Two Tiered Internet

Thu Dec 15 04:06:21 UTC 2005

Hannigan, Martin wrote:

>>	but do i get "the Internet"?  ... your claim is that
> 
> No, my claim is that "users" are not paying the full boat.

Internet end-users are paying a larger share of the costs of the system 
than broadcast radio or TV end-users are paying (which here in the US is 
0%).

Broadcast radio and TV is supported by ads placed in the content stream, 
and by paid-for content.  Internet sites are supported by advertising 
placed in the content and by paid-for content (personal websites on paid 
hosting) or subscriptions (end-users subscribing to content).  Internet 
users are paying part of the cost for connecting to the network, similar 
to how cable TV users are paying for the costs of connecting them to a 
better video delivery system.  But neither are paying for "content" 
except where cable users pay for premium ad-free channels, or when 
internet users pay for subscriptions to certain sites or services.

(In print media, end users pay primarily for the delivery of the print 
media and not for the content which is "paid" for by advertising.  Print 
media subscription rates are plummeting as users switch to getting the 
content on the web for free, rather than paying for the dead-tree 
deliveries.  Advertising rates and profits are falling as subscription 
numbers fall.)

When and where the Cable TV system has competition, we have seen new 
services and increased demand for ala carte pricing so that users can 
elect to pay ONLY for the services they want and need - something that 
terrifies the CableCos.  OTOH there's MetroFi, currently developing an 
ad-supported system to offer free WiFi in the city of Sunnyvale:

<http://wifinetnews.com/archives/006109.html>

And Google's plan to offer a similar service in Mountain View (without 
the screen eating ad):

<http://googleblog.blogspot.com/2005/11/wi-fi-in-mountain-view.html>

I wouldn't be at all surprised to see someone offer similar services for 
cable or satellite TV which would put additional pressure on the "pay to 
subscribe" model and bring these services to users more in the broadcast 
TV and radio model (free to receive, supported by ads).

What it comes down to is that in the long run end-users don't usually 
choose to pay for media or content services *unless* the services are 
delivered ad-free AND have compelling content.  (Such as HBO and 
Showtime for film, and more recently XM and Sirius for radio.)  So far 
there are very few services on the internet that qualify so end-users 
don't expect to pay more than a nominal connection fee to gain access to 
"the internet" and for the most part they only subscribe to sites that 
offer unique, high quality, ad-free content.

The only way the TelCos are going to succeed in developing their 
two-tiered internet is to provide compelling content only in their 
"premium service".  Given that past efforts to produce compelling 
content available on only one network (anyone remember "web portals"?) 
have been dismal failures or successes which then failed when there was 
competition that provided more content (prodigy and aol losing market 
share as users switch to the internet), I'm expecting similar results 
from this plan.  This would ONLY work if they could get a large content 
provider to switch to the "top tier" service and not offer content from 
that provider on the "low tier".  Yeah, that'll be the day!

This is a plan that benefits the TelCo at the expense of both the 
end-user and the content provider.  I can't see any reason why either 
party will play along, or any way the TelCo can force or coerce them to 
play along.  Any efforts to "urge" users or content providers to use the 
higher tier by degrading the service on the lower tier will just piss 
off their present lower-tier paying customers who will leave for the 
competition.  This can ONLY work in a market that has NO effective 
competition or if there is illegal collusion with the competition so 
that customers have no effective choice.

IMHO TelCos need to stop thinking of what they provide as a "service" 
and start to think of it as a method.  They provide the wires on which 
other services run.  Rent access to those wires for a fixed fee, the 
SAME fee to all who want to use the wire (including their own service 
companies).  Install newer and faster wires (fiber to the home) or 
non-wire systems (how about investing in wireless before MetroFi and 
friends take away the entire connectivity market???) and rent access on 
those improved access method (wired and wireless systems) for a higher 
fee.  Dump the complicated and expensive metered billing systems and go 
with simple fixed rate billing which greatly reduces billing and support 
costs.  Stay focused on what they do well (build level 1-2 networks) and 
stop trying to force their way into markets they don't understand and 
force customers to buy the services that run on these wires from the 
TelCo affiliated and owned companies that do a BAD job of providing the 
services the customer wants.

One can dream.

jc