BellSouth to Internet: Show Me The Money

36 Comments

Update: Jeff Pulver has advice for Eric Schmidt, Google CEO. Turn Off Bell South and writes, “Welcome to the game of Internet Chicken and the race to mutually assured destruction. Who will flinch first before it is too late?” Pulver is even more disappointed with Mark Cuban’s stance on network neutrality.


Marketwatch reports that BellSouth is in talks with some Internet content companies and will levy charges to deliver premium tier services. Bill Smith, chief technology officer at BellSouth told the online publication that, “Higher usage for broadband services drives more costs that we have to recover.”

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!

While we are on the topic of the much ballyhooed QoS, can the incumbents who propose to charge for better and faster delivery of content deliver an optimum and consistent 3 Mbps every minute of the day to the consumer who coughs up hard earned $40 a month? After all that consumer, not Yahoo or Apple is their first and primary customer.

36 Comments

Mull

If you are driving a Prius it might not be a good idea to play chicken with a Mack Truck.

Mo

I am sorry but I think network neutrality is a tempest in a teapot. I find it hard to believe that whatever goodwill among customers Apple has created, they would destroy it by increasing prices. I would like to think that the major content providers are smarter than that.

Jim Whiteley

This dumb idea will continue to emerge until all the “Bell Heads” in telecom management are retired. They should stop trying to tier service and make the service they are providing work. Why do providers try to get into new services rather than make their existing service the best? It is just another dumb idea from a dumb pipe provider run by a “Bell Head”. Everybody just say “NO” and they will go back home.

rick

This multi-tier thing could be good. If the differentiator of added cost/fees is volume, then voice traffic should be safe. Keep it free Skype, Gizmo, MS, Google, Yahoo…

Or will they somehow get to that sacred cow of the Bells business.

Fazal Majid

Rent-seeking is as good a litmus test of a monopoly as any. Given how much money the Bells spend on lobbying, it’s not surprising they think they can get away with anything.

Ajay

I don’t understand the statements of the telco executives. Don’t Yahoo and the other content providers pay for bandwidth right now, whether through their hosting provider or peering arrangements? If the telcos are not making enough money that way, let them raise prices across the board. On the other hand, if they want to have tiers of service, that makes sense also. But none of this has anything to do with content providers getting a free lunch. I don’t see how anybody can justify THAT statement.

AM

It should also be noted that the ISPs themselves, such as SBC & Comcast, have been advertising their services with promises of faster downloads and access to all of this bandwidth consuming content. So the plan seems to be to lure in consumers with promises of faster access to content and then charge content providers a fee for delivering this access to the consumer. They used the content to get the customer and now they want to charge the content providers (and/or the consumer directly) for accessing the content? That’s such BS.

Further, it may not apply for Cable, but DSL guarantees a minimum connection speed at whatever pricing tier you elect, e.g. for $29.99/mo you get a minimum of 512Kbps, you get 768Kbps for $39.99/mo, or you get 1.5Mbs for $49.99/mo.

Raphael

Aside from old cronies in the tech world and the Mavs/HDTV, does Cuban have any skin in this game?

Amit

So, if BLS wants to charge the ASPs for premium access to the network, what are they prepared to do to show that they’re actually providing the enhanced service. i.e SLAs based on packet delivery, latency, etc?
QoS may not be so important for the Apple’s of the world (so the song takes another 5 secs to download), but perhaps more important to the Vonage’s of the world.

Mull

If consumers don’t like what their providers are doing, then they can go with cable, wireless, DSL, muni-broadband or other choices that will be coming. Doesn’t high price for services foster innovation in alternatives? Consumers are going to pay for higher usage one way or another. They will either pay the pipe owner or the content owner. If I am the pipe owner, I would rather get the money from the content provider and have them charge the customer, because then customers will blame them for higher cost. One way or another, the consumer will pay for the delivery of the content, its just a matter of who they pay.

Talking about paying, how long do you think SIP (Services Over IP) will escape paying taxes? Communities rely on taxes, and VoIP (and song downloads, and movies etc.) escapes that. Do you really think you can take money away from politicians and get away with it for long? While you can debate who pays the piper, you always pay the govt., one way or another.

Bud Fox

I say boycott any service provider who charges high bandwidth content providers. I don’t hear the cable guys complaining so switch to your local cable provider for broadband. They might join in too later but send a message to your RBOC by turning them off right now.

Second, scream for the breakup of the service providers’ business. Since they provide content (crappy content) as well as infrastructure they can’t / shouldn’t charge a premium against other content providers. They should be forced to separate the content business from their infrastructure business. Similar to what should have been done in 1996 and what happened in the electrical industry in many states. The distribution provider has been separated from the electricity generator to make a level playing field in competition.

