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Summary:

As the internet giants and telecommunications providers collide, their business models are adapting. The next big battle ground may play out in how we buy gigabit broadband.

smart-tv-puzzle

There is a coming clash between the telecommunications firms and the internet giants, but it’s not just about the internet giants buying broadband underlying pipes and access technology. It’s about the way technology is delivered and how to build out business models that take into account the value of content and services when the cost of transporting bits is significantly lower than the cost of transporting atoms.

The underlying enabler of all this — broadband networks — provides an excellent case study in how this might play out. Today we are moving from all-you-can-eat broadband to usage-based pricing as service providers try to reign in the demands on their networks, deliver a return on their investments and also compensate for high prices they pay per subscriber for video content. The battle here is exemplified by the likes of Netflix fighting caps implemented by companies including Comcast.

But at the Fiber to the Home conference held Tuesday in Austin, I saw the battle lines beginning to shift thanks to faster networks and new capabilities. IP networks are about services, which means that a delivery model where services are delivered as different channels becomes a possibility.

Soon, software-defined networking will allow providers to build out those channels virtually on their networks and deliver them a la carte or as a bundle. What’s missing is the business model.

Austin Google Fiber Launch

When you combine gigabit networks and software defined networks you get more services delivered via broadband and a network that can adapt to the demands of applications on the fly. Because of this — and the increasing importance of the services one can deliver over gigabit networks — Joe Kochan of U.S. Ignite, a group trying to develop gigabit applications, proposed a different type of pricing model: one where users buy access to set of capabilities for either an application or a genre of applications.

Kochan proposed a medical channel that, for example, might have the security features one needs for relaying medical data, along with a high-speed, low-latency connection required to teleconference with a doctor or nurse. An education channel might have the capacity for interactive video as well as the applications a child might need for their work. Because one could also offer digital rights management, maybe the textbooks could be accessed online via that channel.

Kochan took it a bit further suggesting that you might get both a medical broadband channel and the hardware needed for your particular medical circumstances, but stopped short of explaining who would provide this. I’m not sure that I’d want Time Warner Cable choosing what hardware I should use to track my heart rate, for example.

However, your insurance company might see value in such a service and try to subsidize your gigabit broadband should you use hardware that it has selected. This vision of some kind of a la carte service delivery currently runs anathema to what we have today on broadband networks, and honestly would drive people in the network neutrality circles and consumer interest groups a little crazy. Personally, I’m thinking about what this could mean for my own stance on network neutrality.

Would my broadband provider or doctor dictate my home medical devices?

Would my broadband provider or doctor dictate my home medical devices?

For example, if there’s some kind of entertainment channel, one could argue that it might support Netflix’s protocols but not those used by BitTorrent or some other entertainment provider that may have a new protocol or alternative delivery mechanism that could result in a richer user experience at the expense of the network. In this case, it depends on how these channels are provisioned and who is in charge of the provisioning.

But what isn’t in doubt is the current model, with everything running pell-mell over the public internet, doesn’t have to be the future in a software-defined and gigabit-capable world. Even today, I am trying to wrangle and prioritize traffic on my home network through a smarter router. But how many consumers are willing to take those steps, or even know what they need to do to ensure their video conference calls aren’t pre-empted by their 13-year-old’s gaming?

With more data and more critical data going over broadband networks, some kind of prioritization and security scheme might make sense. What we’re seeing with gigabit networks from Google and AT&T is the meeting of two diametrically opposed sentiments each preparing to offer new business models.

“We’re seeing the world of telecommunications meet the world of the internet and where those two meet is going to be a series of negotiations about where both will work together,” Kochan said.

These fights will play out in the quest for infrastructure, on Capital Hill and in business models. For example, last week when AT&t announced pricing for its gigabit service, it included an option with a $30 per month discount if users consented to let AT&T monitor their searches and traffic for use in delivering targeted ads.

So perhaps the giants of the internet will consent to this idea of delivering broadband functionality as specific types of channels that will have certain characteristics and apps if it means the end consumer will trust more of their lives, their data and their physical experience to a digital existence. And before that happens I suppose regulators and net neutrality advocates will have to figure out if their thinking needs to evolve and what kinds of protections should be put in place.

  1. No we are already paying for the broadband we use. We pay for a certain debit – volume/second- in a month. We pay for that and yes you can do the math how much data it is if used 24/7.. There is no freaking trend, you just got corrupted politicians, useless regulators and greed.
    And no service provider should pay ISPs for our bandwidth. We the consumer already payed for it,we own it, what ISPs are doing is trying to sell something they don’t own.
    It’s incredible what kind of crap these greedy scumbags can come up with.
    And thanks for ruining my day.

