Level 3 blames Internet slowdowns on Technica

Mon Mar 24 01:59:51 UTC 2014

>> We don't know because the service provider rolls that cost up along 
>> with th= e services they sell.  That is my point.  They are able to 
> >spread the costs=  out based on the profitable services they sell.

>Okay.

>> If they were not able to =
> >sell us services I am not sure they could afford to provide that 
> >infrastruc= ture.

>That's a crock.  You can always provide infrastructure without selling services on top of it.  It's wire.  Or fiber.  Or whatever.  If you're not able to subsidize the >infrastructure with services, then what you actually get is a less distorted reality where you can actually identify the component costs (circuit, services, etc).

Sure you could do that.  I'm not denying that you could.  I am saying good luck making money on that or getting that business model funded.

>> In fact, having been a service provider I can tell you that I paid t= 
>> he LEC about $4 a month for a copper pair to your house to sell DSL 
> >service=  at around ten times that cost.  I am sure the LEC was not 
> >making money at = the $4 a month and I know I could not fund a build out for that price.

>Why would you try to fund a build out on that?

How are you going to get more than that?  I am saying you CAN'T fund a build out that way.  That's why a pure infrastructure model is not economically viable unless you have exclusivity that forces people to use it.

>Why wouldn't you instead charge for the build out as a NRC and then charge for maintenance as a MRC?

Because your customer will not pay a NRC for a residential build-out.  I know from experience that it is hard to get even business customers to eat a reasonable construction cost of a couple thousand dollars.  Try that model against an incumbent cable company and see how that works.  Will they be willing to pay thousands to be on your fiber network not knowing what the service is like until they commit or will they be more likely to go with the incumbent cable company with a simple monthly charge.  

In a low density area you can never fund a build out which is where universal access charges came from and the reason that rural LECs are exempt from competition.  In return for building a network that is not profitable easily they get exclusive access to sell services on it to give them a chance.  Will your NRC be reasonable anywhere outside a major metro area?

>What you're suggesting reeks of the deliberate cost distortion games that go on so often.  My personal favorite is cell phone contracts where the cost of the >phone is *cough* "subsidized" by the carrier.  But what's really happening is that the customer is paying for the phone over the term of the contract, and if >the customer doesn't get a different phone at the end of the contract, then the carrier ...  lowers their monthly rate accordingly?  No, of course not...  they >
>keep it as profit.

The carriers do subsidize the cost of phones and often they are free.  You can also get your phone upgraded on a schedule that is usually a couple years at most, you just have to ask.    This is a legacy model to get customers past the entry point of phones that might have cost up to $1,000.  Just look at the cost of a cell phone without any service attached to it.  It is much greater than what you pay when you buy a phone with service.  It is the customer spreading the costs out over the life of a contract because more people care more about monthly costs than overall cost.  Do you think people want to fund communications infrastructure to a home they might move out of in a year or two?  By the way, how do you continue to collect the NRC if I do move?   I can sell my home tomorrow,  Do I still have to pay for your fiber build?  Can you mandate that the grandma that moves in has to pay for it now even if she does need high speed services?

It's not a cost distortion game.  What is going on is that the LECs originally built their network out with the model of a captive customer that they could recover costs from for the life of the infrastructure so a 20 - 30 year payout was reasonable.  Unfortunately for the competitive communications provider, the capital markets will not fund a model like that and the customer is not captive anymore.  Would you bet that any of your customers will be with you 20 -30 years from now?  Just about every transport level provider of fiber networks got in serious financial trouble.  Look at MFS, Global Crossing, Williams, etc.  The more successful model is like Level 3 who sold service on top of an infrastructure (much of which was bought out from under failed transport only providers).  It was hard to make money on the city to city and country to country fiber network.  The fiber to the home will be completely unprofitable without exclusive access or the ability to sell multiple services on it.

The economic reality is that if I build out an expensive infrastructure I have to pile on as many high priced services as possible to order to maximize the revenue from it.  A customer who does not balk at a $200 a  month TV/voice/Internet service is not going to be happy getting a bill of $50 a month for a fiber loop.  The services are what the customer really wants and where you can add bells and whistle with little added expense.  The infrastructure is the expensive part.

BTW, if you think that NRC infrastructure charge would ever go away, you are kidding yourself.  Here in Illinois, we have been paying for the construction of our tollway in perpetuity.  When it was originally built the state promised to remove the tolls as soon as construction costs were recovered.  We are still waiting and will be forever.

If you want, you can criticize the model of the free economic that use profit to determine viability but unfortunately someone pays the bill in the end.  Whether it is government funded, a grant, or a commercial enterprise, expenses get recovered.  The only difference is that in a free market the customer gets to choose what they pay for.  In any other model, everyone pays whether they like it or not.  I think our communications model had to develop as a managed monopoly otherwise it would not have been the universal solution that it is today.  Now we have to deal with the downside of the monopoly as well.

Steven Naslund
Chicago IL