Just Me

Here’s the solution, any service that is threatened by this Telco action should just hire Internap. They have redundant connections to all major Internet backbones. They will then overlay route-control which identifies the optimal path. Becuase Internap pays for transit on BellSouth and SBC, they cannot have their traffic degraded, it’s that simple.

RK

To Danny Briere’s point: your viewpoint makes sense, but only if we also agree that, by the same token, there should be a baseline (presumably set by a governing body/community) for a minimum performance for, ahem, a Microsoft product with regard to security.

Our high technology universe is filled with contradictions and inconsistencies, even when the so-called market forces are at play. Why is it that people pay without hesitation for a software product whose manufacturer is the only company that I know of which regularly informs its users of its shortfalls (patches/security holes) and makes people think it’s a service! And why is that the SAME people bitch and moan if their new car breaks down, oh, say a zillion times in the first month and why is it that the SAME people throw a tizzy fit when their broadband service is down for half-a-minute? That is because we, as consumers, are too busy consuming and self-segmenting ourselves, and are inconsistent as hell.

Even in the free-market economy, competition and competitive forces are for dogs and chickens, while elephants run amock without check. Case in point: FCC (read govt.) makes billions of bucks by selling spectrum licenses to telcos, and “cablecos” have unfettered access to our living rooms. The result of both is that the government has just given away unfettered access into our lives to these elephants and it’s all uphill for us ever since (and you thought you were living in a free world:-() If we peel off the onion layers, competition exists only at the margins.

I think what we should put in place is: just like we have term-limits for presidents, we should place term-limits for telco, cableco controls over spectrum/twisted-pair/coax. And while we are at it, slap some term-limits on security-poor software products also. After 4 years, take a vote, and boot them out, let the fresh blood take over:-)

Danny Briere

I think that most people are seeing one side of the problem, without seeing the other side which is actually where the problem truly is: There is no baseline definition of ‘best effort’ Internet services. Without a baseline defined, the telcos can continue to degrade their Internet services, forcing people – who want to do anything reasonable at all with broadband – onto higher paid-for QoS-based services. This would leave best effort internet only really applicable for email, delay-insensitive traffic, and people who don’t mind waiting forever for a page to load. So to be clear, since Washington has not figured out the open access to the Internet has a minimum performance threshold, the telcos can comply with Washington merely by offering the access. I’m surprised that so many posters here and elsewhere are willing to say that the competitive forces (what competitive forces?) will keep this in check. The telcos and the cablecos have a lot to protect in the form of their entertainment and voice services – they don’t want to actively encourage entertainment or voice bypass (http://www.networkworld.com/edge/columnists/2005/1205bleed.html) by allowing competitive services to take place over their broadband services connections. The telcos today are under NO obligation to size their standard broadband pipes for unfettered quality access, especially with the downward price pressures in the market. Up to now, services have only been differentiated by the size of the pipe. This is going to change, and change fast. If Washington were smart, they’d start defining the baseline needed to minimum Internet performance really soon.

RK

Between all those billions of dollars these wireless service providers coughed up to acquire spectrum licenses AND a few more they invested in re-tooling for “3G,” I suspect these guys have a lot to recover and none of us (consumers) will live to see consumer-friendly pricing.

The basic problem is this (all with the wonderful benefit of hindsight): wireless communication technology standards (and standard bodies) unwittingly created premature expectations way back during mid 90s. If you read any of these CTIA standards for physical layer, you’ll see that they are strewn with service level descriptions (I remember seeing the term “QoS” first time here in these pages) and intoxicating promises to service providers of quality of service controls. The technology brains behind these standards described the “third generation,” saying with confidence that such models will deliver “wire-like” picture/voice quality with EXPLICIT controls built into infrastructure to model these services based on type of service/market/segment/whatever. I really doubt if they took HDTV image resolutions into considerations while they did their range/power and cell capacity estimations. To cut a long story short, the whole wireless promise is a day late in operational and a dollar short in revenue sense.

Ironically, BellSouth’s position to charge consumer higher for higher bandwidth is perfectly in tune with the economic models that the basestation infrastructure design assumed. The very idea of cell-planning implicitly requires the operator to carve out business model this way. The problem is, wireless technology doesn’t yet work the way it was supposed to. Unfortunately we can’t expect innovation from these service providers. What we need is a WiMAX-like infrastructure, all completely over free spectrum (ISM, 2.4G/5.xG etc.) that disintermediates the service provider, much like WLAN. Until then, this is all we got and I don’t like it either.

RK

Scott

One more thing…
“For a Google or a Yahoo or a Vonage or anybody else to expect to use these pipes for free is nuts,” Edward Whitacre, now AT&T’s chief executive officer, told Business Week.

They are not riding for free, the customer pays for a new service, i.e. Broadband, because there is content out there from providers like Google, Yahoo, and Vonage.

