Phone Co Toll Demand Seems Reasonable

My initial reaction upon hearing that Verizon, et al, want to charge Google, Yahoo!, et al, for carrying broadband content over their networks was that this was yet another pathetic attempt by whining, dying monopolies to make themselves relevant in a new world.  After reading the details, however, it seems that the content providers are the ones being unreasonable.

According to the WSJ, Verizon, et al, want to charge content providers extra to guarantee rapid delivery of broadband content (music, movies, VOIP, etc.).  They'll still deliver it if the content providers don't pay, they just won't guarantee that it will get there fast. 

Yes, such an arrangement would leave plenty of room for sleaze (make the "regular" delivery so slow that content companies have no choice by to pay up), but, on its face, it seems perfectly reasonable.  Want your customers to get your stuff quicker?  Then pay us more.  In a physical-mail analogy, this seems similar to FedEx or the US Postal Service charging more to deliver a 300-pound box overnight than a letter.

This said, I may be missing something about how the phone companies already charge. Do Google, Yahoo! already pay per unit of traffic?  Are the phone companies already charging more for the 300 pound box?  If they are, and if they're just whining to the regulatory folks for help getting more, then I'll have to go back to my initial reaction. 

All help appreciated...

Comments

[Jeff Tyeryar]

Henry:

It seems to me that there's a third perspective that's getting lost in this discussion: the consumer. If Verizon can denegrate the quality/speed of content I want, regardless of how much I'm paying Verizon for my own access (in my area, Verizon FIOS consumer pricing ranges from $35-$40/month for "up to 5 Mbps", to $200/month for up to 30 Mbps) then what am I really paying for? The chance that I "might" get good data speeds, if all my preferered content providers are paying the ferryman's fee? What good is a fat pipe to my home if I don't really get what I want at the speed for which I'm paying? Agreeing that Verizon should be able to discriminate between content providers means argues the validity of providing differential service to consumers with the same access/rate plans, depending on the content choices made by those consumers.

[Alex McCloskey]

Right now, all internet access charges both the senders and recievers of content. The recievers (home users) typically pay a flat rate for unlimited access, while senders pay according to the bandwidth they use. So yes, the senders already pay more for for a 300lb package than for an envelope. The key here is that what they are paying for is the telcos "best efforts"--they make no guarantee that what the senders send will be recieved complete, in a timely fashion, but they'll try their hardest. And most of the time, they succeed. What they are proposing doing is upgrading from "best efforts" service to *guaranteed* service. This is very analogous to mail--USPS service is "best efforts". If you pay $3.00 for Priority mail, the USPS will make their best efforts to get it there in two days. If you pay UPS $11 for blue lable service, they *guarantee* it will arrive in two days. By pushing the analogy a little bit further, you can also see how the last poster is incorrect... Lots of big commercial trucks increase congestion and wear and tear on the roads. As a result, the government charges big commercial trucks extra taxes to use the roads. Guaranteeing delivery requires more big commercial trucks to get the job done, so UPS pays the government more taxes than does the USPS. Of course, UPS passes those charger onto the shipper, who passes them onto the reciever. In our analogy, the telcos are the government, responsible for maintaining the "roads" of the internet. So, why not charge the "big heavy trucks" (high bandwidth content senders) more? As in all of life, you get what you pay for, and that's perfectly fair.

[Ian Holsman]

I'm guessing that the toll would apply to the back bone, and not the 'consumer' area of their networks.

Right now google (and all other content providers) pay their network provider 90th percentile of their monthly traffic.

This then gets 'peered' through the back-bones and competes with all the other traffic going across the backbone.
what verizon are proposing is to put the paid-for packets into a high priority queue (more like a first class check-in vs a economy check in) and let them go through first.

For streaming services latency is the critical component, so paying verizon for a lower latency service might enable a company to not have to build a 2nd streaming service on the other coast.

