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.
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.
"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."
Yes, mostly, WRT cell vs land line. But a cell handset will work as long as it's charged, unless the towers in your area have themselves lost power, which is fairly likely in a disaster like Sandy.
Land lines work in power outages because the lines are powered from the central office, so they are subject to the same natural disasters as cell towers. The central offices likely have diesel backups. I suppose towers have battery backups?
Not disagreeing with you, I've always had landline comms during my power outages, but it's not black and white, especially as you rise up the disaster scale.
Unfortunately some providers like Verizon are forcing customers to switch to a digital line that has an 8 hour battery backup. During Sandy we didn't have cell towers or landlines to rely on. It was an incredibly uncomfortable feeling to have no easy means of communication with family just a couple miles away.
The local phone company here is rolling out fiber to near the house, then dsl from there. But we're in an area that's very prone to power outages, and the fiber terminators require power. The phone company is serious about providing service through power outages, they even advertise that unlike the power company, they bury all their lines. So, at every fiber terminator, they've got a small generac unit and some underground fuel storage.
We've had our share of 2 day power outages over the years, but the landline service has never gone out.
Yep. We've got the generator. What's more important is fuel. Gasoline generators suck fuel, so we use them as necessary to recharge the UPSes and cool down the fridge/freezer. Not so good for keeping the phone lines running.
It helps that we have wood heat, can cook on propane, and the well (for 6 houses) has it's own generator.
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.
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.
You're at the top end in terms of Average Revenue Per User of your SP (ARPU). USA is ~$60 per month. You're suggesting you're probably in the $100+.
I'd suggest that the costs to your provider over an above the average user are absolutely minimal - a little extra network traffic on average. So if ARPU of $60 yields 30% margin, cost of plan and handset is $42.
Let's say I'm right and 1/3 of your plan is subsidising your handset. We take a further ~$30 from the "cost". We're left with $12/month to support your > $100/month subscription. Sounds about right to me.
EDIT: Sorry, calculated $1000+ for one year... oops.
So cut all those in half: $6 a month to support a $50 a month subscription?
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.
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.
It's a heck of a lot less than it is to trench in a gas pipe, which presents all kinds of safety hazards and requires a specialized crew, or water pipes, which if done incorrectly could utterly ruin your house.
Installing a copper or fiber line is so simple it's almost impossible to screw up. The cost can't be more than couple of hundred bucks provided there's a feed on the post close by.
No digging. No explosions. No flooding. No requirement to transport valuable liquids or gasses that have to be produced in accordance with strict standards into your house in an on-going basis.
How your bandwidth bill is higher than that of natural gas, piped half way across a continent, is something the telcos should explain.
I use VoIP at home. I plugged my DSL adapter, my router, my VoIP box and my wireless phone base into a cheap battery backup. And when the power went out, my wireless VoIP phone still worked. I trust DSL more than cable for this, but even most cable deployments are not dependent on local power.
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?
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.
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?
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.
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.
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.
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.
The Internet used to run over telco networks, but now there are non-telco backbones (Cogent comes to mind). It's hard to understand their costs because they keep going bankrupt and then somebody buys the infrastructure for cents on the dollar. Odlyzko has written about this, although I can't find a good reference offhand.
I don't know for you, but here in Canada companies like Bell, Telus, Cogeco and Videotron have very, very expensive services.
Indeed telcos wouldn't be in business with lowered revenues if they keep their current business model. The thing is this model is based on deception and manipulation rather than creating great products that speaks for themselves.
As for myself, I would much rather have a Telus booth that doesn't look like it's made of marble but rather sell cheap phones that just works. No salesmen with a sales quota trying to pressure me, no overpriced booth, no bullshit.
Telcos only win because most people can't live without their services so they'll buy into them even knowing they get ripped off, keeping the whole thing alive.
I don't know for you, but here in Canada companies like Bell, Telus, Cogeco and Videotron have very, very expensive services.
I don't know a whole lot about the big telcos, but I use a small customer-owned telco in Canada and while the prices are basically the same as the big players, the profits aren't extraordinary. In fact, just as the parent suggests, in their case, internet service is operated at a loss and is subsidized by the other services the telco provides.
Perhaps the bigger operations can run their networks for less due to their larger scale and only gouge us because they can, or maybe it is just really expensive to operate telecommunication networks in Canada?
The thing is, in Canada all small Telcos are using the networks of the big Telcos. In Quebec City for instance, there are only two internet providers: Videotron and Bell for cable and phone line internet respectively, all the small players are just resellers for their network.
Of course their profit margins are small: the big Telcos still gets most of it. Their support, however, is often incredibly better than what any big Telco could ever hope to achieve.
That is certainly true in some places, but the telco I speak of owns the last mile copper and are working on rolling out their own fibre to the customers. There are more telcos in Canada than you might think. Ontario alone has around 20 telephone companies that are not the big players and are not just resellers of the big players infrastructure.
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.
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
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.'
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.
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.
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.