The Jeff Pulver Blog: My reaction to WSJ's "Phone Companies Set Off A Battle Over Internet Fees"

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January 09, 2006

My reaction to WSJ's "Phone Companies Set Off A Battle Over Internet Fees"

On Friday the Wall Street Journal ran one of those front page “call to action” stories, "Phone Companies Set Off A Battle Over Internet Fees" that should make us all sit up, pay attention, and worry about the future of the Internet as we know it. Only a week into the New Year and already my predictions #3 and #10 (considering the emerging war between Internet Access Providers and Internet Application Providers) for 2006 seem already to be coming true.

The Journal story warns of a looming battle between Internet companies, who create the valuable things we do with the Internet, and the phone companies who want to control access to it. The phone companies, who continually seek new ways to apply telephone access charges to Internet communications, apparently now want to take the next step by creating and applying access charges to all forms of Internet traffic (not just voice anymore).

The Journal says these phone companies are “setting the stage for a big battle ahead” and “hope to start charging Google Inc., Vonage Holdings Corp. and other Internet content providers for high-quality delivery of music, movies and the like over their telecommunications networks.” While the phone companies have thus far maintained that this is a network management issue, the Journal makes clear that it is a revenue-maximization issue.

I thought for sure that when these companies started to understand what the Internet is, how it works, and that no one controls it, and what a gatekeeper could do to stifling Internet innovation, that they would surely see the wisdom of the Internet and eventually reconsider. But now it seems all three big Bell companies are moving aggressively to find ways to extract concessions from Internet companies for the prioritization of their packets. You just can’t make this stuff up.

Even though a consumer has already paid the phone company for their faster broadband Internet connection, the phone companies want to nonetheless hold Internet content and applications hostage, asking for ransom payments from Internet sites and services, before letting consumers freely access these bits. Will these companies be allowed to seek even higher payments to deliver the bits for a service that may compete with their own voice or video service? What if the competing VoIP service isn’t willing to pay? Will the telephone company be allowed to degrade their competitor’s service? I’m just scratching my head and wondering if this looks right.

Think about it this way. If instead of e-mail these companies delivered express-postal mail, it would be like the consumer deciding to pay more for a fast FedEx shipment (as they have for broadband) and then FedEx turning around (unbeknownst to the consumer) and also requiring the receiver of the package to pay more in order to ensure the package receives priority treatment and arrives on time. It’s a double dip.

I’ve written a lot about E911 lately, so how does this relate? Well, now that VoIP companies have invested heavily in advancing E911 solutions faster than any other communications tool, will consumers be prevented from making that emergency call when their VoIP phone is used over a DSL network unless this additional access charge is paid? Will this VoIP E911 call not receive priority over the network? Is it possible for the phone company to degrade the call quality so the 911 call-taker can’t hear potentially lifesaving noises in the background? (Let’s not even address the ability for IP-technology to allow for lifesaving video images, and what could happen if the Internet Access Provider determines to degrade video as well as voice. Until the day that the emergency response network is broadband and IP-enabled this issue, I guess, is not ripe.)

The phone companies say it’s not about blocking packets at all, just allowing them to discriminate between packets and allowing them to give some a seat at the front of the bus on the information highway. But if you are putting some at the front of the bus, you are obviously forcing others to sit at the back of the bus. I don’t think we should or need to discriminate between bits on the Internet. I, for one, believe in some basic Internet freedoms -- including the idea that all bits are created equally. It has been one of the core tenets of the Internet that has allowed it to grow and thrive. These basic Internet freedoms -- to connect any device, application or service over the Internet -- have been a tremendous success in the dial-up world and ought to be extended into the broadband world.

It’s now clear that the greatest future economic potential from the Internet will come, not from the pipe, but from the value we derive from what we can do with the pipe -- from the innovative devices, applications and services that we can’t yet imagine made possible by Internet innovation. Thus, if policymakers must choose sides between tomorrow’s Internet companies and yesterday’s telephone companies as the Journal suggests, on balance there is much more harm that can be done to our collective future by allowing one set of companies to become gatekeepers, to decide which packets are pushed to the back of the bus, to double dip into consumers pockets, and to fundamentally change one of the basic tenets of the Internet.

Instead, it needs to be the consumers who are empowered to decide which websites they will visit, whether to block inappropriate content for children, which of their own bits they want to prioritize, and if they want to buy a faster Internet service from their broadband provider.

One final thought: We all (Internet Access Providers, Internet Application Providers, and Consumers) win when we have the most robust networks possible and the most applications available over those networks. Only then will we create the virtuous cycle that maximizes user value and provider revenue. Instead, I too fear a growing war for a finite money pool.

