----- Forwarded message from Dave Farber <[email protected]> -----
Date: Tue, 30 Nov 2010 10:14:19 -0500 From: Dave Farber <[email protected]> Subject: [IP] Is a more expensive Internet a good thing? About Comcast and Level 3 Reply-To: [email protected] To: ip <[email protected]> Begin forwarded message: > From: Dave Burstein <[email protected]> > Date: November 30, 2010 3:16:20 AM EST > To: Dave Farber <[email protected]> > 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 -----
