The Carriers' Perspective

[David Farber <dave () farber net>]

________________________________________
From: Bob Frankston [bob37-2 () bobf frankston com]
Sent: Thursday, July 24, 2008 11:21 AM
To: David Farber; 'ip'
Cc: 'Vint Cerf'; 'Dewayne Hendricks'; 'Lauren Weinstein'
Subject: The Carriers' Perspective

I agree with Vint that there’s a real problem but he may be a bit unfair in calling the carriers spoiled when they are 
simply living in a past when they were service providers and the infrastructure was an internal cost.

It’s useful to understand this from the carriers’ perspective. They have invested a lot of money in building an 
infrastructure only to see others get all the value from their investment. They are service providers who are now being 
asked to let others get the service revenue. The carriers risked a lot of money but are now told they shouldn’t expect 
more than a thin return on what is essentially a commodity.

That would be bad enough but as we’ve seen with the fiber bubble it’s far too easy to generate far too much capacity 
sustain a profitable marketplace selling transport as Global Crossing discovered. I’ve cited Cable and Wireless’ 
frustration in finding few buyers for their capacity at the prices they expected. They’ve learned to limit the capacity 
but is that really a desirable result?

And it keeps getting worse as you look at it. Buying dark fiber means that any heavy users can purchase inexpensive 
capacity or even at their own. New fiber is actually very inexpensive if you lay it whenever you build or improve 
roads. You don’t have to put in the gear to light it up until you need it. You also have the option of adding fiber and 
radios to the mix. The costs come down drastically if you’re flexible and can take advantage of opportunities. If 
anything today’s system creates the opposite incentives – building ones’ own infrastructure to avoid having to pay 
settlement fees to others. Thus if I go via Comcast I have a local connection to MIT but going via Verizon means my 
packets go to NY and back.

This is what I’ve called the problem of owning a canal across an ocean of bits. There isn’t a price floor if there’s 
always a competitor with excess capacity and customers who can add their own capacity or simply choose not to buy 
services if the transport is a noticeable cost – there are simply too many opportunities for them to make money using 
commodity bits.

And the descent continues when it’s all about quantity and not quality – as Genuity discovered.

If they can’t get a cut of the service revenue and they can’t limit the quantity available then there isn’t necessarily 
a viable business in providing transport and no investor would want a business with negative return or even a positive 
return not commensurate with risk.

We got into this fine mess because telecom used to be a service business. If it’s now a commodity transport business 
the current players don’t have the right genes and even if they were created for the purpose, as with Global Crossing 
and Level 3 it’s not clear if it’s a viable business in selling anyway.

If we do structural separation why would the service side of the business want to be dragged down by the commodity 
transport business if they don’t get the advantages of controlling the transport? The service business’ interests would 
be aligned with Google and not their transport division. It’s no surprise that Google and others are complaining about 
the carriers’ attempt to share in the value created using the transport.

The mystery is why the carriers’ and their investors aren’t demanding that their deal be renegotiated before it’s too 
late. Time is simply not on their side. They should be demanding what I’ve called Divestiture II in which they spin out 
their installation and maintenance units into companies like those that build and maintain roads who are hired by 
communities and governments.

They are running out of options. I’ve cited the existing parallel universe of RG-6 vs IP distribution of video. We 
already have VoIP vs PSTN voice and even the PSTN is likely to be emulation over IP. What leverage do the carriers have 
– especially if the FCC works less hard merely to keep them alive? How long are we going to keep suspending disbelief? 
What better time to write-off doomed assets then when everyone else is doing so?

We can look at NYC’s subways for an example – they didn’t succeed as businesses. There are indeed examples of private 
bus companies and maybe even some railroads but they are the exceptions and not always viable without help. We 
recognize that public transportation is valuable to society not just the riders – though even there we may be putting 
too much burden on the riders and thus limit the benefit.

So why do we expect and even demand companies providing vital infrastructure be profitable out of context? When are we 
going to recognize they are necessary but cannot be profitable if they can’t have sufficient control to get a portion 
of the service revenue?

If we agree that service-provider model is no longer a good idea or even valuable then we need to face up to reality 
and move to a post-telecom world with a common infrastructure. Fortunately the costs of come down to the point that it 
really very expensive to provide capacity and to continue to grow the capacity.

The biggest mystery is why are so insistent on maintaining a model that isn’t viable when we have an alternative the we 
know works so well. Forget anti-trust, First Amendment and other arguments – the telecom investors are the ones who are 
facing losing all of their investment if they don’t make a deal soon.

