Interviews with Digital Media Thought Leaders
Defeating Internet Video Threat
Podcast Audio | Posted by Phil Leigh on August 4, 2010
Some contend that Internet Video will never achieve its promise in the United States because the parent companies of the dominant Internet Service Providers (ISPs) are hostile to it. More specifically, CATV operators and Telcos consider it a competitive threat to their conventional television subscription services. Furthermore, the threat intensifies as growing numbers of consumers discover that modern televisions can also be used as display monitors for computers or other appliances capable of accessing the Internet.
Download audio narration to iPod, iPad, or iPhone here. (seven minutes).
As a result, it is argued that the ISPs will adopt usage-sensitive Internet pricing. In short, they will charge consumers for the bandwidth consumed thereby making it uneconomic to watch television shows and movies via the Internet instead of over conventional subscription services. Although consumers will object, their protests will be impotent because there are no realistic competitive alternatives to CATV and Telco ISPs. As AT&T Labs research compellingly documents, metered pricing of communications services severely restricts per-subscriber network usage.
A detailed analysis of whether ISP bandwidth metering is economically justified is beyond the scope of this post. However, a few summary points merit comment.
As outsiders we are only going to be permitted to see data the providers choose to reveal, such as graphs of exponential traffic growth. However, fifteen years ago Internet pioneer Bob Metcalfe predicted a catastrophic collapse of the Internet in 1996 by pointing to similar charts. In short, Internet traffic growth has always been exponential, yet there has been no apocalypse.
Additionally, one independent analysis detailed in Ars Technica last month examined Time-Warner Cable data and concluded that metered pricing is unjustified for two reasons. First, annual facilities investments have actually been declining in recent years even as ISP revenues were soaring. Second, operating expense ratios have not increased even though the company maintained that labor is its biggest ISP cost.
Whether WiFi, WiMax, or an alternative network could represent effective competition is a technical debate I will leave to others — at least presently.
However, in terms of its ability to destroy monopolistic pricing, the concept of competition needs to be evaluated in a larger context. The United States must function in a competitive World market. If monopolies insist upon providing a twentieth century Internet as the country tries to compete in a twenty-first century World, the United States will become a second rate economic power.
It should be obvious that the Internet is an essential technology. It is fundamentally transforming media, communications, and commerce. If our country has a second-rate Internet, our media, communications, and commerce will necessarily also be second rate. In such a scenario, residents of other countries would be routinely executing commercial transactions that would be crude, or non-existent, here. It would retard our economic progress as severely as if we adopted ruinous protective tariffs. Imagine if the only automobiles were those available from GM, Ford, and Chrysler. Or, consider if today’s dominant steel producers were companies like, U.S. Steel, and the defunct Bethlehem, Republic, National, Inland, McLouth, Crucible, and Youngstown Sheet & Tube — once all important companies.
According to Akamai’s latest “State of the Internet” report, the United States already ranks a disappointing sixteenth in average connection speed. Not only are we behind industrial leaders such as South Korea and Japan, but also trail former “Iron Curtain” nations such as Latvia, Romania, and the Czech Republic.
In terms of economic importance, today’s Internet may be as significant to us as railroads were in the nineteenth century. In that context, consider that as the Civil War split the nation the North had 22,000 miles of railroad while the South had only 8,500. Moreover, those in the South were often of different gauges thereby requiring passengers and freight to be shifted from one train to another. Consider also that the first transcontinental railroad in the United States was completed in 1869 whereas Russia did not complete the Trans Siberian Railroad until forty-four yeas later in 1913. Four years thereafter the Bolsheviks took over that country. I trust we can do better.
Categories: Podcast Audio
Tags: Bandwidth Pricing, bandwidth-caps, Cable-Televison, Future-of-Television, Internet-video, ISP, Metered Pricing
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Interesting point, however I disagree on account that ISP’s from other countries may actually follow US ISP’s. If US ISP’s broke net neutrality, many may look at usa and follow suit because of the influence the US has on mindshare with the rest of the world.