Tags: voip, e911, Verizon, Net Neutrality, Google, Vonage, , BellSouth, Jeff Pulver

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Posted by jeff on January 9, 2006 05:11 AM | Permalink

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Comments

I just wanted to give you imput from a female perspective; as a mother, a soon to be small business owner I am very concerned about what is happening, and am glad to see that someone is saying something about it. I just had no idea as to who to say anything to.

One of the things i am concerned about is the rates i've been paying. I am trying to get the best service at the most affordable rate. I don't have the income yet to be able to afford the fees I am paying now. And no one seems to give a damn! It's about how much they can get away with.

I have no idea who set these rates. They sure didn't have me as a customer in mind.

I just got a bill for $800. This was to be for rogers Cable, internet and a phone line, plus 4 cell phones on a family plan.

Don't you think that $800.00 is a lot. This is an exoritant rate...

What the hell am i paying for? for $800. could certainly put more of my money elsewhere where i need it. I'd say that this is "Price Gouging".

not everyone has the fees to cover these over exoritant rates. Who the hell are these people setting these rates.

What am I too teach my two teenage sons about these individuals, companies and how they are charging outrageous amounts. When I can't even explain it myself.

Who's protecting me from these outrageous fees.

Signed, is anybody out there.

Help! Mom, being gouged by the big companies...

Posted by: Brenda Miller at April 1, 2006 11:28 AM

With all do respect I think that your arguments are one sided. While I, as any other user don't want any of my bills to go up, we should all try to understand what is behind this. I worked as a network engineer for several years (now an independent consultant) and know as a fact that all network providers designed their networks with a level of overprovision, which means the networks are calculated with the assumption that not all of the users will have an active communication at the same time (this is as well true for traditional telephone networks and for many other services). What has been happening lately is that with a lot of new highly demanding applications, subscribers are using more and more their internet connection and not only downloading much larger files, but also requesting services that requires continuous streaming; what this causes is that every day most and most subscribers use the network for longer periods. If that network was designed for 1 of every 20 subscribers to be active at a time and their access prices where calculated on that assumption, now the use rate is much higher, consequently subscribers are not having the bandwidth they are paying for and the network providers have to increase their networks capacity. When the internet was developed for public purposes, it was thought for very different services, the model has now changed. Now, they are not talking about blocking, discriminating or controlling who access what at all, just prioritizing traffic. If you want fair examples think about the coach, business class and first class seats on a plane. Who pays more has more priority (speaking about the users), about the providers, any one who is an often traveler (specially international) would have noticed that some airlines get the best departure and arrival schedules, in some airports, some airlines get the best terminals, and other get the mobile terminals, this is just for a reason, the provider (airlines) are paying a higher fee to the transport facilitator (the airport) to provide a better service to their users. It's a very easy analogy to who is the provider, the transport facilitator and the user. Now your FedEx example, is like if the driver of the delivery car uses the fastest way, but it happens to be a toll way. That is something that FedEx decides to pay in order to provide a better service to their subscribers, it is the subscriber to decide what service they want. As a final thought, regardless of how this war ends, one thing is for sure, the current networks can not afford to carry all the traffic required by the new applications, and the network providers can not afford to constantly upgrade their networks so they can deliver what every subscriber demands without some kind of funding. What they are trying to do now is to avoid having to increase their fees to the subscribers and instead get it from the application providers, which are using their infrastructure to make money; I think that is a decent approach. One thing is for sure, Internet as we know it is going to change.

Posted by: nolan at March 23, 2006 03:13 AM

I cannot side with any RBOC or CLEC on these issues.. Why? Becuase for years they continue to find new ways to line their bank accounts with more money. Technology has caused things to cost less. Why up my telephone service costs 20%. As they have done to myself as well as my customers! Is it labor costs? Well Fire the unions, as they are driving us all broke and driving a significant amount of labor overseas. Why would I spend $350,000 for an apartment, that the owner has less than $125,000 invested in it? It's still only worth $125,000 to $150,000 to me. I can by a house less than a 1/2 mile away for less, and it is bigger, nicer, better area, not next to 10 million gallons of fuel, no pvc pipes and no management fees!
I use a lot of nextel's ok sprint's services, they brag that their customers are " the highest paying in the industry" yes it is true. But sadly to say, generally network availibility has gone down, signal quality has bee reduced, and customer service is really ignorant and they treat me as if I am stupid.. Prices continue to stay fixed, and every time I reduce my bill, without fail, they will somehow figure a way to raise those "service fees" to bring the bill up to the same amount or higher.
Now my point is that a number of carriers, including these Rbocs, are in the midst of making large profit streams already. I am very familiar with one's network infrastructure, and pitfalls, and major outages over the years. Colapsed rings? Redundant? AS of about 5 years ago they were serving a major metorpolitan area comprising of 3 major cities with 3 t3's.... From what I was told by an engineer who knew one of the engineers of this company. Then it was over subscribed, and even from those I know there still say it is over subscribed. (I know all about over subscription, that's how I maximize my costomers value) I also rember the days of another major teir 1 carrier in 96' using a single fddi (100mbit) to server that very same area (I saw this one in person).. I feel no sorrow for them or their likes.
As both a CEO and an engineer, I really don't appreciate the "cash cow" mindset of of these big companies. I get very poor customer service, billing, and support from them. They want to charge me more for a lot less service! They raise my service contract costs, and send their support to someone in india who can only read a script, barely have a graspe of the english language and tell me to "please hold". I'm not docking people in india, they are smart. Or some other contractor in the US that has a policy with it's call center people "fix it in 60 seconds or else". But what about me the customer. Gone are the days of "the Customer is Always Right". Most of my customer's headaches are from major carriers. Try fixing a $25,000+ and growing billing error, that the major company created.... They could care less that they were billing a local call as long distance! True Story! It never got fixed until they dumped the carrier. The carrier was begging to keep them. It was a major teir 1 carrier.

