
OECD: Telcos Overcharging By Five Orders Of Magnitude  - vectorbunny
https://falkvinge.net/2012/11/26/oecd-telcos-overcharging-by-five-orders-of-magnitude/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Falkvinge-on-Infopolicy+%28Falkvinge+on+Infopolicy%29
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crusso
_describes how vastly more efficient the bottom-up Internet is compared to the
old telco industry’s top-down model_

Pricing disparities like that between telco services vs Internet services
create pressure like differentials in air pressure on opposite sides of a
membrane. The membrane represents forces that prevent efficiencies in that
market from being realized and enjoyed by consumers in that market. When that
membrane is able to prevent the equalization of a pressure differential that
is five orders of magnitude, you know that membrane is extraordinarily strong.

Unfortunately, membranes like that exist everywhere you turn in society. They
do an enormous amount of damage, and the only reason why we see it so starkly
in this case is that the Internet grew faster than membrane-supporting-forces
could get their boots on its neck.

~~~
jacquesm
This analogy makes me wish for a pin.

There has to be some way to breach that membrane.

~~~
a-priori
I wonder if Google Fibre is one such breach.

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PaulHoule
This is bogus.

New Yorkers got a tough lesson about the reliability of "modern"
communications infrastructure in the last flood. I remember a circa-1990's ad
where an old lady using a pay phone said "This never happened with AT&T" and
the answer was "You're not dealing with AT&T."

I live in a cell phone dead spot and I depend on a landline because it will
work when the the power is out and I really need to call 911. Cell phones,
cordless phones, skype, dsl, cable and "magic jack" all disappear when the
power goes out.

Also with all kinds of communication infrastructure there's the economic
problem of paying for it. I got a close look at a proposal to wire a rural
area with optic fiber to offer multichannel television and DOCSIS 3 internet.

Most of the cost is in getting the fiber to your door. This cost is huge
($1000-$2000 per household) and is necessary to offer the simplest and
cheapest services.

Triple play bundles are one way of getting more money out of the average
customer and then there's the very tricky problem of offering better services
to people who value them more, so you get usage caps and overusage fees that
are 10-20 or more times than the bulk price (no, i wouldn't complain about
spending $20 for an additional 200GB of usage)

The outside physical plant that these people were proposing to build could be
easily upgraded to support service similar to Google Fiber, but that would be
an empty promise unless they upgraded their "middle mile" which again would
mean a considerable amount of capex.

Regulated telcos are greedy, that's true, but I've looked at the economics of
a number of smaller broadband providers and it's definitely a challenging
business to be in.

~~~
jws
_Most of the cost is in getting the fiber to your door. This cost is huge
($1000-$2000 per household)…_

Wait, the monetary barrier to having fiber is only about the same scale as my
two year cell phone contract?

~~~
Swannie
You're confusing cost with price.

The _cost_ is $1000 - $2000 per household.

The price of your mobile plan may be $1000+ for 2 years. The cost of your
mobile plan is probably $300 for the handset, and $100 for the service.

As you usually end up paying for the customer edge device with
connection/first year costs with internet, then you can remove the cost of
your handset from the comparison.

~~~
jws
Actually, I was hoping that cost and price would at least be near each other.
Adam Smith… invisible hand… all of that.

I think you just proposed about a 300% profit margin for my cell provider. I
doubt they do that well on me, but that we can believe they do should be a
sign that something is wrong in our communication business model.

Personally, I think that if the phone companies are overseen by commissions
that restrict their profit margins, then clearly the only way to increase
profit is to do everything as expensively and inefficiently as possible. Their
actions make a lot more sense thought that lens.

~~~
jl6
I'm assuming handset and service cost are just two of your provider's costs
among many: infrastructure, salaries, debt, risk...

~~~
nine_k
Hmm, I suppose that the same is correct with regard to internet providers? I
mean, they build infrastructure, pay salaries, mitigate risks, and _still_
provide orders-of-magnitude better bandwidth. This must be especially
noticeable when the same company provides you with internet and a landline
phone, using _the same cable_.

OK, let's assume that 10000x difference is an unfair comparison, because a SIP
phone or Skype won't work when you need to call 911 most. Maybe it takes 100
times more investment to provide for this: extra bandwidth, redundant cables
and switches, redundant power — all much stronger than a typical datacenter.
But even then the phone service would be 100x as cheap.

~~~
jws
The 10000x is unfair because it is based on the assumption that cost of
service is a multiple of bandwidth, which is completely untrue. The article's
entire premise is fiction.

If you want to make a simple linear model of data costs, at least remember
that linear means _y = mx + b_. The article left out _b_ , which is a heck of
a lot bigger than _mx_ for phones and typical household consumption.