Jesse Kopelman

Om, I would take your no money out of the consumer pocket a step further and like to see the carriers pass some of this money back to the customer. After all, Bellsouth will only get money from Apple if their customers use iTunes –> customers buying songs are making money for Bellsouth and should not have to pay the same monthly access charge as customers not generating money for Bellsouth . . . Anyway, this whole argument that some users are hogging all the bandwidth rubs me the wrong way. How is this possible? Doesn’t everyone contend for the same bandwidth? If some are using a disproportionate share, they are not stealing from others, instead those others are not asking for it.

Scott

What happens if VPN into my company and use a high bandwidth application there? They are selling (and I am paying for) a connection to the internet. I want to use it anyway I see fit. The government has granted Cable/Telcos a very nice monopoly or duopoly position. I still remeber the byegone days when telcos had to share their infrastructure. Maybe we should remind them who paids the bills here and what realy competition is about. It would be nice if citizens had as much lobying power as the the big guys. Maybe we could get the FCC chairman to something that was in our best interest.

sc

By the time this happens, the customer is likely to have multiple network options to choose from – Cable/DSL/Power/Wireless, with each network provider not adding a significant value when compared to another.

It is unlikely that any of the large content providers will agree to an arrangement like this.

What is more likely to happen is that smaller content providers may pay a portion of their earnings to get better performance and create a positive customer experience.

Charlie Sierra

Om,

Aren’t SBC and Yahoo partners? Ditto for VZ and MSN?

Do those partnership agreements envision distribution fees from their partners, or does SBC and VZ pay money to Yahoo and MSN?

Is this ploy by BellSouth just sour grapes for being late to the game, without a partner, and without a successor for the CEO position?

In essense do these machinations tell us more about BLS than they do the market?

Patrizia Broghammer

The companies offering “connectivity” begin to understand that the future IS in the content and the revenues will mostly come from it.
Why loosing a share of the cake that is going to be bigger and bigger?

I think that when the customer pays for the leasing of the line has the damn right to do what HE wants with it.
It is like if the owner of your office would charge you for the revenues you make doing your job.
Once you pay the rent, the income from what you do is YOURS.
THEY should be the ONES to pay The content providers.
If they are able to lease the lines IS because somebody creates content to use those lines.
In other words, if I have nothing to see, nothing to download, no mail services, no search engines, would I pay for Internet Access?
They easily forget that the spreading of broadband was mostly due to programs like Napster and P2P.
How many would still pay for broadband of there was nothing to download or if what offered to download was too expensive?
Patrizia

Mel

Attention content companies: Please call these guys on this. Let’s say Apple doesn’t pay (because the broadband user already is) and BellSouth cuts off iTunes or the “speed degrades”.Apple can simply let the world know that it’s “not on our end, it’s on Bell South’s end”. Where do you think the rage will be placed? BS of course (hey, great initials for them).

Paul Jardine

Why don’t the content companies just pass on the charge to the customer, fully open book.
“I’m sorry Mr Customer, but your purchase has a 10cent additional charge because your access is through Bell South. The following other ISPs operate in your area and do not apply this ‘tax’…”
Of course, there needs to be no monopoly or artificial barrier to entry for other players.
Then let the bowels of the free market economy deal with this shit.

We don’t need more legislation, just a removal of the barriers to entry into the market.

Aditya Kaul

There is growing interest from industry as well as academics with regards to the growing gap between revenues earned and usage costs. The Broadband Working Group at MIT has an interesting paper on how the Korean broadband market has already seen this gap. KT went ahead and started charging a usage based fee, which was not taken very well. Many of you might have already heard of this, called the broadband incentive problem. This paper (http://cfp.mit.edu/groups/internet/qos_docs/Watlington-BBWG-Oct.pdf) gives many ways that it could be solved, one of these is recovering costs from non access based revenues. As the paper says the time to act is now!

Markus

I spoke to the heads of some major wireless companies locally. From what i’ve been told this is just the first step in a long process they have planed. Most likely they will do what they have done for wireless, unless you pay them a large amount of your earnings they will simply block access to your content. What these companies do would land you in jail if it was any other industry.

Robert J. Berger

I think the RICCO act should apply hear.

And after that, its time to break up the Bells again, but this time do it right! Break them up horizontally not verticall.

One regulated layer 1 company with open access to all the plant and then any number of unregulated competitive service providers on layer 2/3 on up.

Sanjay

Ah, the always-alive “free, public peering” vs. “private or settlement peering” issue! For as long as I can remember, at least since 1994, networks want to tier themselves based on some definitions and force the lower tier ones to pay for peering at the exchange points. After a lot of dooomsday posturing, the bigger network guy switches off the peering — in this case BellSouth with a Yahoo, most of the network’s customers find alternate ways of reaching the content, a few see degradation or loss of connectivity, the paying customers complain and the network blinks. I’d expect the same here. The networks are too late in the game to start paying hardball with the content providers now.

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