A Practical Navigator for the Internet Economy

Net Neutrality As a Diversionary Red Herring, Vest's Wealth of Networks Part 2, Fiber in Vasteras, Sweden

 

How to purchase this issue. $150 or $450 group. The Septembert 2006 issue introduces the applied framework of Tom Vest's Wealth of Networks, summarizes European fiber builds, explains MälarEnergi's fiber business model in Sweden and exposes a more serious on going issue than Network Neutrality,.

August 1, 2006 Ewing, NJ --

The Internet Business Model in Asia and Europe versus the LEC Monopoly in the US

The most important insight that comes with this month’s issue is that the phone companies’ business model is one of selling scarcity, and that, in order to do so, they must and will insist that they have complete control over the physical connection to their customer. In order to achieve this end, readers may expect them to begin to follow, single-mindedly, a path to kill off competition and further consolidate their market position.

 

To drive a few points home. On July 28, Kevin Marks summed things up nicely with a few lines: My generation draws the Internet as a cloud that connects everyone; the younger generation experiences it as oxygen that supports their digital lives. The old generation sees this as a poisonous gas that has leaked out of their pipes, and they want to seal it up. http://epeus.blogspot.com

A powerful set of metaphors. The phone companies see the Internet as a poisonous gas that has leaked out of their pipes. Their job is to seal it back up.

Indeed, the very long installment of Tom Vest’s research (pp. 23-61 of this issue) makes it very clear that the telco’s ability be a speculative financial investment (and ten years ago a darling of Wall Street rather than a safe haven for “widows and orphans”) rests upon its ability to sell billable content and billable services. I have chronicled in these pages for the past year the ramp up of IMS to enable the newly installed last mile monopolists to slice and dice and bill for bits. As Tom Vest points out, the increase in stat muxing capabilities have made it possible to deliver close to infinite bandwidth over a single strand of fiber should the holder of the last mile connection relinquish its grasp. Such a fate is the worst nightmare of all the LECs.

Therefore, given its current business model and the current lack of understanding that there can be any such thing as a public good in the United States, the telco will choose to avoid being commoditized by keeping a bandwidth strangle hold over their customer.

For the incumbent, monopoly control over its territory becomes all important. Just as long as it can keep all other providers out, the telco can compete with the MSO by providing just a little more bandwidth that the MSO and do so in the context of absurd acceptable use policies.

What this means for the future economy of the United States is that the 1984 break up of ATT has gone from shinning success to unmitigated disaster in record time. The politicians and the financial tycoons who back them have no understanding of the profound changes in the ways of doing business that the PC and then the Internet and now globally interconnected broadband has brought. To the extent that they understand anything they would, out of fear, like to roll back the clock.

Some understanding of the archaic concepts of public interest or national good might indicate that this country would discover that giving the local phone companies the ability to try to become high-flyers on Wall Street mandates their business model of scarcity and control and will help to ensure that edge based business and innovation moves outside the US. Why? In order to give investors the return they demand, substantial edge based use and innovation may become priced out of the market in this country.

One reason for spending as much time as I have on Tom Vest’s work, is that it should give interested parties a way to track the decline in growth of the internet economy that is to be expected thanks to the failure of regulatory and public policy regimes in the US.

Network Neutrality as a Dangerous Side Show

As the lead article shows, network neutrality has actually turned into a dangerous side show and red herring distraction from the real on-going action at the state PUC and federal court level. Qwest has been stalking Level 3 for more than a year on a state-by-state basis seeking PUC sanction to void existing interconnect agreements. Qwest’s aim is to force Level 3, which has a network far larger and more advanced that that of Qwest, to become a retail customer of Qwest. How? Qwest’s is trying to force Level 3 to interconnect not just at one physical location per LATA but with in each local calling area within a LATA.

In effect Qwest is saying that it will permit Level 3 to deliver local dial-up modem access and VoIP termination services only under conditions that would ensure that Level 3 would lose money. At the Circuit Court of Appeals level in decisions in April and in July 2006 Verizon won decisions against Quincy Massachusetts based dial up ISP Global Naps that allowed Verizon to disconnect and there bye effectively kill this dial up competitor.

The problem is that, as the introductory essay points out, the knife they are wielding here is far sharper and more dangerous than the threatened but as yet unused Whitacre tiering that has engendered all the catawalling about network neutrality. They are killing off competition right now and almost no one knows it. The situation is all the more dangerous and ugly because it is being carried on outside the public’s purview. Not death by Internet. Rather death of the Internet by stealth.

Contrast Japan where government and society have been capable of acting for the common good instead of shareholder enrichment. Starting in 2000 as is pointed out in the interview with Tom Vest, Japan undertook a major national effort to build digital infrastructure. They saw it as infrastructure and forced national carrier NTT into major unbundling of both fiber and copper loops. The result was explosive growth of DSL and VoIP between 2002 and 2005 and in 2006 with the DSL market saturated fiber to the home now taking off.

Quoting Andrew Odlyzko on February 20 2006 Amsterdam fiber expert Dirk Van Der Woude wrote: there are in Japan some 4.5 to 5 million FttH connections in place. Then Dirk added that as of the end of July it has reached more than six million.“

Making a further point he said: “A new study (SIGCOMM’06, September 11–15, 2006, Pisa, Italy) indicates that the moment these network constraints are solved they many heretofore average users will at times become heavy users. Those 'heavy-hitters' are (at least in Japan) not a small and clearly defined group - but anybody with access to symmetric super
high bandwidth.”

