Right now most Americans are simply not aware that one of the biggest legal battles in the communications world is going on in our nation as ISP’s, Local Phone Service Providers, Cable Television Providers and a host of new technology players fight about exactly what net neutrality is and whether or not it should remain a guiding tenant of Internet access as we move forward in the world of online entertainment, commerce and communications.
For those not familiar with this concept Net Neutrality is simply the way the Internet was founded. Inherently it means that a user who purchased internet services was then free to access any type of information he or she wished. No preference or blocking of any information was done, so a user downloading a mp3 file or using a voip phone or just surfing the net got whatever connection speed they were paying the provider for.
Then in the late 90s a new technology called VoIP or Broadband Phone Service (which lets callers make phone calls over the internet for much less then standard phone services) started to become popular and over the past three years it has really caught on. It is estimated today that the total number of VoIP lines in the US is currently more then 10 million. Some projections estimate the total number of IP based lines by 2008 could go as high as 26 million or more.
VoIP was the first big event that really got the battle over net neutrality rolling because incumbent phone companies began to loose a lot of lines and started looking for a way to compensate. Face it if you are in an industry that serves a market where in just 5 years 10 million users migrate to a new technology it will hurt your bottom line no two ways about it. In addition cable providers were providing high speed cable modem access and hoped to also sell VoIP service with it. These cable providers quickly found that many of their customers were using a third party competitive VoIP provider via the cable providers internet access.
So what happened? In several instances providers were caught blocking VoIP signals from competing providers. They also denied that they were blocking access to their customers and this gave many people a poor view of IP Phone quality as the industry was emerging. IP phone services had enough technical issues as they deployed to create this image with some users but the added problems with full blocking of the service did not help. Several cases of outright blocking have been documented including the following…
There are quite a few more then the two cited above and when we look outside of the US to foreign nations where telecommunications are fully regulated by the government, the blocking of IP Phone Services as a whole are commonly practiced. Why? Well the Government wants its money too and every IP line that replaces a landline is costing the tarriffing bodies tax revenue. In the US this means both the federal and state governments are loosing revenue each time a subscriber moves some or all of their voice traffic to VoIP.
VoIP may be the hottest issue at play in the battle right now with any level of consumer awareness but the battle is over more then this. You see right now the incumbent phone providers are working like crazy to be permitted to provide cable television service over phone lines via enhanced broadband. Of course for obvious reasons the cable companies think this is a very bad idea. Never mind that at the same time while the cable providers do not want the phone companies in their market the cable providers are already infringing on the telephone providers markets with VoIP and would like to have even greater freedom to expand their reach into the voice market.
Confused? Let me simplify it for you, the two big dogs in this fight are the big local phone companies and the big cable TV companies. Both really want access to the others market but neither wishes to let the other into theirs. That is really all it comes down to at least on the surface.
Fine, but where does net neutrality fit into this picture?
In many instances I don’t think that even the providers know the answer to that question. First let’s make a brief case for why providers feel justified in controlling what services they allow on the networks they provide.
Put yourself in their shoes for an instant, you are a local cable company expanding into a new market of say 1000 available subscribers as a large new group of new neighborhoods is being built. You currently offer three main services, cable tv, high speed internet and a VoIP phone service.
Now you know a large percentage of people will use satellite (the statistics tell you that number will be about 25%) and you will most likely not sell anything to the majority of those using Satellite Television. Most of them will use the local phone company for telephone and for high speed internet they will choose DSL if available. If it DSL is not available in the new area some portion may just purchase your high speed internet but that number will be small in most instances.
Next a sizeable portion will purchase just Cable TV access from you. Of those a portion will also opt for high speed internet access and yet another portion will buy your VoIP service as well.
Sound good? Well consider that to serve this new market the Cable provider will need to install miles and miles of cable in the ground at an average cost of 6-10 dollars a foot (quite a bit more in some markets), not to mention countless other costs. Next consider that even though 25% will choose satellite from the get go the cable provider will still have to build out the physical network to serve 100% of the occupancy of the new area because they have no way to know which subscribers will choose a Dish Provider.
Next consider to be able to offer high speed internet (which is needed for the VoIP service too) the total cost to install the network will be considerably higher then a flat cable only network. With all these factors it is quite reasonable to assume that a provider may wait 3-5 years or more to break even on just the installation cost. So when the cable provider in question says, we built the infrastructure, we paid for it and we are selling access to it so we should be able to control what services we allow on our network, you can in some ways begin to understand why they feel that way.