I suggest maybe it is time to bypass and do away with major companies, if they are going to contnue on their rant of "loosing money". I only see they profits growing with most of them with their filings. How about making "internet 3" No more incumbent bell carriers! Limitations of FCC charges, and taxes! Give me back my "FCC Network access charge" = Profit!

Oh I am sure some Carrier person will debate me here, but I look at providing the best value to my customers, and sometimes I win big, sometimes I loose, and sometimes I break even. But I have never lost a customer in over 10 years, and they are all happy, and recomend us. No big advertising campaigns with stupid commercials. I only wish the RBOC's would understand this. Why have I pointed many a customer to various CLEC's, it all comes down to good value, service, and reliability. I will credit reliabilty to most Rbocs and teir 1 carriers.
It is time Customers, Consumers, Consultants, put preasures on Big business, govertments, politicians, and some other groups. To bring costs down, right now I could move to a number of countries and live like a king for a long time. But here everyone dreams of my bank account, and all I hear from them is CA-CHING! Even before they talk with me.

Cut out the spam, viruse, junk faxes, and numerous telemarketers. Only then will I get 40% of my bandwidth back! I am so tired of all these extra fees! just give me one low fixed price!

Posted by: nolan at February 21, 2006 10:41 AM

I agree: QOS is one issue that isn't resolved. Another, alluded to by Chuck Scott is the buffet pricing model. It works at a Chinese restaurant because even really fat people can eat only so much.

But look a heavy Internet user could have (theoretically) pull down a megabit and push 256 kilobits 24x7. What does this cost the service provider compared to my mom who literally checks email once a day and maybe browses the web 2 or 3 days a week for 30 minutes each time.

Granted, a significant part of the cost to service a user is non-scaling with utilization (e.g. billing and the physical wire to her home). But surely some part of the cost scales with usage.

According to my back of the envelope calculation, a user who pulled full bandwidth continuously uses over 111 times more bits than my mom.

As more software becomes available that can (and will automatically) use bandwidth, I think the buffet pricing model must break.

Posted by: Keith Weiner at February 19, 2006 03:34 PM

I am certainly glad to see this debate heating up all over -- from the Wall Street Journal to those of us in the blogosphere that follow such issues.

A number of comments in response to Jeff are from "network engineers" who are pointing out the reasonable and obvious consideration that in some cases network demand will outrun the capacity that has been deployed in a given circumstance.

Leaving aside the general observation that the monopoly infrastructure providers upon which we rely need to take increasing demand into account when they design these networks, it is a reasonable point to make that certain kinds of traffic are more important - I think even Jeff would agree that he is wrong on this point.

Communications should have priority over file transfers. Synchronous communications (VoIP, video, gaming) should have priority over asynchronous communications (email, IM...) this is logical based on how we use these technologies. If my file takes a little longer to download because I am chatting with my Aunt on the phone, I'd certainly rather have that outcome than have my conversation disrupted.

But what the phone companies are talking about is NOT logical routing of categories of packets (which, by the way, should be under user control). They are talking about discriminating against particular vendors of packets in favor of other vendors of the same packets. Thus, if Vonage agreed to pay SBC's surcharge, my Vonage VoIP phone would work well but my Packet8 phone (a non-protection racket paying provider) might not work very well.

This is not about good network design. I wish it were.

Posted by: Ted Shelton at January 11, 2006 09:39 AM

I think you're missing a pretty basic tenet of network design here: at some point, even for a few miliseconds, any oversubscribed circuit will totally fill up.

Some of those packets behind the congestion really are more important, to the sender and to the receiver. (i.e., E911 VoIP)

Some of those packets could stand to be retransmitted (FTP).

