Net Neutrality Friday

First, I want to point readers to a couple of websites. First, is Dan Grossman’s Site at NetAccess Futures. He is a person that worked at my competitors in the past and is a good source for information on the topic. The other site is Light Reading and is a site that broadly covers the Telecommunications Industry.

This week I want to talk about the actual document from the FCC. The link is for the entire document and will allow you to read the entire thing. You won’t directly find any comments that the FCC is going to allow for pay for priority service. What is going on is the FCC is asking questions and trying to get effective commentary. These questions are suggesting that the FCC might consider a large number of changes in the rules.

One of the misunderstandings today is that the FCC can directly reinstate Net Neutrality. The courts have made it abundantly clear that the existing set of Net Neutrality rules have to change or there needs to be another change to make them viable again. I am going to (I hope) set your thoughts on their head’s as it pertains to a single service (U-Verse). I going to separately argue that by extension that if you accept my contentions there that these issues exist in Cable and FiOS.

U-verse is a form of DSL offering from AT&T. It can be a triple play service: Voice, Video and Data. In this particular case, the Video (TV service) is switched digital video over Internet Protocol (IP). Internet Service (ISP) is also IP data. U-verse shares the bandwidth provided by its physical connection to the TV service as well as the Internet Service. In fact if you are watching TV, you have less ISP. This is today and before the overturn of Net Neutrality by the courts. It was that way at the start of U-Verse.

If you have not noticed it already, the TV service is a “Fast Lane” service that everyone is up in arms about. The TV service on U-Verse gets precedence over the ISP service. So doesn’t that make you nervous already? How about the content providers? Are they suffering? No they are not. The content owners get paid by AT&T. That’s right get paid to allow AT&T to put their content on a “Fast Lane”. I am quite sure that this is backwards from what you expect and why you need to take a step back.

The reality is that there are only a couple of content providers that need to worry about this and they are “Content Aggregators” like Netflix. The reason is that Netflix (outside of a couple of shows) makes no content. Netflix is reselling other people’s content. Content owners get paid by distributors. Distributors only get paid when they have exclusive rights (like Sunday Ticket from DirectTV). Let me compare Hulu to Netflix in this context. Hulu is owned by Fox, Disney and NBC-Universal. Those companies are direct content owners and so are not going to pay for better service. Why? They are already getting paid for the best “Fast Lane” in the world.

Now I am a Comcast and a Netflix customer. I use the two services all the time and have had no trouble with either working together even though there was supposedly trouble in the earlier part of the year. So, my experience is that there are no problems yet. Not to say there won’t be in the future, but not at the moment from my perspective.

Next week, I want to talk about why I think “Fast Lanes” are a really bad idea for a carrier to implement.

Jim Sackman
Focal Point Business Coaching
http://www.jimsackman.focalpointcoaching.com/
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5 thoughts on “Net Neutrality Friday

  1. Jim, there are a number of moving pieces here as you quite rightly point out.

    On the policy front, there are inconsistent settlement policies across converging supply and demand markets.

    That said, the single biggest issue with Netflix and the largest edge access providers (aka ISPs) is that the largest user (low marginal cost) is being forced to move off of the competitive public transit providers (Cogent, Level3, Akamai) and onto “private” networks (its own CDN peered directly with the ISPs).

    This is essentially moving the WAN/MAN demarc point towards the core and away from the edge. This is bad for everyone else since the internet scale economies are a result of competitive and sharing.

    Another way of looking at it is that after 30 years WAN transit is $0.0000004 for a voice equivalent minute (100,000 minutes for a cent) vs $0.001 (10 minutes/cent) for the non-competitive MAN. Google fiber has shown they can drive the number to $0.00001 (1000 minutes/cent).

    At the end of the day its about competitive cost and price structures against non-competitive ones.

    Oddly, and ironically, the incumbents (cable, tele, wireless) actually need WAN economics to scale out to the edge so there are natural supply and demand forces to pay for infrastructure upgrades to enable 4K VoD, 2-way HD collaboration, seamless mobile BB, and the internet of things.

    All of these require a fundamental rethink wrt capacity (particularly upstream), latency, security, QoS, and redundancy.

    1. Infostack,

      I will be posting a few more comments tomorrow, but I think that the reality is that the problem exists for exactly 1 company – Netflix.

      The rest of the content providers of high speed video get paid for the privilege of providing their video over the best possible paths in the world. Only Video causes an issue today and that is not likely to change for quite awhile.

      Now at some point, there will be yet another uproar over Youtube. But I think Google sinks enough traffic for that to be not a big issue.

      Tomorrow, you will see why I am not greatly worried about this whole thing.

  2. Video today is 1-way and Netflix does an awfully good job of not only taking on the risk of aggregating such a huge content library, which no edge ISP can do (the real reason after all for AT&T buying DirecTV), and the ability to transcode and store and distribute each video 120 different ways to be viewed cost effectively across 1000+ contexts/screens. And they do this ex ante to drive their costs down. Their flat-rate pricing model is a double-edge sword, btw.

    But what about 2-way HD video collaboration, or seamless mobile BB, or IoT. Netflix may well by the primary issue today, but remember that it achieved scale off of everyone else’s share usage and we should now benefit from Netflix being the locomotive that drives intelligence (in this case storage and low-cost transport) to the edge. This is vitally critically for the above 3 trends in addition to the above big disruptor, 4K VoD, which will absolutely shred the LinearTV model. By shred I mean lose 30% share w/in 2-4 years as people have choice and time-shift their consumption.

    This issue is very consistent with the big price disruptive points in 1983 (voice), 1990 (data), 1996 (wireless), and 2007 (smartphone/processing). Between policy and market forces 2014 will shape up to be another seminal year.

    1. 2 way HD video collaboration is a business service and is in extensive use today. Not sure why that is an issue.

      Seamless mobile BB: You have to define what you want changed a lot better than that.

      IoT – Low speed stuff is just not going to matter.

      4K VoD – Good luck with that…let’s get to 4K video first and I don’t believe in at all. In fact, I would say that 4K TV is dead today – especially VoD. The amount of additional Access Spending is huge for almost no gain.

      1. 2-way HD is skype on steroids. It is B2B, B2C. It is telework, tele-education, telemedicine, etc… on 50-70 inch screens in 1080 or UHD (just announced by Vidyo). Or just like being there for one-to-one, one-to-many and many-to-many. Enterprises will want 20mbs synchronous CIR, and that bandwidth should cost ~$20 endpoint. Think of 100,000 of end points for some firms. These may stay on all day for remote work. Imagine several of these into one premise.

        Today’s 5yr TCO for a wireless system according to Wireless 20/20 is 13% capex and 87% opex. The latter being about half site rental, maintenance and backhaul. At the same time, carriers are relying on ~70% offload of data traffic to non-carrier networks/APs. Neither of these are sustainable models, particularly when the end-user has shown a clear preference for mobile first (and possibly centric) multi-screen access model. Importantly the smartphone becomes an important controller across all screens. We are far from there from a network, software, cost, or performance perspective.

        IoT will have enormously high transaction volumes and you are missing real-time video sensors and feeds. They will also need local storage and caching, with remote backup.

        4K. Have you seen World Cup, French Open, Sony news or Netflix announcements for streaming. 50 inch 4K sets will break $1000 level soon.

        All of these point to the necessity of moving cloud economics to the edge, rapidly.

        BTW, I’ve been tracking competitive supply demand cycles in voice, data, wireless and video for 25 years. Go to my blog at ivpcapital dot com. You’ll find a wealth of pricing and demand elasticity analysis amongst other carrier business model issues.

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