If you change the example above into a phone company on a new deployment you get pretty much the same results.
When you look at it that way why shouldn’t the provider be able to control access to their network?
Well, the short answer is pretty simple, when a subscriber purchases internet access from a provider they are not buying phone service or television programming they are buying access to a PUBLIC NETWORK known as the Internet. They are paying a fixed price for a given level of service and should be able to use that service to access what ever type of data they wish at the connection speed they paid for. If they are not provided open access it is a lot like buying gas from say Chevron but then only be allowed to drive on roads where Chevron says you can. Not only that on many of those roads you would be required to pay a toll to of course, you guess it, Chevron. So a case can be made on principal alone that if you pay for access you should be free to use it as you see fit.
Still principles aside you still have the big providers saying, “for us to be willing to invest the billions of dollars to build these networks their has to be a return in it for us financially or we simply can not afford to do it”. While they are correct about that view point they are missing where the real return of investment will be realized as we move into the new era of communications and entertainment is the internet access itself.
The long answer responds to the key question providers are asking, (”what’s in this for us”) and turns the focus of the debate to where it belongs, the consumer.
The key problem with this debate as it is being argued on almost all sides is that it is based on a service model that we have been using for decades, a model that is rapidly entering the end of its’ life cycle. Up until this time cable television and phone services were packaged and sold either alone or together as part of a plan. You picked basically plan A, B or C and paid a set fee for all that was included with in it. Many times (especially with television services) you paid for things you never used, like the 50 out of 100 channels you never watch. As providers move to offer new services they continue to follow this model.
The goal of most of the cable and phone companies aspire to is to become the sole provider to the majority of their customers for what has been termed “triple play” service (voice, data and video on one line from one source). This model will become more common and it will work for consumers that want one bill for convenience and want to choose from a pretty basic menu of services.
Honestly the fact is that right now the majority of customers are very receptive to “triple play” model with a few conditions. One, the quality of service and support must be good. Two, the price of each service component must be “fair” in the eyes of the consumer and the bill better be for the ammount the provider promised it would be. Third, the consumer wishes to feel they are choosing this option not having it forced upon them.
Americans by nature loathe any perceived restriction on their freedom of choice. This is simply the first of many flaws in the model of restricting the types of data that can be accessed by a subscriber. Let’s look at the logical progression of a controlled access network in an underserved market.
1. The provider gains a large market penetration as a broadband internet access provider mostly because they are the only choice or they are one of say only two choices.
2. The provider blocks access and forces many of their subscribers to use their VoIP and Video Services.
3. The provider is resented and the customer base waits with baited breath for the day when they have an alternative. They are ready to leave on a moments notice even if the service is excellent. Why? Because they are Americans who don’t like to be forced into anything. How many very popular IRS agents do you know?
Moving on with the out dated model that all of this debate is centered on. It seems that none of the providers are paying attention to what is happening with the actual internet from a video and communications perspective. Nor are they grasping the impact that both fixed and mobile WiMax will have on the entire market in the future. Let’s look at each one to see how this really changes everything and it will then become clear how supporting and allowing net neutrality is actually in the best long term interest of everyone involved from the largest provider to the smallest single customer.
First the impact of internet video.
Right now there are many new players in the online video market they include,
Of the 6 mentioned above the first three (Google, Microsoft and Yahoo) are all very cash rich and each is involved in building massive data center expansions as this time. (Yahoo and Microsoft, just miles apart in a sleepy little town known as Quincy Washington). Do you honestly think these financial giants are doing this just for kicks? Or is something larger in mind? Perhaps a day when you can stream or download any programming of your choice from the internet at will, via any internet connection. We all need realize that the three Internet Giants (Microsoft,Yahoo and Google) are going to build their video platforms on an enormous level no matter what the phone and cable providers do in fact there really isn’t anyone that can do anything to stop this. Then consider that the big cable companies do not produce or actually create programming on say premium channels, your local networks or any other channel they simply pay the producers and owners of the content a subscriber fee and then resell it as part of a package to their customers.
