Wednesday, March 16, 2011

The answer to Network Neutrality, data caps and Usage Based Billing lies with Google, Amazon, Netflix, Apple

[There has been a lot of noise in the blogosphere recently about usage based billing (UBB) and price caps coming to the US. Something I warned would happen based on the Canadian experience. 
In fact I believe a more insidious issue is developing where the telcos/cableso are not only extracting monopoly rent, but are using the revenue from UBB to cross subsidize their own proprietary broadband offerings  of VOD and IPTV.  I will be blogging more about that in the future.

Although I sympathize and understand the issues around network neutrality, price caps and UBB I am very skeptical that governments in Canada or the US will do anything meaningful to address the last mile duopoly – which is the fundamental underlying problem.   We saw last week in the UK that British Telecom removed its policy on caps because of stiff competition.  This competition was a direct result of the British government’s decision to mandate structural separation. (

Unfortunately the cableco/telcos in North America have a lock on Congress which is undermining the efforts of the FCC and the Chair of Canada’s regulator (CRTC) sounds like a spokesperson for Bell Canada in his various utterances on UBB.  It is unlikely that we will ever see the necessary leadership in North America to challenge this last mile cartel and create real competition.  We need another Teddy Roosevelt to take a big stick and break up this oligopoly which is choking innovation and dragging down the economy as a whole.  A good analysis of how Canada’s protected telco/cable duopoly has hurt Canada’s productivity and constrained economic growth was demonstrated in a study by Peter Nicholson, former president of the Canadian Council of Academies - INNOVATION AND BUSINESS STRATEGY Why Canada Falls Short. (

Given the lack of leadership from Washington and Ottawa, I believe it is up to companies like Google, Amazon, Netflix, Apple, etc to provide the necessary leadership and implement solutions that will address the sorry state of broadband in North America.  Google has taken the first step with their Fiber to the Home project, for which everybody is breathlessly waiting an announcement on the selected communities that will be part of this pilot.  But I think we need more such pilots  deliberately targeting the communities that provide the greatest profitability for the telcos/cablecos.  This is war and we got to hit the telco/cablecos where it hurts them the most. 

But I am not suggesting that Google, Amazon, Neftlix, et al need to build a national FTTH network.  I am  proposing a different strategy:

When  I was at CANARIE we were met with derision and laughter by the telcos when we first suggested that we wanted to purchase our own dark fiber and light it ourselves. They said it would be far too expensive and you need a large organization like a telco to manage and operate such a facility.  But with leadership provided by RISQ (the regional network in Quebec) and SURFnet in The Netherlands we demonstrated that we could build our own dark fiber and light it at a fraction of the cost that the telcos wanted for their lower bandwidth managed service.  This opened the flood gates.  Other R&E networks across Canada and around the world quickly followed suit.  Once the telcos/Cablecos realized our threat was real, that if necessary we would build our own fiber networks, and more worryingly introduce competition, they quickly changed their tune and started offering fiber at a much reasonable cost.  (In Canada, those glory days have pretty well come to end because of lack of competition and restrictions on foreign ownership, but the revolution continues in the rest of the world, particularly with the UCAN initiative in the US)

Google, Amazon, Neflix et al need to partner together to develop a similar strategy in the battle against the telco/cableco cartel.  First they need to build a number of FTTH project in selected neighbourhoods to demonstrate that their threat is real and then negotiate with the cableco/telcos and cell phone companies on transparent policy on network neutrality, costing and elimination of price caps and UBB.  If the cableco/telcos balk, which they will likely do initially, the Google, Aamzon, et al consortium have to make their threat real and continue to build more FFTH pilot neighbourhoods.  As I mentioned before they don’t have to target entire city or town (which would be ideal if the community were willing to participate as well) but only those neighborhoods which represent the highest profitability to the cableco/telcos.  They may even want to partner with someone like Level 3, who I believe needs to extend their carrier’s carrier business model to the last mile.

I think such a strategy would also define the true costs of delivering broadband and perhaps even allow the development of new business models.  As I have blogged in the past I think broadband needs to be free and unlimited.  There is a much better way to make money from broadband rather than extracting monopoly rent and charging users by the bit.  Bundling broadband with energy consumption and CO2 emissions to my mind is one approach that guarantees a lucrative revenue stream to the network operator, without costing the consumer a dime, and allows for unlimited usage and consumption.  For more details please see my blog on Free Fiber to the Home


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