We can argue about whether the British model is working – it’s a work in progress and has not played itself out.

http://www.frankston.com/public


-----Original Message-----
From: David Farber [mailto:dave () farber net]
Sent: Thursday, July 24, 2008 07:27
To: ip
Subject: [IP] Internet founder blasts ISPs for hurting national interests





Subject: Internet founder blasts ISPs for hurting national interests



Internet founder blasts ISPs for hurting national interests



Last Updated: Wednesday, July 23, 2008 | 2:05 PM ET



By Peter Nowak CBC News



Vint Cerf, who developed the technical principles on which the internet works, has blasted telephone and cable 
companies for harming national interests by holding investments in their networks to ransom.



Cerf, a long-time advocate of keeping the internet free from control by service providers and a current senior 
vice-president for search giant Google Inc., told the Silicon Valley Watcher blog that the companies are being childish 
by threatening to withhold upgrading networks unless they get breaks from regulators.



"Basically, it's like little kids in a tantrum: 'I'm not going to build this system unless you give me three scoops of 
ice cream and a pony,'" he said in a video posted on the blog on Tuesday. "My reaction to this is quite negative. It's 
harmful to the national interest to behave in this way because it is serious infrastructure — it's very much like the 
road ways."



Cerf said large internet service providers (ISPs) need to be split into two entities — one wholesale arm that sells 
access to the company's network to other firms, and one retail arm that sells internet access to customers. The 
wholesale arm would have to sell access to other service providers at the same rate that it charges itself.



The model has been adopted in the United Kingdom and New Zealand, where Cerf said it is working. Separation of a 
company — if not fully structural, then at least of its accounting department — is necessary to keep competition in 
providing internet access alive, which will head off ISP interference such as the slowing of certain kinds of traffic 
that is happening in the United States and Canada.



"We have to provide incentives that cause those companies to behave differently or create an incentive for a competitor 
to put in facilities that will compete with them. I want to take away their monopoly mandate," he said. "We have to 
make it a privilege to build the infrastructure. There has to be a reasonable rate of return, but it cannot be a 
confiscatory rate of return and it cannot be abused by allowing people to throttle competitors."

Rogers stirs up new hornet's nest



Cerf's comments come as a new controversy has erupted over internet interference by a Canadian ISP. Online message 
boards have been lit up for the past few days by users angry over a change made by Rogers Communications Inc. in how 
failed internet address searches are resolved.



Under the new system implemented last week, when a Rogers customer types in an internet address that does not exist 
they are redirected to a company-supported page with ads and links, rather than to the typical "server not found" page. 
Rogers did not notify customers of the change but does offer the ability to opt-out.



The move has outraged users, who say Rogers is hijacking their browser and searches. The opt-out function has also been 
criticized because it is browser-based, which means users must re-opt out every time they clear their tracking cookies.



"They did this to spam us with advertising when we type in a wrong [internet] address," wrote one poster on the Digital 
Home website. "I can't believe I pay Rogers for this service and they did this without asking us and they refuse to 
turn it off."



Nancy Cottenden, spokesperson for Rogers, said the change was made in order to eliminate error pages and "provide 
helpful search results based on what a customer is looking for."



"We make product enhancements on a regular basis and considered this to be one of them," she said. "We don't notify on 
each and every one."



University of Ottawa internet law professor Michael Geist said Rogers should offer the function on an opt-in basis, or 
at least institute the opt-out at a higher level — as other ISPs who have made this move have done — so that people 
don't have to constantly reset their browsers.



"The Rogers approach certainly isn't respectful of consumer choice," he said. "The response that Rogers has been giving 
— 'this is our network and we'll do whatever we damn well please' — does highlight what is for many a concern."



Rogers took heat last year for putting its own content on other company's web pages. Rogers experimented with inserting 
messages on sites such as Google that warned users they were nearing their monthly download limit, but quickly 
backtracked after being accused of violating net neutrality principles.



The company, along with Bell Canada Inc., is currently at the centre of a storm regarding the throttling of internet 
speeds: Their decision to slow down peer-to-peer internet applications such as BitTorrent has prompted a complaint with 
the Canadian Radio-television and Telecommunications Commission, which has said a full inquiry into net neutrality is 
coming.



Bell is also embroiled in a CRTC dispute with its internet wholesale customers, a fight that has seen Google accuse it 
of breaking Canadian telecommunications law. The CRTC expects to rule on the dispute with the Canadian Association of 
Internet Providers in September.



Cerf, who joined Google as a vice-president and "chief internet evangelist" in 2005, developed the transmission 
protocols that the internet is based on back in the 1970s.











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