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Summary:

On the front page of The Wall Street Journal, the clock started to tick on the “network neutrality.” Verizon Chief Executive Ivan Seidenberg told reporters: “We have to make sure they don’t sit on our network and chew up our capacity.” Anyone who forgot the comments […]

On the front page of The Wall Street Journal, the clock started to tick on the “network neutrality.”

Verizon Chief Executive Ivan Seidenberg told reporters: “We have to make sure they don’t sit on our network and chew up our capacity.”

Anyone who forgot the comments of AT&T’s Ed Whitacre and BellSouth’s CTO Bill Smith, this is just a reminder. The argument is that the phone companies are going to charge for better performance for say games, or movie downloads or software downloads. It is not a bad thought, though only in cases where latency is a big issue. The argument of better network performance, as many in the business would tell you, is a bit of chimera.


Even if you buy into the argument, as a consumer, what I would like to see is that if incumbents charge for the network access, then they pass on those savings to consumers. After all we are paying for the network – about $40 a month. But back to the WSJ story, in which I found this gem of a quote that sums up the antagonistic approach.

“During the hurricanes, Google didn’t pay to have the DSL restored,” said BellSouth spokesman Jeff Battcher. “We’re paying all that money.”

I don’t know if you charge people about $75 a month, or about $825 a year for DSL and phone service, it is your job to fix the line. Did Google come and take my money as monthly service fee? Even HMOs don’t make statements like these!

“We need a watchful eye to ensure that network providers do not become Internet gatekeepers, with the ability to dictate who can use the Internet and for what purposes,” said Commissioner Michael Copps of the Federal Communications Commission. He helped press to get the FCC enforcement power over issues of “net neutrality” as a condition of recent mergers in the telecom industry. “Net neutrality” is the idea that owners of phone and cable networks can’t dictate how a consumer uses the Internet or discriminate against any Internet content, regardless of the source.

We addressed all these issues in our podcast, Two Tier Internet. The full transcript is here.

…charge a premium from certain people who want better performance, that is fine. The minute they start imposing a toll tax, this quasi-toll tax for the access part of it, that is where things get a little complicated. That’s where, as a consumer, you have to stand up and scream, because why are you paying them fifty dollars when they define what you can see or what you can’t see? So we cross that bridge when we get to it. Right now everybody’s made threats, nobody’s followed through. So it’s something we have to watch very carefully.

  1. Anyone who knows the history of the Bells know that this was inevitable. I bet Jeff Pulver is going bonkers right now.

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  2. [...] Om writes about the article today in a post titled “Slow Lingering Death of Net Neutrality?”, and links to a podcast that covers the issue. One of Om’s observations about the WSJ piece particularly caught my attention: Even if you buy into the argument, as a consumer, what I would like to see is that if incumbents charge for the network access, then they pass on those savings to consumers. After all we are paying for the network – about $40 a month. But back to the WSJ story, in which I found this gem of a quote that sums up the antagonistic approach. [...]

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  3. Is this simply greed in it’s purest form? Are access providers envious of the advertising profits that the service providers reap. If so, why don’t they approach this in a true business-like manner and get off their duffs and create their own portals and content. If all they do is sell a phone and a pipe, then that’s what they should get paid for. Greedy …

    Some have teamed up with Yahoo, so how will that shake-out?

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  4. BTW, this Verizon statement is reversing their public stance from a few months ago where they pledged not to interfere with service providers, else customers would depart. So have they since had lunch with their compadres at SBC and BS. Will cable join the front or does that matter?

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  5. This is duopoly exploitation at its best and what I would consider it collusion (hopefully the government does too, but I doubt it since there isn’t a lobby for the consumer). These companies can’t come to grips with the fact that we (the consumer) want a fat pipe for data and thats all. Hey if they want to through in voice traffic for free, great. If they want to offer competitive services at competitive prices then that is a free market. Other than that let me do what I want with my data. I have already been told that I can’t choose my own SMTP provider. That is not net neutrality. I am paying $50 / month for a 3 MB connection cable connection. If I want to saturate that connection with video, or voice, VPN Data, or what ever, then I should be allowed.

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  6. The eternal problem for networked industries is how to engage in rational price discrimination. When the network was a phone network, they did so at the service layer — customers paid more for long distance, vertical features, business lines, etc. But in the IP world, the network providers might not provide any services other than access. So they have to figure out how to price discriminate in access.

