Cablevision, but did you see a bunch of people switch allegiance to the Mets? People would switch ISPs so fast it would make your head spin.
Personally, I'd favor government intervention preventing turning the Internet into a walled garden, but I think competition is the only thing that will make it happen. Unfortunately, a government that wants the ability to control information and spy on people is going to be very happy with a walled garden.
Posted by: druce | Feb 9, 2006 12:35:57 PM
Fred:
Having spent a career with a large telecom company, it is clear that they just don't get it and time is really running out.
Consider, that the Internet really took off in 1995. Now those who were 12 or 13 are now getting out of college and entering the workforce. Their life and communication choices have been very different than mine. They watch recorded TV, they instant message each other, surf the internet and game, and are usually do some or all of these concurrently! Assume everyone under 23 fits this profile and each year another layer gets added to the bottom and another joins the workforce.
They are not tied to the concept that there is only one solution, the Telephone Company! They have no brand loyalty to the phone company. They are also part of the much sought after 12 to 35 demographic.
If I were still with a phone company, I would be wondering how much longer will it be before we are out of business. Clearly, a company like AT&T should understand this since, prior to SBC's acquisition, they were a shell of what they were in the past. Twenty-three years ago, they were a Fortune 5 company and 10 years ago, they were a Fortune 30 company. Now, they were an acquisition of their previous child.
It won't be long before you are pitched by a number of young entreprenuers with business plans for disruptive networks. Where is Sky Dayton's of today?
Posted by: Jim B | Feb 9, 2006 12:55:53 PM
A more enlightened approach was that of Intel. They needed a reason for people to upgrade to faster processors, so they invested in "cycle sucking applications" like video (proshare). Only an idiot would attempt to tax these bandwidth sucking applications, they drive the need for bandwidth speed.
Posted by: Thumbster | Feb 9, 2006 2:04:17 PM
fred,
i couldn't agree with you more. i find it fascinating - and troubling - the carriers can't find more creative ways to leverage their broadband networks and subsriber base. instead, they're taking the easy way out by going after the content and service providers that make their networks useful and valuable.
cheers, mark
Posted by: Mark Evans | Feb 9, 2006 3:47:55 PM
While I can attest with inside knowledge that phone companies are working hard on the bandwidth delivery, I can also assure you that you are correct: they are thinking about solving the wrong problems. They are partnering with Microsoft to deliver IPTV. They are working on "content". They are trying to bundle VOIP with LAND LINES. WTF? If you have VOIP, why would you pay an extra $20.00/month (after bundling discount) for a land line? I can see that the fact that it's "always on" is a premium service, but is it that premium of a service if you also have a mobile phone?
Telecoms are slow, groaning machines. Just changing the "product catalog" and billing applications so that they can offer "bundles" and see the customers' bills as presented to the customer takes multi millions of dollars.
I read today that Vienna is getting 1Gbps fiber to something like 900,000 people and many thousands of small and medium business as a carrier-neutral open platform for service deliver in partnership with the energy company and the cable company. This type of initiative will eventually destroy the telecom monopoly (and cable company, if the telecoms do the deliver of the "neutral net" solutions) and provide a true free market for web services, content and even broadband delivery. I think it will be everywhere in Europe w/in 5 years.
Posted by: scott partee | Feb 9, 2006 4:50:04 PM
Fred:
Google does NOT add value to a carrier's network. Google adds value to ALL networks. This is the problem.
The idea that Google is good for Verizon is a fallacy. It offers Verizon no competitive advantage. No differentiation. It's worse. Because the access market is almost flat, it is nearly impossible for one carrier to differentate their services from one another. A carrier invests in 12MB DSL. So do their competitors. The prices are driven to parity. How can any product strategy be developed when there is little or no ability to have any sustainable competitive advantage?
Typepad for some reasons did not trackback my post. I blogged about this extensively today because I believe it is a myth.
If you don't, I'd be curious how you can convince me that any individual carrier can derive benefit from the "value added" services on their network, except to reap the same benefits, in the exact proportions, as their competitors.