Given that the producers of this content sell it at will to every Satellite and Cable provider don’t you think they will sell it to Google, Yahoo, Microsoft and every other online provider willing to pay for it as well? Of course they will. In fact if you would like an electronic version of the recent NBA Playoff Games, wish to relive a recent series of Survivor or get the entire first season of Star Trek Voyager you can do it all at Google video right now. Currently you will technicaly pay more then with Cable but you will see what you want, when you want and the content will be in a portable format that you can view anytime you wish.
This is just the tip of the iceberg! The days of being able to log into an online video service and view what ever you want both in real time or archived are far closer then most people realize. As this model becomes main stream people will want access to it and certainly will not want to buy internet access from anyone who blocks it.
Second the impact of both fixed and mobile WiMax.
Right now the impact of WiMax is minimal and up to this point it has been cost prohibitive at the user level. However, the forecast looking forward is for millions upon millions of chips to be deployed in the next 3-6 years with new networks rolling out left and right across the US and the Globe. This forecast now appears quite realistic with Intel recently announcing delivery of their WiMax Rosedale Chip for 45 dollars per 1000 units ordered.
What WiMax will allow for is extremely fast access to the internet via a wireless connection with both fixed and mobile applications. Transmission distances between line of site points is currently about 30 miles per span with a whopping capacity of 70 mbps of speed. This will take internet access to the most underserved areas of rural America and of course become a major competitor for access in urban markets as well.
So what does this mean? It means they big online companies will have greater access then ever before to users who have the bandwidth to allow for rich media like video, voice and music. It also means VoIP providers will see a huge up serge in individuals totally divesting themselves from conventional phone companies. Finally it also means that more and more people will be using what we today consider cell phone technology as their primary voice communications choice. What impact will each of those have? The answer is an enormous impact.
First, more users with enough bandwidth to utilize rich media.
Right now most users don’t even know things like Google Video exist. Yet the younger generations who are far more tech savvy then the prior generations namely those from the tail end of Generation X and those from Generation Y. These groups not only have an appetite for technology they are becoming a major financial force as they mature into their careers in an economy with more disposable income then ever before. This group has also been called the microwave generation, they want what they are looking for, fast and they don’t want to deal with anything getting in the way of it. As WiMax provides this group with greater access you can bet they will spread the concept of entertainment on demand via word of mouth, blogs and other online communication mediums.
Second, more users moving away from any traditional phone company.
Right now a major percentage of broadband users are choosing DSL so even if they utilize a VoIP provider for a phone line the local phone company is still getting a basic phone line and a DSL customer out of the deal. Yet what is going to happen when users have 2-3 WiMax providers to choose from each offering far more bandwidth then DSL or even Cable Modem? When these users can get a full featured phone line with a third party VoIP provider that includes unlimited calling for under 20 dollars a month, how many will opt for that choice? Think about that and further about having an internet connection a VoIP phone line and getting all your TV programs and news on demand as needed with no “need” for the conventional phone companies or cable companies or for that matter even a satellite provider. New world indeed!
Third, more users moving to what we today consider cell phone technology.
I say what we “consider cell phone technology” because it will look like what we call a cell phone but it will not use Cellular signals for transmission. What I am talking about is a cell phone like device that is WiMax enabled and accesses the provider network as a data device like a computer on a network. These “phones” with be mini computers more powerful then even today’s most advanced desk top PCs. The evolution is already evident in today’s cell phones that provide video, mp3 music and more. The next generation of WiMax enabled “cell phones” will make today’s advanced PDA/Phone hybrids look every bit as outdated as those old 1980’s cell phones that you carried in a small gym bag and paid 5 dollars a minute to use appear today.
These new phones will provide voice communications via VoIP and data access that makes DSL look very slow. They will have great little monitors for watching “television programming” and huge memory capacity. Consider that just 9 years ago in 1997 a lap top with a 10 GB hard drive was considered revolutionary and today the famous iPod packs 30 GB into a device not much larger then a stack of 5-6 credit cards. They days of a WiMax phone with a 100 MB or larger hard drive are not that far into the future.
Then will come the final link! Televisions that you simply point that phone at and beam that newly downloaded show strait onto the televisions hard drive. If you think this is all Star Trek like technology 40 years into the future you need to realize that 90% of the technology needed to do all of this already exists and the other 10% is clearly on the way fast, very fast. One only needs to look at history to understand that the manufactures of TVs, Mobile Phones, etc will provide this ability if they can make money doing so. In fact the days of a flat rate unlimited cell phone plan are here today with at least one cell phone provider already offering unlimited flat rate service for 40 dollars a month.