    So far all they have is bandwidth. Eventually, they’ll add bandwidth-on-demand and prioritization for latency-sensitive applications. Consumers will want their voice, video and gaming streams prioritized (especially in the last mile) over other applications. And since usage follows a power law (80/20 rule) they may also be driven toward usage tiers to properly associate network costs with the 20% of users driving 80% of capacity investment. Finally, they may also offer bandwidth allocation options for consumers who want more upstream capacity. And there will probably be other network capabilities developed.

    Once these capabilities are developed and in the market, wholesale deals will follow. Movielink is not the only content provider who will be interested in paying for network capabilities on behalf of its customers.

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  7. As an internet subscriber, it seems that I pay for a certain amount of bandwidth already. That bandwidth allows me to access any online services I choose.

    If I access Google, Yahoo!, or MS via the bandwidth I’ve already purchased, why should my provider care?

    They already have caps on my monthly throughput, so where exactly are they losing money?

    Maybe it’s all marketing speak – like all of the “unlimited” VoIP packages that are sold as such, but really aren’t.

    They’re simply trying to double dip and get paid for the same traffic from two different people – me for the access and Google for gasp actually sending me data via that access.

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  8. Om, I think you’re being too easy on the telecoms in the podcast. Drawing a line between obstructing competitors’ services (bad) and charging extra for premium service (good, or at least OK) is, to my mind, short-sighted.

    First, it will result in the non-premium ‘net being ghettoized – under-invested in capacity and services. Increasingly everything will become ‘for an extra fee’ – Canadian example is Shaw, which charges a surcharge to provide QoS on third-party VoIP.

    Second, the networks should be working hard to improve the carrying capacity and speed of delivery for all services – including those offered by the Vonages of the world. If their only business was the pipe, and they were competitive and not duopolistic, they would be doing this. But they’re not competitive, and they are competitors to the application providers (like the Vonages of the world), so they won’t do this as vigorously as they should – to do so would benefit their competitors. Instead, they’ll improve their own services and the services of those who will pay them.

    They wouldn’t be able to do this – or at least not as easily as they can now – if they did not have near monopolistic control of the pipe.

    My $.02.

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  9. Excellent Stuff. In the past Om has commented on how the telecoms will want to take the open internet and convert it to the “walled garden” they love. The challenge for the telecoms is that Google spends all of its R&D on applications/services while the telecoms will have to spend on “the network” and “applications”. Most believe that they’re gonna lose on the applications front and resort to nasty tactics on the network front. Let’s face it, they are paying for the network and are going to watch as the application providers get the majority of the revenue and glory. It is gonna get much more ugly. Let the fun continue.

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  10. The knife cuts both ways, just not as deep — what would the access providers think if content providers charged access providers for servicing their customers? Without content it’s just a big empty pipe.

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  11. Randall, I suggest reading Odlyzko’s “Content is not king”. Without content, Internet users would still fill up the pipes with warez, porn, MP3s, spam, and so on.

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  12. [...] Om has just updated his thoughts on the topic following comments from Verizon’s CEO, which once again seem to suggest that carriers are very serious about introducing this additional revenue stream into their business. [...]

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  13. [...] Om has just updated his thoughts on the topic following comments from Verizon’s CEO, which once again seem to suggest that carriers are very serious about introducing this additional revenue stream into their business. [...]

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  14. The telecom payola gang strikes again

    They’re at it again. As Om Malik reports, a story in the Wall Street Journal (which is now behind the pay wall), says the big U.S. telecom players are continuing their campaign for a multi-tiered Internet in which Google and Yahoo and Microsoft ...
    
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  15. The internet companies (Google, Yahoo, eBay, etc.) are as big as they are because of the openness of the network. They owe it to the internet to fight this tooth and nail.

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  16. [...] It’s not a stock price bubble now, but the inflated heads of network & telecom companies. Om Malik notes in “Slow Lingering Death of Net Neutrality?” that ISPs want in on the riches of all that data running across their networks. In a very carfully worded proposal the network providers are “offering” content providers better performance for a fee. From the Wall Street Journal’s front page article (found via Rob Hyndman’s “Still More on Network Neutrality”): The phone companies envision a system whereby Internet companies would agree to pay a fee for their content to receive priority treatment as it moves across increasingly crowded networks. Those that don’t pay the fee would find their transactions with Internet users — for games, movies and software downloads, for example — moving across networks at the normal but comparatively slower pace. Consumers could benefit through faster access to content from companies that agree to pay the fees. [...]

