Level 3 Communications Issues Statement Concerning Comcast'sActions

William Herrin bill at herrin.us
Fri Dec 3 00:25:27 UTC 2010


On Thu, Dec 2, 2010 at 4:28 PM, Steve Gibbard <scg at gibbard.org> wrote:
> Regardless of whether the apartment broker comparison holds up,
>there are many examples of what economists call two-sided markets:
>
> http://en.wikipedia.org/wiki/Two-sided_market
>
> They don't all have the same fee-splitting systems, and you can find an
>example to site as precedent for just about any system you could reasonably
>advocate.  An example raised in a talk I heard a few years ago was of
>scholarly journals that collect money from both their subscribers and their
>authors. The authors need to be published in order to get tenure, and the
>readers pay because they want to know what the authors are saying.

Hi Steve,

You've picked a poor example. I had some exposure to that earlier in
my career. The rags you're talking about tend to have very poor
reputations in academia, and while they do have an official cover
price, they have virtually no paid readership. Like unaccredited
correspondence classes, they exist primarily to help young and
second-tier scientists flesh out their CV's.


In fact, if you go through the list in the first paragraph on your
referenced Wikipedia article you'll find that most of them have a well
defined paying customer on one side and what you might refer to as an
"entity of importance to the customer" on the other. The yellow pages
for example - the advertisers are the customer. The recipients are
important to the customer (hence important to the publisher) but they
are not the customer and they don't pay for the phone book.

As an eyeball network, the content providers are certainly entities of
importance to your customer. But if the yellow pages is your
reference, that's all the more reason the content providers shouldn't
have to pay you.


That having been said, there are some examples of your two-sided
markets that are relevant. Here's three:

1. The newspaper. You pay for a copy. The advertisers pay to put ads in it.

2. The telephone. You pay for a phone. Anyone who wants to call you also pays.

3. The credit card. You pay annual fees, interest charges and late
fees. The merchant also pays a transaction fee.

So, let's scrutinize these examples for insight into how they could
apply to an ISP wanting to bill both Joe Blow and Netflix.

1. The newspaper. Yep, they certainly burn both ends of the candle.
And in a -strongly competitive market- they're dying for it in the
face of TV news and web sites which don't. But dig a little closer...
the majority of their revenue on the recipient side is folks buying
the paper for the articles. The ads are merely along for the ride.
Indeed, the consumer rarely buys a publication primarily for its paid
advertising -- examples exist but are fleeting. The publications which
do consist of solely paid advertising tend to arrive in the consumer's
mailbox without charge.

Lesson: you can bill the content provider if the consumer doesn't care
about receiving his content AND is receiving enough content you buy
for him that he's willing to keep paying you. Helpful for the ISP
situation? Yeah - it says if you can get one side of the market to
give you, for free, what the other side is willing to pay for, you're
ahead of the game. Don't get greedy!


2. The phone. This has been around the regulatory block a few times,
usually to the phone company's detriment. The ILECs were compelled to
set an interconnect tariff  that allowed all comers with exactly the
same terms. So the they said, "well, we don't want little competitors
cherry picking office buildings so we'll set the tariff as
originator-pays per minute." And then ISPs came along with massive
receive-only call banks and lo and behold some of the little
competitors figured out they could make enough money requiring the
telco to pay them minute charges to give the phone lines to the ISPs
for free.

Lesson: Trying to get money from both ends while a monopoly can be a
long and tortuous road to regulatory hell.


3. The credit card. Wait a minute, what do you mean the merchant pays
the bank a percentage of each transaction? The merchant doesn't pay
the bank anything! The consumer (the customer) pays the bank, the bank
keeps part of it and then the bank pays the rest of it to the
merchant. And you better keep them both happy -- you face stiff
competition from cash.

Lesson: In a competitive environment, being the billing agent for the
supplier can be a value add. But that doesn't exactly help you when
you think you want the supplier to pay you too....

Regards,
Bill Herrin



-- 
William D. Herrin ................ herrin at dirtside.com  bill at herrin.us
3005 Crane Dr. ...................... Web: <http://bill.herrin.us/>
Falls Church, VA 22042-3004




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