The technology will come, nothing can stop it.
For example in the 1970’s the record companies pushed like crazy to do away with the dreaded dual deck cassette player that would let users copy cassettes. They were sure it would just kill off their business and put them in the poor house. Instead tape became so popular that record albums disappeared and eventually the cassette went the same route as the CD came into vogue. Soon manufactures created ways to copy CDs and the record companies did all they could to stop that too. Yet the manufactures kept making more and more ways to duplicate a CD, the record companies tried to protect the music with encryption and people made programs to get around it. Nothing could stop the duplication of first tapes and then CDs despite one of the wealthiest industries in the history of the world doing all they could to stop it. There are many such examples in the history of technology, communications and entertainment and we would do well to keep them in mind as we analyze the future of internet access and technology.
In short all of this is coming and people will want and be willing to pay for it. The incumbent providers can slow this process down but they can’t stop it. If providers are ever permitted to block access someone is going to find a way to provide the access, faster, cheaper and free of obstruction. In the end the providers will be the ones who loose out. How? They will loose because the only thing that people will need in order to access all these great features and services is very simple, access to the internet and right now they don’t seem to understand that the access itself if the real long term money generator.
The companies that are going to win this battle in the long run will be the ones to embrace net neutrality and lobby for it on all levels. They will make publicly known their support for it and spend all their resources developing the fastest, most dependable and most affordable internet access platforms they can. They will certainly sell a large amount of bundled services to some customers and likewise they will simply be the ISP for many as well. Their services of course will also be purchased by people not in their ISP coverage area but who want their video or voice service simply for the value they provide.
You see a controlled access model is in itself self limiting. If you are a cable TV provider sure it’s nice to know that your internet customers much buy their VoIP service from you for as long as you can keep it that way but you are missing out on the bigger picture, you could be offering your VoIP service all over the world if net access were neutral. What is better to have, 20 million prospects who resent you for blocking access who are just looking for any way to do business elsewhere or several hundred million prospects who view you as a quality provider competing for their business?
The access will come too, nothing can stop that either.
Let’s say the largest providers win the battle in the short term and get the ability to restrict and control access on their networks. Do you honestly think that can stop the eventual migration to a fully at will and full choice internet? It is simply not possible or even probable. So long as there are hundreds of millions of willing consumers with disposable income who want to buy fast, affordable and open access to the Internet, technology manufactures will keep pushing the edge for speed, reliability, distance and affordability.
Sooner or later no matter how many obstacles are thrown in the way someone is going to figure out how to offer a 100 MB connection to even the most remote customer, charge them 20-30 dollars a month for it and not really care about what VoIP provider their customer uses or what provider sends them news and entertainment. That provider or group of providers is going to own the most popular highway on and off the internet and will be able to charge a toll to every user who wants access.
Such a provider will have a very positive image among users who have dealt with decades of bickering by the big providers who kept telling them why it couldn’t work with 100% free choice. That goodwill will go a long way toward a very positive branding image for the providers that embrace and develop these new means of internet access and in return they will sell far more then their fair share of collateral services.
These providers will end up being the biggest players in video, WiMax and VoIP services because the public will view them as offering them a choice. American’s as a whole will spend more money in total if given a choice of multiple items rather then being forced into a lower cost model and do so happily. To support this claim one only need to talk to shoppers on the way out of a large warehouse store like Sam’s Club, Cosco or any similar store. They will be shopping in a place that offers a huge selection at a much lower price per unit then say a local department store. One would think the customers would spend less since each unit cost less in the warehouse store vs. a typical store. Yet if you ask people on their way out they will almost all tell you they spent more money then they intended to and definitely more then they would have in a smaller store. Why? Placed in an environment with lots of choices and a high perceived value Americans are more free with spending then in any other market.
The reality is by wasting resources and billions of lobbying dollars fighting with each other over a model that is 50 years old the largest providers are wasting the opportunity to capture the lions share of this new market and do so with a positive public image. As stated above this new model is coming because the customer is asking for it and in the end that will drive the market. True affordable broadband open internet access and the migration of spending that will accompany it is coming and once it arrives the consumer is not going to look very kindly upon those who opposed and blocked it as it was developed. Providers of all types should be mindful of this as they make policy decisions going forward.
Jack Spirko
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Posted in Telecommunications by jspirko on May 30th, 2006 
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