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December 05, 2005

The Second Glove Is Thrown Down - Let the Communication Wars Begin:

Is BellSouth just sucking up to Ed Whitacre in hopes of acquisition, or are the Bells really throwing down the gauntlet against the Internet Application Providers?

As I have said before, the new battlelines are emerging in the communications war. The battle -- once waged between ILECs and CLECs, between cable and LEC, between wireline and wireless, between terrestrial and satellite -- has officially morphed into a battle between Internet Access Provider and Internet Application Provider. This did not have to be the case; the battle could have persisted between and among Internet Access Providers, with each trying to gain the support of the Internet Application Providers to offer their users more compelling content, services and applications. Instead, it appears as if the Internet Access Providers are on the verge of opting for a more "cartel-like" approach, hoping that they can all, in concert and using their collective control over last-mile and first-mile access facilities, extract as much additional revenue from the Internet Application Providers who cannot reach end-users except through one or the other of their bottleneck facilities.

And, here I was, naively assuming that Ed Whitacre was the outlier, the only Bell exec publicly threatening to charge Internet Applications Providers for access to users. Well, it might just be that Ed Whitacre was simply the pioneer, the public water-tester, the one foreshadowing the preferred approach of the other LECs and the other providers of Internet access. Frankly, I am floored by their premature flagging of this battle, and their desire to serve as the gatekeeper/toll-collectors to the Web, to IP-based applications, and to the broader Internet. If I were the spokesperson for an Internet Access Provider, I think I would not have revealed my hand quite so early. I think I might have waited a few more months, or at least until the final and irreversible removal of all vestiges of government oversight - laws, regulations, and antitrust precedent -- that would have ensured that users would have a choice of service and application providers.

I still cannot understand why the Bells don't embrace the virtuous cycle between Internet Access Provider and Internet Application Provider? The proliferation of worthwhile Internet applications is what will drive broadband uptake and increase Internet access revenue from users, itching to avail themselves of Web 2.0, Voice 2.0, Internet 2.0? Perhaps they will recognize this synergy if and when a Google or a Yahoo buys an SBC or a Verizon.

In any event, here is the current state of the battle:

BellSouth's Bill Smith, whom I have always respected as a forthright, forward-looking technologist with a genuine desire to bring broadband and new services to consumers, was quoted as saying that "his company should be allowed to charge a rival voice-over-Internet firm so that its service can operate with the same quality as BellSouth's offering."

(As an aside, I cannot think of a VoIP provider with a codec that uses more than 200 Kbs -- below the FCC's generally-recognized definition of broadband. Indeed Skype, Vonage, and FWD can operate at or even below 64 Kbs. So, if the Bells are truly offering broadband -- at least 200 Kbs, and advertising FIOS and other fiber-based services at 15 Mbs (give or take) -- why wouldn't their service stand up to their advertised quality standards, and why would they have to charge more to offer a service that meets their advertised bandwidth standards?)

In any case, we had anticipated this battle, but not quite so soon. Apparently, net neutrality means different things to different people, depending on whether you control the network and user access or not. To the Bells, net neutrality and nondiscrimination means that the Internet Access Provider may not block or discriminate against Web content or services by degrading their performance, but the Internet Access Provider may charge for superior access, above and beyond a baseline service level that all content providers would enjoy.

I guess "nondiscrimination" means different things to different people, depending on where you stand in the Internet food chain.

And the second glove is pulled off in what might now become a bare-fisted fight between the Internet Application Providers and Internet Access Providers. The first glove was removed when Ed Whitacre used the "F" word, calling the VoIP providers "free-riders", using HIS network to reach HIS customers.

Actually, there was a less-public third indication of the coming war back in the Summer of 2004. I recall Larry Babio, Verizon Vice Chair, saying at the Progress and Freedom Foundation's Aspen Summit that the unaffiliated VoIP providers were free-riders. I do not understand; or is it they who do not understand that unaffiliated VoIP providers DO pay for access to "their" network, just like any other large volume user or enterprise? The problem emerges because the Internet Access providers think they have the right to discriminate between the user who uses the network to sell pizza and the user who uses the network to provide voice communications. Perhaps if the Bells were to expand their operations to provide pizza as well, the pizza lobby would see the problem too. The truth is that the ability to discriminate against unaffiliated IP-based application providers does interfere with the ability of ALL end-users to maximize their communications and Internet experience, by the creation of Internet Access Provider-controlled walled gardens.

Hearing this from BellSouth's most honorable CTO the other day just verifies that we are not being paranoid. The Bells seem collectively committed to renege on the promise and the vision of Arpanet, and to supplant the open, public Internet with their own walled gardens.

Perhaps the baseline principle might have to be that providers of Internet access cannot discriminate against end-users in terms of price and bandwidth capability. Now that Moore's Law has allowed the service or application to be disintermediated from the access provider, an application or service provider can simply be an end-user purchasing connectivity from an Internet access provider. Is it fair for the Internet access provider to charge one rate for the enterprise that delivers pizza and a premium to the enterprise that delivers Internet applications? This is the principle that seems absent from the debate, from proposed statutory reform, from proposed regulatory reform.

I fear that one day soon, the Internet Access Providers' true goal will be revealed - to create walled gardens, in which it would be, at best, a Hobson's Choice for a user to pick any service or application other than that which is spoon-fed to the end-user by the Internet Access Provider.

