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Today's Carrier Networks as Trollways?

Mar 08, 2006 | Inside: Regulation & Policies

In response to the New York Times article, The High-Speed Money Line, published yesterday March 6, 2006.

As I keep pointing out—there is indeed a viable alternative of a real marketplace not a fake one. Today’s system is a fake because it depends on capturing the value of the application - communications - in the transport and that is no longer possible because with the Internet the value is created OUTSIDE the network.

One example of the collateral damage caused by today’s approach is the utter lack of simple wireless connectivity. Another is that we have redundant capital intensive bit paths whose only purpose is to contain bits within billing paths.

In practice the Telcos are about nothing at all other than creating billable events. Isn’t it strange that as the costs of connectivity were going down your phone bill was increasing—at least until VoIP forced the issue.

We have an alternative model in the road systems—the roads themselves are funded as infrastructure because the value from having the road system as a whole, not the roads in isolation. You don’t put a use meter on each driveway.

Tolls, fuel taxes, fees on trucks etc are ways of generating money but they are indirect. Local builders add capacity; communities add capacity and large entities create interstate roads (and the Interstate DEFENSE Highway System).

They don’t create artificial scarcity just to increase toll revenues—at least not so blatantly. The analogy isn’t perfect as roads have limited capacity and create other problems—connectivity scales far better.

I refer to today’s carrier networks as trollways because the model is inverted—the purpose of the road is to pass as many trollbooths as possible. We keep the backbone unlit to assure artificial scarcity. Worse, by trying to force us within their service model we lose the opportunity to create new value and can only choose among the services that fill their coffers—it’s hard to come up with a more effective way to minimize the value of the networks.

We charge for local broadband as if all the calls were going out across the country and thus assuring artificially limited local capacity (though gigabits are one-way TV). The model has all the wrong incentives. What’s worse is that it’s all artificial and totally unnecessary. It’s a classic case of a prison of our own devise—a creation of the Regulatorium and what I referred to as 1930’s state socialism. We are still paying the price for the Great Depression.

A model in which the infrastructure is paid for as infrastructure—privately, locally, nationally and internationally can create a true marketplace in which the incentives are aligned.

Instead of having the strange phenomenon of carriers spending billions and then arguing that they deserve to be paid we’d have them bidding on contracts to install and/or maintain connectivity to a marketplace that is buying capacity and making it available so value can be created without having to be captured within the network and thus taken out of the economy.

With no need to trap the bits within billing paths we are free to let the capacity leak out so as to provide complete wireless coverage without having to channel all the traffic into the straightjacket of 3G services (see Assuring Scarcity).

We also would avoid the scare stories like the NYT A1 “Hey Neighbor, Stop Piggybacking on My Wireless”. It would be as if you were yelling at someone for stealing your porch light by reading a street sign. The community wouldn’t have to limit an individual’s connection speed to assure scarcity of valuable bits.

I keep trying to figure out how to explain this to a wide audience. Trying to explain that phone companies no longer exist is hard but if you think about it the legacy landline services are akin to continuing to rent out those old black phones after divestiture (but worse sine the PSTN users are hostages not just rent payers). Today’s Telcos are trying to become anything but a Telco—they want to become CableCos, CellCos or something else. Yet those other entities still only make sense in the framing of the Regulatorium. The step they cannot take is to become contractors for implementing commodity connectivity—that’s the kind of transition that a true marketplace handles smoothly by birthing new entities while retiring those that are no longer viable.

Change may not be easy but is necessary and, in this case, liberating. It may be hard to imagine a real marketplace but it will soon be hard to remember why and how we tolerated the Regulatorium. 

This has been a featured post from Bob Frankston.

Comments
  1.   By George Muenz | Apr 25, 2006, 02:33 pm PDT | Link

    Excellent article, and oh so true. In fact, Telcos today are seeking to increase usage fees for those who use more bandwidth, despite the fact that Telcos pay less the more bandwidth they use or nothing at all under Peering arrangements.

    George Muenz
    PortaOne.

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