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    1. totally agree. This amounts to trying to get consumers to pay twice. They should go with a single model pay for the data you use. PERIOD. No one but the end user should be able to prioritize traffic to their endpoint.

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  2. So in other words, getting bent over a barrel again? :(

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  3. It is very interesting at the moment, services are content heavy and the infrastructure is bursting at the seems. The idea of people being smarter about what they consume, I think you have hit the nail on the head, as not everyone can understand and even more shape their networks at home to be more efficient. It is growing ever more complex though to have these services at home and your right the consumer groups will have a field day with the complexity that it could propose. Good read though, nice to see SDN may be able to shape the networks better than they are at the moment.

    https://storageous.wordpress.com/

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  4. That’s horrifying!!!
    The internet IS a bunch of tubes. The infrastructure itself, provided by the ISPs is already paid for and maintained because of their customers, the public.
    The content is provided by various other companies, like Google, Netflix and others. It comes in all formats and sizes. But it’s not chaotic.
    Each service already has it’s own protocol. Web pages are displayed via the http protocol, music is streamed using another, movies again with many others, every chat service, like Yahoo, AOL, Gtalk each have their own protocols and so on.
    What they’re basically trying to do, is to split the internet connection a customer already has, and make him pay separately for each protocol. Worse than that, they want to make him pay for the content that belongs to the content provider, not the ISP …

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    1. EXACTLY!!!! Write your representative and nip this in the bud!!!

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    2. I’m not in favor of this. As a model it is completely be prone to abuse as I noted above. Yet, for many consumers, the fighting protocols are not playing nicely on their connections. That’s one reason I’ve got a smarter router to help me prioritize my traffic so my daughter’s Netflix isn’t trying to push out my video conferences. I’m not sure the average consumer can or will do this tho.

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      1. You’re not sure the average consumer is going to buy a smarter router? News flash… everyone upgrades hardware at some point. Switching to a services based model would also require new hardware. Going forward, all routers will likely implement more and more sophisticated QOS out of the box (ie no need for setup). I’m confused what you think consumers can’t handle. Honestly, this was a pretty half assed article.

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  5. This article is a joke. What the battle between AT&T and Google shows is how actual competition in the ISP market encourages better service. If AT&T can roll out “gigapower” within 6 months of Google announcing their expansion to Austin, it shows it wasn’t some major hurdle for them to do so. They just chose not to offer the product.

    Usage-Based pricing is a cover for the ISPs to milk consumers for more money. The ISPs are insanely profitable already and just don’t want to spend any of that for continual network upgrades to keep up with growing usage. If capacity were truly the issue, usage based pricing doesn’t fix that. Most internet traffic occurs from 5-10 PM. If i’m limited to X GB per month, I’m still going to be using it during that same time frame. The network usage throughout the other 19 hours a day will still be practically nothing.

    What benefit does “channels” actual offer? All these functions are already available with the open internet. Channels are just a way to limit consumers so they are forced to pay more to get access to the services they already have included.

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  6. There an alternative to both broadband and Cable TV it have the same HDTV quality as cable have all the favorite channels most people watch and most important it’s totally free!

    I’m watching my TV with a VBox TV Gateway bought from Amazon UK, it’s an amazing box that connects to both Freeview antenna and Satellite and streams all the channels via my WiFi router all over my house.

    The device have 4 tuners so my wife and kids can all watch whatever they want at the same time. it even can record programs to a removable USB storage. not sure why would anyone pay for TV with all the ads… TV should be free :-)

    In Europe there are so many free to air channels there is no real reason to pay anymore

    I think that this is the near future, I am sure that few years from now everyone will stream from the net but till then, if you want to watch free TV on all your connected devices, I am watching on my Smart TV, iPad and PC at home, for now this is the best

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  7. You seem to think it is a nightmare now. Wait till you see what will happen when we pay individually for each service. It will be devastating to the family budget, both time and money. The model you are discussing will, in essence, take a neutral pipeline, and split it into segments that completely control our usage and experience, and cost us considerably more.

    While telecommunications companies have been screaming about potential damage due to lost revenue, theirs profits during a slow economic time have grown at a greater than 20 percent rate.

    Yes, video streaming is a huge bandwidth user. However, the cost of increasing this bandwidth is dropping like a stone. The model you are describing costs more for the consumer, and constrains the ability for the average consumer to have open choice to their consumption.

    As an early user of what is now known as the internet (I filed reports via APRANet in the early 70’s), I have seen the tremendous advancement of this technology. In the 90’s when http was developed, the wild west of the internet exploded. Everyone began to have access to the technology. A whole new commercial and information channel was developed. Since then, I have heard the battles between telecommunications and ISP companies that each are not being treated fairly, and we need to pay them for this great burden, all the while creating 20 percent plus per annum growth in profits even during recession.

