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Fred Wilson on Net Neutrality

AVC logoI like Fred Wilson’s blog. It’s eclectic and good reading for both business and pleasure. He wrote something on Net Neutrality today, and how carriers are discussing charging for incremental tiered services.

I have blogged about this issue before and I will reiterate that this is about jealousy and greed plain and simple.

It’s about business Fred, and finding ways to recover the incremental investments you need to make in order to provide more bandwidth. Unlike software, which you spend a great deal of time with, Telecom involves work in meatspace (digging trenches, going door to door, working around traffic, and paying state troopers for police detail). You don’t get the same non-linear return you get on a software investment. If the previous investment isn’t fully depreciated, you need to charge more to recover the costs of a new one.

If the government lets the carriers get away with this greedy move, I will discontinue Internet service from any carrier who seeks to get paid by the value added services. And I will encourage everyone else I know to do the same.

That’s how a market works and it is your decision to make. My guess is you’ll end up with a cheaper but inferior connection. Why can’t you give the telcos the same freedom of choice to operate their business?

Why don’t we have a 12mb down/3mb up Internet service in NYC? Apparently they have it in France. Why doesn’t Verizon spend money on developing that service? I’d glady pay more for a true high bandwidth service. That’s how the carriers should be looking at things. But instead they are trying to take money from the wrong side of the table. And it’s not going to work.

Pretty simple. The carriers are afraid once they make the investment the government will come in and regulate it. They are trying to determine how much room to manuever exists before they trench more fiber.

Also – Verizon has such a 15 down/2 up service for $45 a month. It’s called FiOS. I have it at home. It rocks.

You are right that in the end this whole thing may not work. But getting the government to step in and establish regulation is the wrong way. Letting the market illustrate the poor business case is better.

Discussion

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  1. Differential pricing is not going to happen, it’s a pipe not a reservoir, you don’t get the choice of which packets you receive at the head end.

    Suppose Verizon prioritorize packets from set of IP addresses X, ahead of packets from set of IP addresses Y. The ISP who runs the Y network will downgrade Verizon in retaliation since they have a piering agreement with them. So what have Verizon gained? Nothing.

    Posted by nj | February 9, 2006, 11:15 AM
  2. Verizon (VZ), and other network operators, are targeting the content providers, not other ISPs. I don’t think VZ would care if a packet has a source or destination address from Time Warner or Level 3. However, they might care if the traffic from your home is going to or coming from Skype or Vonage.

    With Ink Jet printers, there is no money to be made in the hardware. The money is in the ink cartridges. The same is some what true for Internet services. The is not much money in providing just an internet connection. Networks are costly to operate, maintain and upgrade.

    I don’t work for a network operator. I am in favor of network neutrality. However, I do realize that SBC and VZ have stock holders that want to see revenue growth. For those operators the most logical way to achieve that growth is to follow the lead of the cellular companies and offer additional “soft” services to their subscribers and content providers. With cellular operators those services are number of minutes, ringtones, text messaging, email/web, etc. With wireline operators those services will be:

    1) voice and video over IP for the consumer,
    2) tiered service levels
    3) some type of “preferred network access” for the content providers, like Google and Yahoo.

    This competitive a market space. You have the cable companies, telcos, WiFi providers and possibly the munis battling it out for our $$. I think there will something for most people. If not, then we should prepare to join Fred Wilson’s protest.

    Posted by Brad_K | February 9, 2006, 5:47 PM
  3. “Verizon (VZ), and other network operators, are targeting the content providers not other ISPs.”

    And the content providers buy their connections from ISPs. At some point Google buys a connection into the backbone from some provider with some bandwidth capacity. This is true of all sites and all services. They all connect into the web somewhere.

    They all agree interconnections based on the volume and speed of traffic shipped, of their connections. If Verizon offers a degraded service that will simply be reflected in a lower peering value for their network. Negating the effect.

    e.g. I send a large file via MSN Messenger, Verizon throttles it back because MSN hasn’t paid the fee, do you think my ISP won’t retaliate by slowing Verizon traffic in response?

    Plus the bad publicity would be suicidal, “is the net slow today, or is Verizon blocking the site I’m trying to access?”

    Posted by nj | February 10, 2006, 8:09 AM
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