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  17. Verizon completes the greed trio

    [...] Is is any coincidence that on the same day that Verizon announced the completion of their merger with MCI, the news wires are picking up on Verizon CEO Ivan Seidenberg’s comments at Q&A session following his keynote speech yesterday at the Consu…

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  18. Jesse Kopelman Friday, January 6, 2006

    Michael Copps, I’d like to buy you a beer. Now you need to take the next step, which is the easy fix to all of this — push for regulated separation of all network owners into wholesale and retail companies. This will force the network owners into only worrying about providing the best possible network and let the retail companies engage in real marketing instead of monopolistic behavior.

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  19. There’s an economic point here that consumer advocates overlook…

    When the broadband ISP’s began offering service, they offered ‘unlimited’ bits at a fixed price per month. However, the average user today is consuming < 1GBytes of downstream data per month. Their economic model and pricing counts on that usage level. However, now video comes to the web. Downloading one 1-hour SD video is 1GB per month. So, if 20% of users begin consuming just 5 hours of video per month, the total bytes consumed on the entire network doubles from pre-video levels. The ISP’s have to bear the cost of doubling the size of their infrastructure – not Google, Disney, AOL or anyone who’s charging for the video. How are the ISP’s supposed to pay the billions for doubling the size of their infrastructure unless there’s a subsidy or they raise prices? We’re all looking for a free ride.

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  20. Forgive me but I just dont get this outrage. If net neutrality means that equal priorities should be given to any packet then I can see the Cable and phone companies argument – as we start stuffing the pipe with video etc. sending voice packets over the same pipe wont work i.e. we would have to resolve QOS issues which essentially means voice packets would have to get priority. Why shouldnt the phone and cable companies charge more for that? The point is users/providers have a choice they can get equal priority for all packets and see their voip phones suck or pay to get prioritization of packets. Doesnt this mean that net neutrality gets in the way of making voice work as an app?

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  21. Last time i looked, most of these companies where making billions in profit already. Trying to break up the internet is nothing but pure greed.

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  22. Andrew Odlyzko’s “Content is King” is ridiculous with his continual correlaions to the U.S. postal service of the 1800′s to the Internet of the 21st century and drawing inference between the broad communications industry (internet, LD, telephone service, etc.) to the narrow movie industry (what about television, radio, entertainment (sports, etc.) and music) are weak at best. Andrew Odlyzko should stick to cryptography.

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  23. It’s Time to Worry About RBOCs

    It’s time to worry that the remaining strong Baby Bells, having devoured their parents, will manage to further slow Internet usefulness in the United States. Both our economic competitiveness in a quickly flattening world AND our future ability to ac…

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  24. There’s no real reason for the interests of access providers and application/content providers to conflict. The problem is that the access providers are used to making money on services (voice or video) that they probably won’t be providing much in the future.

    The access providers’ business model needs to change. All revenue from access services — speed, usage, bandwidth allocation, etc. The biggest change needed is probably elimination of unlimited usage broadband. A very small percentage of users are driving (and not paying for) network investment. Everyone else is paying more than they should have to. Pricing similar to wireless would go a long way to fixing this. And would get rid of all this ridiculous talk about charging application providers without their consent.

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  25. [...] And finally, he alludes to the ghettoizing influence of two tiers – a problem I wrote about in a comment to Om a while ago: I have some concerns that we might see the emergence of two Internets – one an ever-evolving and progressing privately-controlled Internet, and the other an increasingly dilapidated publicly-accessible Internet with minimal quality and capacity. Will the emergence of a government supported Internet onramp ensure a quality public Internet or undermine the efforts of private enterprise? Will the public Internet be a dirt road (albeit free), while the privately-controlled Internet will be of top-quality but will not allow users access to the full-range of content and applications that the Internet could offer? [...]

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  26. [...] Smith points out that Apple maybe asked to pay a nickel or a dime to deliver the song. Yahoo will have to do the same for its reality TV streams. I wonder what is the ramification of this? Will it mean increased price of songs on the iTunes store, hence slower sales of iPod, and hence the slowdown of that ecosystem. As I said earlier, if there is no money out of consumer pocket, fine. Silicon Valley is still going to pay the price! Not that Washington is paying any attention! [...]