    The model discussed in the article above is purely a case of ‘how can more people get a bigger piece of the pie’. It will add to the internet divide at a time we are trying to get more info to all. It will reek havoc on the standard household budget (both time and money). And, worse of all, it will erode even further the freedom of choice and control.

    Let’s be careful about concepts that are a solution to a problem that does not exist. Oh, and by the way, before you go saying I must be a liberal commie, I have run a high tech company for going on three decades, and strongly believe in capitalism. Capitalism absolutely depends on honesty and integrity. Let’s keep it that way.

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    1. Not to mention that the internet was highly subsidized. It is a public resource in its totality if not in it’s individual entry points. Let these profit mongers start their own internet. It’ll look a lot like the old environ,meant with competing network protocols and high costs….

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    2. I do think there are problems here that need to be solved: namely how to deliver complicated services to consumers in a simple but secure way. I don’t especially trust the service providers to do this, but with software defined networks they have the chance to implement something that there will be a demand for. I could also see better routers or a consumer-focused device that lets the consumer tweak their own settings and build their own virtualized network flows with the characteristics they need for a service. Much like your ISP used to provide you a Wi-Fi modem instead of you buying one yourself it’s possible that a device might be a way for the consumer to control this process. And that device, and the number of consumers that will do it themselves will increase over time.

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  8. How about the power companies start offering different categories of electricity services to consumers? You can have the “kitchen appliance” electricity package to run your fridge, microwave, and blender, or you can instead go big and get the “entertainment package” to run your TV and xbox! Or how about the “office package” to run your computer?

    Hey, the water and gas companies can get in on this game too! The “bathroom water” package! The “kitchen gas” package! Wait, the garbage and sewer too! How about the “food waste” package! And the “number two” package! Wouldn’t want to go without that!

    If you don’t get my drift by now, this whole thing sounds utterly ridiculous. If the internet companies want to bill on usage like the utility companies do, fine – have the same regulations as utility companies, and bill for what I actually use. In other words, have a per GB rate, just like a KW/h rate for electricity, and per gallon rate for water. If I only use 50MB in a month, I want my bill to be $5 that month (or whatever the per GB rate would indicate, plus fees and taxes).

    The internet is no longer an optional entertainment service. It’s a utility. It’s long overdue that everyone recognize this and act accordingly.

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    1. Utterly ridiculous may be a bit much. I would reword it as far-fetched now.

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    2. I thought about the same electricity example, but then we would be arguing for usage broadband. Basically you pay for every bit used. If the rates are low enough that won’t both people, but at a $1 a gigabyte they would lead to people curbing their broadband consumption. since I believe that broadband offers a lot of value for the end-consumer, for businesses and for the economy as a whole, I am leery of this.

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  9. Stacey, you said “What’s missing is the business model.”

    I’m wondering, is there a more fundamental value proposition disconnect? That being the difference between the current perceived value and the actual value that’s gained by the consumer of the broadband service offering. Perhaps that would help to explain some of the comments, in response to your story?

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    1. I think the challenge is twofold. As the services we’re delivering over these networks become more complex consumers will struggle. The people who are technically minded can keep up with this complexity and rightly fear what happens if the ISPs use the increasing confusion to do an end run around net neutrality. But, those same technically minded people have to acknowledge the challenges that the average consumer faces (ideally by creating a product the consumer could buy to control that complexity).

      The second is around value. Many people would pay more to get a channel that provides the security and/or convenience for something like medical home monitoring. Think about the roughly 20 percent who pay more for home security monitoring today. But if that came at the expense of buying a raw pipe such channels would be a huge problem. So these are different value propositions, and as long as ISPs don’t force it, it might offer a more profitable revenue stream. But that’s not how ISPs have tended to think…

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      1. Michael Elling Friday, December 20, 2013

        Stacey, what is missing is centralized procurement via managed VPNs. A company, institution or organization will find value and pay for 20 mbs synchronous committed information rate to make sure HD collaborative solutions work in scale and can replace being there; telework, telemedicine, telework. This requires coordination (payments) from core to edge and from app to infrastructure. We need settlement models that clear demand north-south and east-west. The current business model of everyone for themselves and “average” pricing/consumption doesn’t work on the margin. And in the future, everyone’s consumption is “marginal”.

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  10. Musical Missionary Thursday, December 19, 2013

    The answer is FTTH for everyone! Ideally from a municipal or community owned network which prioritizes public benefit over shareholder profits. Internet access should be treated like any other essential service.

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