And some of those packets (and on a residential broadband DSLAM, I'm guessing it's a higher percentage than the other two) are pure crap. NIMDA. Bot-nets. Script kiddies.

I disagree that all packets are created equally. As a service provider, there are packets we'd rather not receive at all. There are packets we (and our customers) wish could get to us sooner, and there are packets we can accept some delay on. Seems like capitalism is as good a model as any for us to help our providers and peers pay to upgrade their networks to help us treat our customers better.

Posted by: CCVP at January 10, 2006 12:26 PM

The double-dip arguement is a good, if slightly misapplied. The double dip comes from the content providers already paying for access to the Internet, and then potenetially having their packets mugged on the way to granny's house.

Let's say someone such as Google is buying big pipes from Level3, Broadwing, and such. The ripoff comes in the fact that any traffic brokerage money should be completely between the Level3/Broadwing folks, and the RBOC/Cable who is delivering the last mile.

The origination, termination and purpose of the traffic should have absolutely nothing to do with how much the end user or content provider pays. It should be based only on rate and/or volume, and the pricing of the transport infrastructure should be included in the price.

In fact, there may come a day when the opposite is true. Look at the cable/satellite programming model. The transport provider pays the content provider for the right to deliver the content. You choose the transport provider who has the best content selection and price for your needs. Someone could choose to ditch SBC precisely because they don't have an agreement with Google/Yahoo/etc.

Posted by: BlockTheRBOC at January 10, 2006 12:00 PM

Posted by: Jerusalem at January 9, 2006 04:51 PM

Let's cut to the chase here. These guys have fallen prey to the pervasive media hype that consumers should all have multi-megabit bandwidth at dial-up pricing. In an effort to compete, that's exactly what they've been selling. Now that people are starting to use that bandwidth they're squawking about the cost. Well ... what did they expect?

I have little sympathy!

Posted by: Chuck Scott at January 9, 2006 03:04 PM

This is such a good idea! I am off to buy T and VZ (first time in years!)!!! Ed and Ivan have found a way to save the telephone industry!! Every time a vendor makes money using the telco's facilities Verizon and AT&T v.2 get a cut. Just think of it! When an airline calls Boeing to buy an airplane, or P&G calls CBS to buy TV time for millions of dollars, the telco gets a piece! Fabulous strategy!! I hope their billing system can handle the billing of all the little spiffs they will get to collect from Domino's.

Don't let the Post Office get wind of this...they will start charging mail-order companies based on the money they make. That could pay the national debt!

Posted by: Kingsley at January 9, 2006 02:43 PM

IT IS NOT DOUBLE DIPPING. Now, I am not agreeing with their strategy but you need to develop the logic of your argument more.

Your example:
"Think about it this way. If instead of e-mail these companies delivered express-postal mail, it would be like the consumer deciding to pay more for a fast FedEx shipment (as they have for broadband) and then FedEx turning around (unbeknownst to the consumer) and also requiring the receiver of the package to pay more in order to ensure the package receives priority treatment and arrives on time. It’s a double dip."

That's actually an inaccurate and perhaps one-sided example. A better example is that the customer has requested 3-day shipping. That is faster than ground, which would take 2 weeks, and it MIGHT get there sooner (in 1 or 2 days), but it is not guaranteed. So the express shipping company has the supplier drop the goods off right next to their airplanes and they upgrade them to next day air, for a fee to the supplier rather than to the end customer. I think perhaps that is a better example.

However, I do agree that the Bells "don't get it" and that this development could be a bad thing. But I think they will also find they cannot implement this.

Fundamentally, I have not heard Whitacre or Seidenberg say they want to block anything. It is more about discrimination of their network bits; prioritizing some packets to the front of the bus as you say. What you see here is a larger debate, unresolved even within the Internet community, of whether or not QoS is important. Will network speeds & capacity keep going up so that QoS is not necessary 99% of the time, so that you can go without, or is the network a scarce resource that requires QoS mechanisms. Given that these guys come from inherently QoS-based networks, insofar as their networks are TDM-based and dedicate circuits of XX bandwidth from point to point, this is hardly surprising. They are extending the logic of their network outwards. Unfortunately, they fail to understand that their model is the old one and that many of their rules do not apply on a shared, global packet network.

BUT, isn't their a place for discrimination in any network? What if Verizon instead described a Google-Verizon IPTV service (and dumped MSFT for Set Tops let's say). A customer gets a Google set top box / PC and special Verizon IPTV service that happens to use QoS and packet prioritization between the Google and Verizon networks. Maybe?

Anyway, not so sure this is black and white...

Posted by: VoIP Dude at January 9, 2006 12:41 PM