Observations of an Internet Middleman (Level3) (was: RIP Network Neutrality

charles at thefnf.org charles at thefnf.org
Wed May 14 14:23:21 UTC 2014

On 2014-05-14 02:04, Jean-Francois Mezei wrote:
> On 14-05-13 22:50, Daniel Staal wrote:
>> They have the money.  They have the ability to get more money.  *They 
>> see
>> no reason to spend money making customers happy.*  They can make more
>> profit without it.
> There is the issue of control over the market. But also the pressure
> from shareholders for continued growth.

Yes. That is true. Except that it's not.

How do service providers grow? Let's explore that:

What is growth for a transit provider?

More (new) access network(s) (connections).
More bandwidth across backbone pipes.

What is growth for access network?
More subscribers.

Except that the incumbent carriers have shown they have no interest in 
providing decent bandwidth to anywhere but the most profitable rate 
centers. I'd say about 2/3 of the USA is served with quite terrible 

> The problem with the internet is that while it had promises of wild
> growth in the 90s and 00s, once penetration reaches a certain level,
> growth stabilizes.

Penetration is ABYSMAL sir. Huge swaths of underserved americans exist.

> When you combine this with threath to large incumbents's media and 
> media
> distribution endeavours by the likes of Netflix (and cat videos on
> Youtube), large incumbents start thinking about how they will be able 
> to
> continue to grow revenus/profits when customers will shift spending to
> vspecialty channels/cableTV to Netflix and customer growth will not
> compensate.

Except they aren't. Even in the most profitable rate centers, they've 
declined to really invest in the networks. They aren't a real business. 
You have to remember that. They have regulatory capture, natural/defacto 
monopoly etc etc. They don't operate in the real world of 
risk/reward/profit/loss/uncertainty like any other real business has to.

> So they seek new sources of revenues, and/or attempt to thwart
> competition any way they can.

No to the first. Yes to the second. If they were seeking new sources of 
revenue, they'd be massively expanding into un/der served markets and 
aggressively growing over the top services (which are fat margin). They 
did a bit of an advertising campaign of "smart home" offerings, but that 
seems to have never grown beyond a pilot.

> The current trend is to "if you can't fight them, jon them" where
> cablecos start to include the Netflix app into their proprietary 
> set-top
> boxes. The idea is that you at least make the customer continue to use
> your box and your remote control which makes it easier for them to
> switch between netflix and legacy TV.

True. I don't know why one of the cablecos hasn't licensed roku, added 
cable card and made that available as a "hip/cool" set top box offering 
and charge another 10.00 a month on top of the standard dvr rental.

> Would be interesting to see if those cable companies that are agreeing
> to add the Netflix app onto their proprietary STBs also  play peering
> capacity games to degrade the service or not.

So how is the content delivered? Is it over the internet? Or is it over 
the cable plant, from cable headends?

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