Did Internet Founders Actually Anticipate Paid,

Joe Greco jgreco at ns.sol.net
Mon Sep 20 13:19:43 CDT 2010


> > A real threat?  Oh, please, get real.  A _real_ threat is what happens as
> > cable and satellite providers keep jacking their rates, and more and more
> > of the "next generation" of television viewers stop subscribing to
> > conventional television distribution because they're able to get content
> > over the Internet.  That's a real threat.  When your HD television comes
> > with Netflix Live On Demand built in, even grandma will be clicking on
> > movies, I'll bet.
> 
> You lost me here, Joe. Threat to whom? How is it a bad thing that
> consumers gain additional choices for sourcing content they want?
> What is wrong with Grandma enjoying Netflix from her built-in interface
> in her television?

I'm sorry, "threat" in the primary ways that one could mean that, as
something that's destined to melt down Internet connections and slag
service provider infrastructure, and as a threat to existing revenue. 

*I* see it as perfectly reasonable that consumers should gain additional
choices for sourcing content that they want, and if you look at the
archives of NANOG, you'll find out I bring out stuff like this from time
to time when talking about the future of consumer Internet access.

Certain service providers, and I'm guessing most notably anyone with a
legacy infrastructure, companies such as at&t and Comcast, will view as
a threat any models where they are bypassed and used solely as a pipe. 
Pipe is commodity, pipe is not particularly profitable.  It's the content 
that generates profit, and I'm pretty sure that some executives somewhere
have done the math:

	* Charge $39.99 a month for an Internet pipe, and no annual
	  increases

	* Charge $74.99 a month for basic Cable, plus upsell potential
	  for PPV, set-top box/DVR rental, premium channels, etc. etc,
	  and a 5%-10% annual increase
	  (http://money.cnn.com/2010/01/06/news/companies/cable_bill_cost_increase/index.htm)

I don't have easily verifiable numbers as to the profit in each of those
numbers, but it seems obvious that the one that's a bigger number and has
upsell potential is going to seem more attractive to service providers.

Now, the question you have to ask yourself is this, if you have a great
revenue stream in the form of cable TV subscribers, and you can slow the
adoption of a transition to Internet based TV by controlling and slowing
the growth of broadband speeds, would it make sense to do that?

My personal feeling is that the legacy providers feel threatened, and are
intent on dragging their heels into the modern age.

> >>> There is no reason to
> >>> expect that the "business model" will remain useful or that any
> >>> component of it, such as massive oversubscription, must necessarily
> >>> be correct and remain viable in its current form, just because it
> >>> worked a decade ago.
> >> 
> >> Well, I'm talking 10 years ago up until present.  How do you see the sub 
> >> model turning?  1:1?  If so, how?  And, still some profit?
> > 
> > If you want something interesting to ponder:
> > 
> > In the last ~10 years, wholesale bandwidth costs have fallen, what, from
> > maybe $100/mbit to $1/mbit?  I don't even know or care just how accurate
> > that is, but roughly speaking it's true.
> > 
> > In the last ~10 years, DSL and cable prices have stayed pretty much
> > consistent.  Our local cable connections have maybe doubled in speed in
> > that time.  DSL speeds haven't changed, except for Uverse, which is a
> > bit of an exception for a number of reasons.
> > 
> > Now obviously building the network costs something, but fifteen years
> > after they started providing service, I'm guessing that's been paid for.
> > They don't seem to be dumping lots of funds into increasing their network
> > speeds.  That suggests profit.  Do you have an alternative explanation?
> 
> Actually a lot of money goes into evolving technologies on the last-mile
> side. It's a bit of an arms race. For example, the reason your cable
> connections have doubled in speed is some pretty massive hardware
> upgrades to get from DOCSIS2 to DOCSIS3.

Ahhhh, no.  DOCSIS2.  And the last speed increase was some years ago.
But what's a mere doubling?  Look at other technology:

In 2000, 100Mbps was "fast" and 1000baseT was bleeding edge brand new.
In 2005, 1000baseT was commonplace and we were working on 10GbaseT.
In 2010, 10GbaseT is now "fast" and now 100GbaseT is bleeding edge brand
new.

Approximate factor: 100x.

In 2000, 80GB was a very large hard drive.
In 2005, 500GB was a very large hard drive.
In 2010, 3TB is a very large hard drive.

Approximate factor: 37x.

In 2000, a 1000MHz single-core CPU was a very fast CPU.
In 2010, a 2500MHz 8-core CPU is a very fast CPU.

Approximate factor: 20x.

But fine, let's pretend for a moment that there's something special and
magical about last-mile technology.  Let's just look around at the rest
of the world.

Sweden: In Sweden, household broadband is mainly available through cable 
(in speeds of 128 kbit/s to 100 Mbit/s) and ADSL (256 kbit/s to 60 Mbit/s)
[courtesy Wikipedia].

Boy, that sounds nothing like what's available here.

> There's also going to be quite a bit of investment to get the DSL
> networks ready for IPv6. The last mile remains an expensive place
> to play with minimal margins. The costs there have little to do with
> wholesale bandwidth pricing where your statements about once
> the network is built it costs less to keep it running are much more
> accurate.

Have you looked at what Sonic is doing?

> > I'm looking at the current scenario, and what I see are monopolies who
> > are afraid of the future.  at&t is already witnessing the destruction of
> > its legacy telephony business, the demise of ridiculous long distance 
> > rates, etc.  The Comcasts of the world have got to recognize that the
> > ability for customers to avoid paying a monthly cable fee by getting
> > video over the net is bad for business.  So you have cable and telco,
> > both telecom businesses with Something To Lose, both of whom incidentally
> > are also the gatekeepers of residential Internet service.
> 
> Yes and no. To some extent, I think the smarter ones (I won't name
> names on either side in this message) actually see this as an
> opportunity to simplify their network and treat IP as a unified delivery
> platform for all of those traditionally disparate services. Yes, there's
> got to be some fear, but, a smart and sustainable business turns
> fear into opportunity.

It could, but it also appears to have turned into a frenzy of lobbying in
support of things that do not favor the consumer.

> > The killer point, though, is when you look at what's happening in other
> > areas of the world.  You can see broadband Internet services elsewhere
> > evolving.  You can even see rogues here in the US (I'm looking at you,
> > Sonic!) who are pushing the envelope.
> > 
> > The reality is that the world is changing, and subscribers are going to
> > be pushing more and more data, often without even recognizing that fact.
> 
> Yep. Especially when we get the end-to-end model back and subscribers
> are able to be publishers just as easily as anyone else.
> 
> That's a good thing. We should seek to embrace it.

Oh, absolutely.  I just don't see that actually happening.

... JG
-- 
Joe Greco - sol.net Network Services - Milwaukee, WI - http://www.sol.net
"We call it the 'one bite at the apple' rule. Give me one chance [and] then I
won't contact you again." - Direct Marketing Ass'n position on e-mail spam(CNN)
With 24 million small businesses in the US alone, that's way too many apples.




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