Net neutrality vs vertical business models why they are both wrong

The problem with incumbent telcos is their monopoly legacy. Despite statements otherwise they just do not seem to be able to stand someone else getting value out of the network. This has led to telcos making statements that they desire money from Google and others because they are getting more value out of the internet than they do.

This naturally is ridiculous in the extreme. First one offers a flat-fee all you can eat model of broadband internet. Then you lower prices because of (perceived) competition. They you start whining that you not making a profit on the offer anymore. Wake up! You are in a commercial setting now!

That broadband and flat-rate do not mix has been predicted time and time again in the popular press (I recall a wired issue of years ago with this theme). The underlying math shows this, measurements show this.

Offer end-users big pipes and they will use them. Offer them bigger pipes and they start using them differently leading to higher utilization rates. This other use puts pressure on the assumptions about aggregation of the bandwidth. A broadband provider can not re-sell the same bandwidth as many times as it used to (typically 10-40 times on today’s broadband). So the telco has to buy more bandwidth to keep its customers happy, while practically at the same time the marketers lower the price to get in more bandwidth-hogging customers.

Now that broadband begins to be broad enough so we can start streaming videos to each other, this will soon become the next problem, putting ever more pressure on the aggregation figures. As a result the telco is sucked into the next round of the whirlpool they got themselves into and they start looking hungrily at the profits of others using “their” bandwidth and making the stupid statements as above.

Enter the net-neutrality crowd. They come with a lot of good arguments why an open and neutral broadband infrastructure is a good thing. Not a bad word about all the arguments of the value to the economy of a neutral network. Not a bad word about the arguments that an open network has social benefits.

Where they got the wrong end of the stick in my opinion is that they then go to the politicians to get them to get the telcos to be open. They too have forgotten that the telcos today live in an unregulated open and overall commercial playing field. The telco’s job today is to please the shareholders, not the government or even its customers (if they can get away with it).

An open network is good for all the reasons the net neutrality crowd is using, and one more. An open network is good for the telco.

The telcos have lost the game if they can not make money on offering open access. If they persist in trying to extort money out of today’s successful internet companies those parties will suggest their customers/users to use the competitor’s bandwidth.

True, in large parts of the western world the consumer has no choice. But the incumbent telcos can be hurt enough that they will need to reverse their policy in the areas where there is choice.

So the telcos will need to rethink, and fast.

The wrong answer is the triple-play one. In general there is business in sending voice, TV and internet over one cable, it is just folly to expect those three services to be offered by the same company or that that even is the same company as the one offering the bandwidth. As I alluded to in an earlier post, if the telco starts offering all kinds of services and lean on that to make a profit, it will lose too. There will always be parties better at providing each individual service. Customers are mobile, the telco will not have access everywhere but the service should work also off the telco-owned network. So the party offering that service had better have access to every access network its customer may be using. The servicewill never be as standardized as the GSM service package. There goes your bundeling.

The brief paragraph above sums up why the current strategy of the telcos is suicidal. It is a pity but inescapable. So what other options does the telco have? In the next post I will talk about the value of the access network.