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  27. When Google goes back to being a free altruistic company and not selling shares at over $450 each, they can complain about the networks they now ride basically for free. Until then, it’s time for them to pay up and shut up.

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  28. [...] Months after he sparked off a debate over network neutrality, SBC/AT&T chairman and chief executive, Ed Whitacre, is again making threatening (and very confusing) noises. In a chat with the Financial Times he said: “I think the content providers should be paying for the use of the network – obviously not the piece from 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.”This is a different tact from the first time around. He had originally complained that folks like Google and Yahoo were getting a free ride on their pipes, and should pay them. Well, consumers had paid for their DSL connections, many pointed out, a big brouhaha ensued. Techdirt weighs in on FT comments, He’s actually suggesting that when we buy bandwidth, we’re just buying the bandwidth from the end-point to the backbone… and everything else is just free.His latest comments however have me confused. So essentially what he is saying, no no not charge for the content that travels on the last mile, but charge on the long-haul and metro network. Given the pricing trends in that market, that’s not too much money. As a very smart man on a private mailing list points out, the Internet has pushed the cost to the edge, so how much money there is to be made by charging content providers for QoS? I bet these issues (and comments) are going to become fodder for US Congress which is going to start taking a closer look at the Network Neutrality in coming months. The interesting part of the equation is that even businesses are feeling a little threatened by the RBOC posturing. James Blaszak, whose law firm, Levine, Blaszak, Block & Boothby, who works for large companies on telecom issues recently told eWeek: “If I pay for the loop that gets me access to the network, why is it that someone who wants to send me something should also pay? What if they say, to get to your customers for you to sell your wares, we want a share of your revenues? Once you buy into the notion that the telephone companies should be able to charge entities other than those that are buying access to the Internet, I don’t know where you stop.” [...]

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  29. [...] Chester’s article discusses both the changes in FCC policies that allow carriers to discriminate against the type, source, and destination of traffic and political moves to profile internet traffic and stop the construction of community wi-fi networks – without speculating to deeply on the effects such carrier-control will have. It is far more informative and less alarmist than many similar posts since Om Malik’s original note Slow Lingering Death of Net Neutrality?. [...]

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  30. As far as Odlyzko and his arguing for a tiered Internet goes,
    take a look at US patent number: 6,295,294 http://tinyurl.com/gcxke

    “Inventors: Odlyzko; Andrew M. (Berkeley Heights, NJ)
    Assignee: AT&T Corp. (New York, NY)”
    …..
    “The network is partitioned into logical channels and a user incurs a cost for use of each of the logical channels. The logical channels differ primarily with respect to the cost to the user. ”

    So he’s an AT&T employee that filed the patent for the tiered Internet. No wonder he’s all for it. And uses any form of sophistry available to make his non existent case.

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  31. I think you’ll find that ad-hominem attack on Andrew rather misdirected. He left AT&T a long time ago, and has written a long string of the best researched and most insightful papers on Internet economics. (Perhaps you think anyone and anything from Bell Labs needs is suspect. Hope you enjoy living in a pre-digital world…) His Paris Metro Pricing ideas (i.e. tiered service) are probably strongly in the public interest, as they preserve the end-to-end nature of the network whilst also enabling “stupid QoS” for the dumb pipe.

    If you have any substantive argument against this particular form of tiering, we’re all ears … assuming you were even aware that there are competing models of QoS and tiering.

    Miaow.

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  32. [...] Malik made an early attempt to cover all sides of the issue, albeit with a pro-neutrality [...]

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  33. Eye For The Obvious Monday, August 27, 2007

    It is glaring that the bottm line here is arrogance blended with greed. As stated earlier . . . consumers pay for access. Now these arrogant corporations want to take your money and dictate to what you will have access. I wish that they were as concerned with giving me better reliability on my service and finding ways to reduce costs. Instead they act like the damned government . . . take more money from the people and spend it like fools, have the mindset that they come first and know what is best for you. Oh how I despise them!

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  34. I would think that in the next 10 years there will be a handful of company that “owns” the internet, if you don’t eat from their hands you don’t eat at all!

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