[Carl Howe]

I agree with the previous poster that this really isn't about any type of "faster" service; it's about bounded latency service. The actual bandwidth available wouldn't change. The change required is minimal -- they simply tag the priority packets in a different way and the routers do all the work. So this is about getting premium prices for something that will cost them nearly nothing, since all that happens is that all other Internet use of their network -- use that current users are paying monthly fees for -- would be delayed and degraded by this premium service.

Two other points that I don't think have been made here:

1) The telcos have been claiming that they simply want to be compensated for access to their customers (Whitacre, CEO of at&t, said this about a month ago). The telcos already are compensated for access to their customers through peering arrangements with other carriers. So this argument for charging the services like Google and Yahoo amounts to double-charging them.

2) The major telcos who are in favor of these "market-based" changes to Internet usage are the same ones who want to make sure that their ordinary phone services are protected by law from competition from cable companies and VOIP. It's clear these changes could be used to prohibit competitors from attacking their existing phone services with lower priced service, and there are no guarantees they will not be used in that way.

I am fully in favor of a free market in services. However, these companies are asking for regulatory support of and protection for their monopolies. That type of protectionism isn't a free market and shouldn't be something that consumers and voters should support.

[Joe McGuckin]

The current internet economic model of the internet is that end users pay their ISP for bandwidth and then the large ISP's freely exchange traffic between themselves. This is quite different than the traditional telco model where telco's pay each other to receive calls. For example, if you place a long distance call to a friend who is a Verizon subscriber, your telco pays Verizon a small amount (something like .1 cent/min).

The telcos want to extend the traditional telephone billing model to the internet.

Verizon, et al want to have their cake and eat yours too.

While Verizon and the other telcos are saying they want to charge for 'improved access' to their customers, Ed Whitacre, the president of SBC, explained his position pretty bluntly:

Question: How concerned are you about Internet upstarts like Google (GOOG ), MSN, Vonage, and others?

Whitacre: How do you think they're going to get to customers? Through a broadband pipe. Cable companies have them. We have them. Now what they would like to do is use my pipes free, but I ain't going to let them do that because we have spent this capital and we have to have a return on it. So there's going to have to be some mechanism for these people who use these pipes to pay for the portion they're using. Why should they be allowed to use my pipes? The Internet can't be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo! (YHOO ) or Vonage or anybody to expect to use these pipes [for] free is nuts!

Why would Google or Yahoo play ball? The current 'best-effort' network provides adequate quality of service.

The only way for the telcos can force content providers to pay for access is
to degrade their own networks so that 'best-effort' delivery equates to awful performance.

Unfortunately, this really screws the telcos customers, who - don't forget - are already paying the telco for internet access. An internet user may access a few large content providers (like Google) but typically accesses hundreds of smaller sites also. Those smaller sites certainly would not be paying for better delivery, so most of the internet would be really slow except for the few large content providers who were willing to pay the telcos for access.

So, SBC and Verizon want to be paid twice for the same traffic.

It's not like Google and Yahoo are getting a free ride. They're paying their ISP for the bandwidth they're using.

If Ed Whitacre of SBC feels like they're not getting a fair return on the billions they've spent to build their network, I suggest they raise the fees they charge their users.

Perhaps $19.95/mo is not a realistic price for residential DSL service. If it isn't, I don't see how that is Google or Yahoo's problem.

[Yangmeister]

If you are watching the new video programming from Google, and your son (or daughter) is busy downloading the list of 500 songs with limewire, and you would like to see a coherent, uniterrupted video stream, it appears that two class of traffic would be desirable, and two sets of prices reasonable. The question is if Google, or you, should pay for the difference. I like to see Google paying for it, for simple pragmatic reasons.

Bounding the latency (and its variation, referred to as jitter) for video means equipment and "capacity", on the access (Fios or otherwise) and within the "network" (to the content providers). It is not free.

[JJ]

If these telcos want to charge content providers, why don't they just get into the same business that Akamai is in - speed delivery of content to end users; this would make more sense.

[JJ]

One additional note - why don't these telcos price broadband access like the way web hosters do (I've seen some advertise $100 for 1 terabyte of data transfer; I think ??? they make profits on this package.) Bandwidth hogs (people who can eat more at the buffet) then would pay more than their neighbors - this is very reasonable.

