Thursday, April 27, 2006

If it Ain't broke...

Thanks to big "ML" for getting me going on this

The last I checked, the internet was working pretty damn well. I watched an entire live streaming Red Sox game Tuesday night on (they beat Cleveland 8 - 6, thank you very much). I receive e-mails, send e-mails, blog, surf, pay bills, buy stuff and download stuff without any trouble or undue slowness. Well if the big bandwidth providers get their way, that could all change.

Right now, the internet, as it always has, operates on the 'network neutrality' principle. Basically, data packets are transmitted on a first-come first-served basis, without regard to where they originate or where they are going. This has spurred enormous innovation and entrepreneurship because of the open competition spurred by low barriers to entry. In the current environment, the consumer gets to decide which content and services are worthy of the marketplace.

The large telcos: Verizon, AT&T, etc. who build and provide the infrastructure of the internet want a different set of rules and so far, Congress, most of whom eat at these companies cash troughs, are more than willing to let them make the rules. For years and years, these companies built infrastructure and strung 'dark fiber' (unused fiber bandwidth) to make money on internet traffic to come. These companies DO make money from providing bandwidth now. Most people with DSL now are paying anywhere from $20 to $50 dollars a month to have high 'downstream' bandwidth. what most people don't realize is that the's and Googles of the world also have to purchase very large bandwidth data circuits (T-1s, OC-3s, etc.) to connect their hosting servers to the internet itself, usually from multiple backup 'mirror' sites. These large data circuits, as you may guess, are very expensive and the telcos make tens of millions of dollars every year from them. So these providers - large and small - aren't exactly getting a "free ride" on the internet as AT&T chief Edward Whitacre (shown) might have you believe. No, they don't make money directly from their 'backbone' circuits, but they do collect larges tolls at the on-ramps and the off-ramps. In 2005, AT&T had net income of 4.7 billion dollars and Verizon had net income of 7.3 billion dollars, so let's just cut the crap that these companies are somehow going into insolvency if they don't get these concessions.

These telcos have seen the deep pockets of the large content providers and internet retailers that have prevailed in this highly competitive environment and have the idea that if they charge them extra money to provide "premium bandwidth", they can increase their own profits. Of course, the telcos are saying that this extra revenue will allow them to 'build the next generation of data networks', though this is something they've already been doing for many years and continue to do. In this tiered bandwidth environment content providers and retailers who don't or can't pay up for 'premium bandwidth' to line the telcos' pockets, will probably receive slower service. If you browse and purchase books from Amazon, the speed would be marginally faster. If you go to a smaller book e-tailer like say Alibris, Powells or new e-tailer trying to start up, the page loads could be noticeably slower, bordering on unusable. Simply put, the telcos want an environment where the supplier gets to decide which content and services are worthy of the marketplace. History has shown that this hardly ever works - "New Coke" anyone?

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