The 21st Century Network

Adam Thierer has a first person account of the Verizon’s new network, the one the hippies are screaming about:

Folks, this is serious broadband competition. For those critics who say that the rivalry between two competitors will not be intense, I say come visit my neighborhood. You’ll see Verizon showering people with free gifts (flowers for women, baseballs for kids, and even free gas at local gas stations!) to try to build name recognition and win new subscribers. And you’ll see Cox responding with flyers and e-mails about new services that are coming in an effort head-off this threat. And then you’ll see Verizon flyers and ads responding to those Cox flyers and ads. And you’ll see both of them cutting prices left and right to get customers or win them back.

(Meanwhile, wireless lurks as an alternative that could decimate both cable and telco wireline providers if they can just get the broadband part of the puzzle solved. Rupert and the boys over at DirecTV are in the process of rolling out an ambitious HDTV plan. Can more robust, reliable satellite broadband services be far behind? If DirecTV ever merges with EchoStar and combines all that satellite capacity, look out. That’s when things will get really exciting.)

The real question now is not whether broadband competition works, it is whether or not it is sustainable among more than two players per region. I am one of just 3 or 4 people in my neighborhood who have signed up for FIOS so far. Verizon is going to need to get A LOT more subscribers AND SOON. If they get caught up in a price war with cable in the short term they could be in serious trouble because the fixed deployment and installation costs associated with FIOS are killing them. They need customers and they need them now. At a minimum, Congress needs to enact local franchising relief and make sure that burdensome state or local regulation does not stand in the way of Verizon and other telcos rolling out these exciting new services. The market challenge they face is stiff enough that they don’t need such artificial regulatory impediments to success standing in their way.

It sounds like Verizon doesn’t have their act together on customer service, with all those union workers, but the service is something I’d buy if I had the chance. Unfortunately, fascist forces want to deprive me of the opportunity.

4 comments on this post.
  1. RedBankTom:

    I disagree on the customer service issue. I’ve had FiOS for 6+ months and their customer service has been exemplary.

    The FiOS plan I use more than doubles the bandwidth that the cable company can provide me. That’s the crux of my Net Neutrality concern. There is no real competition for fiber to the node internet service. No other broadband provider in my area can approach what Verizon can offer over their fiber and I’m not even on Verizon’s fastest plan.

    If Verizon chooses to tier their service so that their “public tier” is faster than the broadband competition in my area and their “private network tier” is much faster still than their “public tier” then Verizon will have implicitly reduced competition on the internet.

    Let’s consider two competing internet services, both of which require a lot of bandwidth. Service A is a partner with Verizon and thus Verizon puts them on the “private network tier”, while Service B is partner with a competitor to Verizon and thus Verizon puts them on their “public tier”. If I subscribe FiOS and Service B I am still getting better throughput than I could get using DSL or cable and I am generally happy with Service B. Let’s say through a promotional offer I choose to try Service A and I find that though I like Service B better the throughput I get with Service A is so much better than Service B that I switch to Service A.

    Why did I end up choosing Service A over Service B? Is it because Service A is a better company with a better product or is it because Verizon has tipped the scale in their favor?

    Forget the legislation discussion. This is what we should be talking about.

  2. d.l.:

    What you describe is very close to the manner in which cable companies are providing VoIP today. Their in-house service is provided in a managed environment with QoS treatment. Third-party services like Skype ride the unmanaged, best efforts part of their network. Do you find this objectionable?

  3. Richard:

    There are many theoritical things that Verizon might do if they chose, but they aren’t doing such things today, right?

    Now to take your example, I don’t think it would make as much difference as you think. Search results, for example, don’t require a whole lot of text to be downloaded, so the effect of network delay is minimal. Google accellerates their searches, nonetheless, by planting server farms all over the Internet and reducing the number of hops between client and server to a minimum.

    Let’s say somebody starts a company called HyperSearch that has a better search algorithm than Google’s but only one server, located in a farmhouse in La Honda, CA where the hippies live. HyperSearch is going to be slower than Google because the hippies don’t have the cash to cache search results all over the Net. But they’re able to make a deal with Verizon that enables them to deliver search results as fast as Google for one tenth the price.

    Is that a bad deal for anybody but Google?

  4. RedBankTom:

    Rich – The only real reason most people are talking about Network Neutrality is because of what the telcos own execs have said about their future plans, not what they are currently doing.

    On your response to my example here are my thoughts.

    If google decides to plant server farms to speed response then they are spending money to engineer a better solution for their customers. That’s their prerogative as a market leader and a 600 pound gorilla. That happens everywhere on or off the internet and I don’t have a problem with that. HyperSearch would have to find investors who believe in their algorithm and use their capital to invest in server farms to achieve that same engineering solution in order to compete with google. The Verizon problem would be a different, artificial, barrier for HyperSearch.

    Let’s say google and HyperSearch are manufactures in New Jersey and the only market for their product is in France. Google being a market leader can ship via air freight and HyperSearch has to ship via sea. Let’s say HyperSearch gets some investors and is able to start shipping via air; however the French government sets the following rules in place: the French, whatever their reason, like google better than HyperSearch and they will allow google’s product to be delivered via highway in France but HyperSearch must use secondary roads. That is not something HyperSearch can engineer around. Would you have a problem with France’s policy? What if that isn’t their current policy but their minister of trade has just floated this as a potential policy? If you were HyperSearch would you still be able to find investors? Would you decide to stay out of that business altogether?

    Rich, I get your message that Net Neutrality legislation is a bad alternative and I’m not sure I disagree. I just think that Access Tiering would be bad for the growth of competition on the internet and I think that is bad for consumers and businesses. I think free market guys have to start seeing the telcos plans as bad for free markets and once they see that then they will look for ways to encourage the telcos not to use tiered models.

    D.L. – I think that there are special regulatory tools that allow bandwidth used for the delivery of telecom and TV services to be cordoned off. Anyone else know more about this?