[Brad Walker, Jr.]

The telco's are greedy b**tards. They just want to be paid two, three times
for everything.

If I'm paying for 6mbit DSL that my ISP advertised as "lightning fast", I feel that
the ISP should deliver on that promise - irregardless of whatever side deals they may have with a yahoo or google.

Google is providing *free* wireless for a couple of towns in California. With all
that fiber they're purchasing, SBC and the other baby bells ought to be worried that Google will bypass them and provide free internet access for everyone.

Then how are they going to pay for those expensive networks...

[Bryan Christmas]

Ok so what if I’m a lawyer charging for on the phone legal advice?(I’m intentionally avoiding the more obvious analogy to keep this PG rated) Should the phone company get money from me to make sure the phone works especially well during these important calls, just because I’m making money from them?? NO!!! Guess what, we already pay for the phone service and I want it to work really well all the time, even on calls that don’t generate revenue, like say, oh I don’t know, 911 calls!

I understand this analogy isn’t perfect because video content stressed the network more, etc. But too bad, they have to get used to the fact that video is soon going to be the norm over their networks, and that's what people expect that they’re paying for. What about all that stuff about web 2.0? The consumer supplying themselves? Free, independent content that can now be produced just as easily by your neighbor as by a huge studio? Average Joe broadcasting to millions for free through BitTorrent? This proposed pricing scheme would create an economic model that begins to slow down content that a huge corporation isn’t paying millions to “guarantee” delivery of. If paid for content is going through the pipe faster just by being prioritized, then free content must be slowed down.

This sounds to me like the cable companies just want to grasp at anything to slow the inevitable decentralization of content production. The content is one less thing for the cable giants to buy, resell, and mark up. So the cable company retains control and keeps a revenue stream. Instead of the cable company buying content they think you want to watch and selling it to you, this proposed arrangement equates to the consumer paying for content through the backdoor of the content providers passing along these prioritization fees to the consumer.

These companies seemed perfectly happy with their business model until they saw profits passing right under their noses that they couldn’t touch. Or maybe they're just getting nervous now that the average, not so tech savvy consumer is going to actually be using all that bandwidth they’ve been paying for all this time.

[Todd Underwood]

Most discussion of Internet backbone economics is sadly simplistic. This disucssion seems richer than most, but that's probably just the audience.

Yahoo, Google, and other content providers already pay some money for transit to some providers. But they also enjoy *extensive* free peering to most of the cable and dsl networks in the world. This actually saves money for both the content provider and the cable/dsl network. Why? Because the cable/dsl networks *also* have transit costs. And their customers want the content. So the choices look like this:

Choice #1: everyone pays. Content providers pay a transit provider (Sprint, Verio, AT&T, UUNet) to carry their transit bits. DSL providers pay either a transit provider or incur extra costs themselves to haul the traffic to the end user.

Choice #2: no one pays. The content providers and end-user access providers agree to exchange traffic for free at a large-ish number of locations. Costs go down for both, access for the customers of both is improved.

Choice #2 is what every access network in the US has currently made. That's not likely to change any time soon, regardless of public comments to the contrary.

[Nathan]

End users are currently paying for various steps of broadband speed. More money=faster data delivery.

Content providers are also currently paying for various steps of broadband speed. More money=faster data delivery.

When these networks were built out, all of the telcos knew that data would need to get from point A to point B. Providing the infrastructure for that transmission, and understanding how much the initial investment in that infrastructure will cost, as well as maintenance and depreciation costs, helps the telcos understand how much they have to charge the people at point A and point B for access to the network.

The bottom line is that the end users (you and I) and content providers (Google, Yahoo) have already paid and continue to pay the telcos money that they then use to build out their networks.

If the telcos had a reasonable arguement, and were offering a worthwhile service that the thousands of content providers would be interested in, then the free market would put a price on it, and the telcos wouldn't have to again rely upon Congress to legislate a market that will allow them to sell things the free market has already decided is of little to no value.