I look forward to the day in which the Internet Application Providers become as adept at lobbying and working the legislative and policy arena as the Internet Access Providers. Admittedly, it is a steep learning curve and the Internet Access Providers have a few decades head-start.


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Posted by jeff on December 5, 2005 06:07 AM | Permalink

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Posted by: lorenna at October 10, 2007 03:19 AM

While I think this all bad for the consumer I would support letting the incumbents charge a premium for QoS and throttling if the FCC forced these companies to subscribe to this model forever. Then new entrants or existing but more progressive providers could offer "Old Coke" that was all you can eat at predefined and expected service levels and we could ensure the dinosour iLECs suffer the same fate as their prehistoric brethren. It's all going to be Google supplied wireless in a few years anyway.

Posted by: Randall at December 8, 2005 05:28 PM

As long as customers get the appropriate price signals between buying rights to more bandwidth and buying packet prioritization, there doesn't seem to be any reason why they shouldn't have that choice. As usage increases due to things like growth in the delivery of video files, it seems inevitable that broadband pricing will become more complex, with more speed tiers, usage limits (like wireless) and prioritization.

Posted by: d.l. at December 6, 2005 12:17 PM

I do not see any logic in Ed Whitacre's statements.
However. I interpreted Bill Smith's remarks different. As pointed out by a previous comment it is about QoS. Even with higher bitrates (guaranteed or not) there is limited bandwidth and ever more services consuming ever more bandwidth. Clearly, in numerous occasions this would end up in collisions or bandwidth starvation, hence in poor service delivery. And bandwidth will be limited for the foreseeable future. Thus the likes of BellSouth resort to implementing QoS mechanisms in their access networks. Since this can be considered a value-add, BellSouth CTO is requesting that other voice-over-Internet have to pay to use these features, if they do wish so.
Now, that being said, the real concerns should be 1) "best-effort" is not (artificially) degraded to benefit BellSouth Internet Application Provider so that certain traffic may be badly affected
2) the QoS mechanisms are "unbundled", i.e. other Internet Application Providers can decide to use (and pay for them) alternatively customers could opt for paying this value-add

Posted by: Colin at December 6, 2005 11:39 AM

a) They picked a time when the public has been convinced to give up "essential freedoms" for the promise (true or not) of safety. So in that way, they chose well.

b) The entree to charging won't be (just) "bandwidth", it will be QoS, low-loss and low-delay access. That's what the BellSouth guy was hinting at. Then all they have to do is define down what's "best-effort", or add some artificial restrictions that just-so-happen to badly affect best-effort users who need low delay/jitter or high bandwidth, etc. (Without actually singling those applications out, of course - they'll be nice and "neutral" - it will just happen because of things outside their control.)

Posted by: Randell Jesup at December 5, 2005 04:09 PM

The difference in value to consumers between a walled-garden and an open network is so vast as to overwhelm whatever first-mover advantages the incumbent broadband providers may have. In other words, there is little reason to be afraid of them. If they seek to capture rents that would otherwise accrue to consumer surplus, they will be punished by the entry of suppliers willing to forego those rents.

An early test of this may come in new residential developments. Developers will avoid dealing with network providers intent on capturing consumer surplus.

Posted by: d.l. at December 5, 2005 11:57 AM

It is indeed a bold move if they really to expect to succeed by emulating AOL and MSN, requiring a firm lock on their last-mile monopoly that will be both difficult and hazardous to maintain.

They must simultaneously avoid antitrust litigation and massively broad-based competition in a market to which technology has lowered entry barriers below the thresholds of all but the smallest businesses.

The antitrust risk might be held at bay, for a while, by buying off the administration, though that's doubtful. Forestalling competition, however, would require a degree of regulation that would artificially re-erect the steep barriers to entry that existed before the Internet. This could only be achieved by laws so ludicrously Draconian as have not been seen in the "free" world since the German Nazi regime banned radios.

None of this is to suggest that it can't happen; it can. Beyond all sense, Nazi Germany happened, and repressive governments happened in seemingly enlightened societies throughout the world. For that matter, Microsoft obtained and maintained a monopoly for well over a decade at least.

But such things can only happen when people are angry, frightened, or ignorant enough that they're willing to believe a lie: that they can be satisfied, safe, or secure only by giving up essential freedoms. Only then can the voices of warning and protest be silenced and the tyrants ultimately win.

So, unlike you, I don't necessarily hope for increased political clout for what will inevitably be seen as (and risks actually becoming) yet another special-interest group.

Instead, keep this discussion in the public eye. Today's voice in the wilderness is tomorrow's prophet - if he turns out to be right - and as monopolies begin to exact their tolls, people will increasingly find the conversation meaningful. At this point, I don't see the world tolerating a balkanized Internet, which would be a necessary first step rather than just the tyrants' desired outcome. However, without voices such as Bruce Schneier serving as a powerful counterpoint to the bipartisan terrorism drivel, that might be different.

That's enough; I've started to ramble.

Posted by: Brian Thomas at December 5, 2005 11:45 AM

Something further about BellSouth, and New Orleans and Internet acess, from the Washington Post: http://www.washingtonpost.com/wp-dyn/content/article/2005/12/02/AR2005120201853_pf.html

Posted by: Joe Garland at December 5, 2005 10:50 AM

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