Posted by: Gary Wisniewski | Feb 9, 2006 6:34:40 PM
FYI - we do have that throughput that you want here in NYC now. I just got a letter in the mail (after seeing the truck as well as their SSID!!!!) from VZ for FIOS service! Finally entering the fiber age.....
Posted by: rob | Feb 10, 2006 12:30:41 AM
Yes and no.
I agreee that the legacy hasn't innovated but you're taking a very simplistic view of how their private assets should be free'd - which, while in the interests of users, isn't in the interests of the telco's - I'm an equally huge fan of skype but you miss that without pipes there'd be no skype.
Imagine electricity were "free'd" the way you're suggesting Fred - only one guy in the neighborhood would pay and the rest would run cables from their homes - why is restricted-use licensing so paletable when it comes to media (copyright etc.) - yet not so when it comes to utility services?
Ultimately users will use the most "open" IP provider but thyat may come at a slight cost premium.
Posted by: David G | Feb 10, 2006 9:25:00 AM
Gary, how could you say that Google is not a value-add for Verizon?
Granted, it is NOT a differentiating feature, but imagine two services for the same $50/mo. 1 megabit from the phone company, but no access to Google, or 1 megabit from the cable company, with Google access. It's obvious that Google adds value to Verizon's network, even if they can't monetize it -- the value actually flows to the customer. But if you stopped that value flow, Verizon's network would become a lot less valuable to the customer.
What you are arguing is akin to arguing that because Ford can't charge extra for them, that steering wheels do not add value to their cars.
Posted by: just.a.guy | Feb 10, 2006 12:24:27 PM
Just a guy - I think you've made a good point, but here's another take on the issue:
I think the analogy Gary used (on his blog, not in the short post above), of the high end stereo is more apt. The steering wheel is an integral component to make the car work - like your dsl hardware for example. Take that away, the whole thing doesn't work.
Google or the other services aren't integral to make the net work, they are desirable services we use. There are other services that offer similar services; albeit few of them work as well.
So really, its about upgrading to those fabulous leather wrapped chrome steering wheels we put on our cars in our teens. For which - we paid extra and hence they created value.
I think it does boil down to one thing - which Fred articulated very well. If someone starts charging for services that Fred wants, and Fred won't pay for them - the market has spoken. It said (in a sample of one, of course) that they are worth precisely zero dollars above the cost of the content space given up for ads.
So if we accept that advertisers are generating the revenues for the services, the advertisers should be willing to pay for the distribution of their message. If the distribution channel can't make a profit charging us for access (obviously for a variety of reasons, including management concerns) then why not let them charge the services for position in the pipe? Distribution is desirable too afterall.
The advertisers will set that price, just as consumers have for broadband access. I have faith in the market - equilibrium will probably be found, especially if those services are in fact as desirable as they seem. If the services can still turn a profit above their costs then great, but until then, they are desirable, but not valuable.
Posted by: Craig | Feb 10, 2006 4:19:20 PM
just.a.guy: Re-read my comment. I didn't say Google didn't add value to Verizon's network. I said that it adds value equally to all networks. I said that it was not "good for Verizon" not that it did not "add value" and the two are NOT synonymous.
Verizon MUST carry Google. If it doesn't, it loses value. But, by carrying it, it does not gain advantage or revenue. While that may be 'good' in the sense that having electric lights in your grocery store are 'good', it clearly does not offer Verizon any possible business opportunity, and worse, encourages them to think counter-productively about their hostage-like relationship to such services.
Posted by: Gary Wisniewski | May 4, 2006 7:31:15 PM
http://www.dontregulate.org/
What gives you faith that any law around this issue won't be the beginning of the end of a "free" internet. There are NO perfect laws.
Looking beyond the carrier issue; thay have a freekin great point. I don't want my web legislated - especially by washington - regardless of the consequences.
Posted by: David G | May 17, 2006 7:26:12 PM
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