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[ NNSquad ] "Is a more expensive Internet a good thing? About Comcast and Level 3"
----- Forwarded message from Dave Farber <firstname.lastname@example.org> ----- Date: Tue, 30 Nov 2010 10:14:19 -0500 From: Dave Farber <email@example.com> Subject: [IP] Is a more expensive Internet a good thing? About Comcast and Level 3 Reply-To: firstname.lastname@example.org To: ip <email@example.com> Begin forwarded message: > From: Dave Burstein <firstname.lastname@example.org> > Date: November 30, 2010 3:16:20 AM EST > To: Dave Farber <email@example.com> > Subject: Is a more expensive Internet a good thing? About Comcast and Level 3 > > Dave > > Comcast says Level 3 should pay because they send more traffic to Level 3 than the other direction. There's an enormous amount of disinformation coming from all sides, that "the Internet will die" to "this is just an obscure peering problem. These are not the Droids you are looking for. Move along." Some thoughts: > > 1- Most important: Overall download to upload on broadband in now 3:1 to 5:1 and becoming less symmetric. Every backbone provider to every broadband telco/cableco is asymmetric and getting more so. (That even applies to AT&T and Verizon despite their broadband customers, because the imbalance is strong.) > > So this is about charging everyone, not any particular issue with Level 3. Level 3 is by far the largest backbone, by Renesys figures three times the size of AT&T or Verizon. Every backbone will be in a range of upload:download similar to the consumer ratio and have to pay. > > If Comcast, Verizon, and the other Big 8 impose this rule, most of the traffic to 80% of U.S. homes will be charged. > > 2- Comcast and the other carriers charging could be a good thing if much of the benefit were passed along to consumers in turn. Economists have a "two-sided market" model that with strong competition much of the benefit would be passed on. Cisco and other lobbyists have been ignorantly applying the theory where competition is weak and it doesn't apply. > > With the local telco/cableco controlling 95% of U.S. broadband customers, I believe competition is weak and most of the benefit will go to company profits. Costs of delivering broadband service continue to go down every year while prices generally go up. With strong competition, prices would likely move down with costs. > > Cable broadband according to John Hodulik of UBS and Craig Moffett of Bernstein has margins of about 90%. I'd include more of the network overhead but still find margins of over 70%. I do not believe increasing those margins important. I do believe keeping Internet costs down is a good thing. > > 3- Bandwidth is cheap but not free. Usage is increasing. If bandwidth costs were increasing significantly, I'd be much more open to ways to charge more. Fortunately, Moore's Law has been bringing the cost of bandwidth down very rapidly as well. Volume is up while cost per bit is down, both 25-40%/year. They've been about equal every year for almost a decade. > > Comcast, Cisco, and AT&T are all noting a slight drop in the rate of traffic increase. Congestion according to Comcast is now significantly reduced, with "far fewer than 1% of customers affected by traffic management." Even then, Comcast says they reliably provide 7 megabits down even to the affected customers. > > 4- The total cost of bandwidth is far too low to explain substantial bandwidth charges, less than $1/month/customer at large carriers like Comcast. That's 1% to 3% of the $40/month charged. Again, if the charges Comcast wanted were in line with the related costs, I'd be much more sympathetic. I wrote "Comcast's Fair 250 Gig Bandwidth Cap" because at that level usage is costly and a charge is fair. But this isn't about cost of service; it's about converting market power into income. > --------------- > > Ed Whitacre said "They're not going to use my pipes." His successor Randall Stevenson told Wall Street the same thing. I thought they would become the key test, but Comcast instead is the stalking horse. Level 3 picking up Netflix inspired them to look at how they might charge. The company's purpose is to make more money, so if they see an opportunity they take it. > > The question is whether this is good for the Internet and the country. The FCC Chair owes us a close look and the courage to act if this is as costly for consumers as I think it is. > > db > > > > > > > > ----- End forwarded message -----