“Quoting my Alderman Mark van der Horst who believes in short statements, "one does not buy a Ferrari in a country where roads are sandy paths". So, when a paved road is provided, people start thinking about a hot rod.” I add that IT companies in the US should take notice instead of assuming the telcos are their only customers.”

I have also published a summary review of European fiber projects that Dirk has put together. These are for the most part little known in North America.

Finally the first interview you will find is with Robert Kjellberg of MalarEnergie. Here Robert explains the inspiring Vasteras Sweden fiber project. Like Loma Linda in the US, Vasteras is becoming a Mecca for broadband in Sweden. Robert tells the complete story of the Vasteras success and as well walk along side him we see how critical the education and marketing side of such a buildout is. Indeed the economics and the marketing strategy are perhaps more important than the technology.

 

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Contents

Fighting the Wrong Net Neutrality War

Network Neutrality as an Answer to a Potential Threat Is Deflecting Attention from an Ongoing LEC Legal War Intended to Kill its Remaining IP Network Competition p. 1

The LEC Goal is Self - Preservation by the Delivery of Scarcity p. 2

Part 2 ­ Is Net Neutrality a Decoy from Even More Serious Issues? p. 3

Net Neutrality Is a Diversion that May Allow Death of Competitive Internet by Stealth p. 5

Fiber in Vasteras Sweden - Building a 21st Century Community Learning Post Bubble Lessons: the People, Mission, and Economics Must Come Before the Technology

Part One ­ MalarNet City: Philosophy, Structure and Achievements p. 8

Economic Effects of the Open Access MAN p. 8

Part 2: Snatching Success from the Jaws of Failure p. 11

Building an Open Access Network with 90 Days to Find a New Strategy p. 12

A Very Good Marketing Strategy p. 13 Rethinking the Market Model p. 14

Selling to Apartment Buildings p. 16

Coach on a Team as Other Cities Get Interested p. 17

Marketing Competence as a Key to Building New Infrastructure p. 19

Political Power Balances and Competition with Telia p. 19

Tom Vest’s Wealth of Networks Part 2 Framing, Measuring, and Evaluating the “Tussle in the Middle” in the Context of National Network Economies

Investigating the Division of Control in the Operation of the Global Internet Economy p. 23

Understanding the Fractal and Recursive Nature of the Internet p. 23

Diverging Patterns of Internet Development p. 28

Internet Development in China Compared to the US p.29

France as an Example of a Benevolent Monopoly p. 33

The Idea of Tussle p. 34

Multiplexing and the Division of Control p. 36

Interpreting Internet Production Numbers p. 44

Introducing the Herfindahl-Hirschman Index (HHI) p. 45

HHI Applied to OECD National Network Economies ­ In Search of a Network Macroeconomics p. 50

A Survey of European (Muni) Fiber to the Home and Fiber Backbone Projects By Dirk van der Woude p. 62

 

June 17 ­ July 17 Symposium Discussion

Regulators Serve Only the Interests of the Incumbents p. 68

Without a Deployment Strategy Expect No Progress p. 69

Wyoming for $50 Million Could Build a Statewide Fiber Network, if the Wyoming Regulator Would Allow It p. 70

Joomla and Web 2.0 and UCLP Version 2.0 p. 71

Lay’s Legacy p. 74

LoopCos or ConduitCos: Now and Forever p. 75

Wanted Netcos p. 78

Economic Growth Potential for Netcos p. 81

Cabling Issues for a Netco p. 85

Making Network InfrastructureAvailable on Reasonable Terms to Whom Ever Wants to Use It p. 87

Level 3 Qwest Interconnect Battles p. 89

Where’s the Fiber? - Network Maps p. 91

Executive Summary: The Internet Business Model in Asia and Europe versus the LEC Monopoly in the US p. 92

Contents p. 96

Contributors p. 99

Symposium & Interview Contributors to this Issue

Affiliation given for purposes of identification - views expressed are those of the contributors alone

Dana Blankenhorn, Atlanta based business writer and blogger

Robert Cromwell, Senior Assistant City Attorney in Seattle specializing in telecom regulation

Frank Coluccio, President DTI Consulting Inc., New York City

Sean Donelan, Security analyst Cisco

Bob Frankston, developed Visicalc and Lotus and later home networking at Microsoft

Fred Goldstein, Principal of Ionary Consulting, author of The Great Telecom Meltdown

James Hettrick, Founder Information Systems Management Sol & Connected Communities Assoc

Dave Hughes: Owner Old-Colorado Cities Communications

David Hughes Founder Visual Arts Systems

Robert Kjellberg, Managing Director, MalarEnergi Stadsnat

Scott McCollough, Texas attorney and friend of ISPs, CLECs and the Internet

David Reed, Internet pioneer, spectrum policy expert, currently with Media Lab & HP

Jere Retzer, Network Analyst Oregon Health Sciences University Portland, Or.

Chris Savage, Attorney CRB, Washington, DC

Doc Searls, Editor Linux Journal and Doc’s IT Garage blog, Clue Train Co-author

Bill St. Arnaud, Director Ca*Net4 Canada’s high speed research network

Tom Vest, Senior Analyst, Internet Economics & Policy CAIDA