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eli
I'm not a huge defender of telco companies, but isn't this like arguing that
Adobe Photoshop has a 1,000,000% markup because the DVD they sell for $700
only costs $0.07 to produce?

~~~
crusso
No, it would like paying a 1,000,000% markup for Adobe Elements when
(hypothetically)Photoshop can do everything it can plus a lot more.

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josh2600
Am I the only one who realizes that while voice is approaching
commoditization, you still have a lot of specialty equipment required for
moving calls? It's not the same as IP, where, for instance, the time to
reorder the packets on arrival is inconsequential, whereas in VoIP it's death
if those packets aren't sorted in under 200ms.

Is Voice WAY more expensive than it has to be? Yes. Is it 5 factors
overpriced? Probably not.

The $ figures cited in the article treat voice like another packet and it just
isn't.

Source: I work at a company that's trying to open-source core telecom
infrastructure.

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binarymax
Yes, but maybe the the internet rate is that low, because it is effectively
being subsidized by the telephone revenue (with a hefty profit on the side of
course). If telcos all of a sudden started making 10 cents instead of 500
euros then they wouldn't be in business for very long, and then who would
manage the network?

~~~
crusso
You're probably correct about the subsidization, but the solution is to remove
the monopolistic protections created by government regulations and
infrastructure lock-in then let the telcos compete to see where that real
price is.

~~~
eli
Isn't loose regulation of the wireless industry the reason the US has
completely incompatible CDMA and GSM networks competing with each other? IMHO
the consumer would be much better off today if the government had stepped in
and pushed everyone to one or the other.

~~~
crusso
Nobody really cared about CDMA vs GSM. The market decided that issue with
dollars of GSM vs CDMA with a resounding "meh".

I mean, look what they did with Healthcare. So many things they could have
addressed, but instead foisted a huge behemoth of a law unto consumers and
businesses.

For all you know, they might have selected TDMA because some congress critter
writing the bill had a cousin who had a factory spitting out TDMA chips. Then
we all would have been stuck long-term on inferior technology because some
congressperson made a political decision.

Give consumers choices. Let them decide what's important to them. While it
sounds nice to have some benevolent Government helping to organize us and make
important decisions, that's just not the way that history has shown it works.

~~~
eli
That's my point: nobody cared about CDMA vs GSM and now we're _all_ worse off
because of it.

If we had all agreed on TDMA early on that would have been a bad call, but
IMHO it would still be better. All those TDMA towers simply became GSM and
UMTS towers. No one makes purchasing decisions based on compatibility, but if
compatibility were enforced (just as AT&T is forced to allow you to dial a
Verizon number), the market would be more competitive and the service would be
better.

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bjhoops1
This sort of thing is happening on a massive scale in the US as well. David
Cay Johnston's book, The Fine Print: How Big Companies Use "Plain English" to
Rob you Blind exposes how "regulated" monopolies bereft of competition squeeze
money out of their essentially unrepresented customers.

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jond3k
Looks like a good article but the url violates the same origin policy and as a
result it render images. Readers will get a better looking page if they knock
the 's' out of https until the owner can fix it

~~~
vectorbunny
Sorry about the url. The falkvinge.net address in my feed is a product of the
HTTPSEverywhere plugin. @Falkvinge tweeted me to find out how I got the url.
He is still testing:

'I thought I'd have time to check and roll it out slowly - now, a lot of stuff
is still hard-http-linked even on https.'

------
KaoruAoiShiho
Too bad telcos have a 60% profit margin not 100,000%. How is this plausible?
The article doesn't explain.

------
jond3k
What's stopping an entrepreneur from building a new network now, in a single
town?

~~~
PaulHoule
The cost.

Google is building out a network in Kansas City because (i) they've got more
money than they know what to do with and (ii) they want to intimidate the ISP
industry and influence the government.

Any entrepreneur who wants to offer internet service will find they have the
same economic interests as the phone company and the economic logic will lead
them to behave the same way.

It may be true that you can offer somebody a service at $50 that offers 10^5
more bandwidth than a $50 phone line, but without paying for some physical
plant that costs at least as much as a phone line, you can't offer phone
service for 0.005 cent a month.

~~~
nine_k
This differs very much between cities and suburbia.

In a city, you can run a fiber line to a 6-story building and service 30
households by just running some Cat5 cable from a fiber terminator box. And
the house probably have enough underground pipes to get into, e.g. electric
cable or water pipes. The next house to run your fiber to is probably
physically next.

A city-based ISP can run profitably at very moderate prices. Such an ISP can
serve hundreds of thousands subscribers over a few dozen square miles. I've
user services of several such small ISPs in Russia and Ukraine, with rates
about $20 for a 20-30 Mbit line, and even cheaper slower plans.

In a suburban setting you have to run much more cable, install more
transcievers, and every house you run your cable to is one household. Then you
have to connect to a backbone cable, which may be many miles away (in a city
it's usually much closer). This must be much more expensive.

