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Re: There is no business case for broadband Internet [Was re: Interconnect Scaling]

From: David Farber <dave () farber net>
Date: Sun, 1 Apr 2007 09:26:00 -0400


Begin forwarded message:

From: Max Tulyev <president () ukraine su>
Date: April 1, 2007 10:51:53 AM EDT
To: Bob Frankston <Bob2-19-0501 () bobf frankston com>
Cc: dave () farber net, ip () v2 listbox com, dewayne () warpspeed com, dpreed () reed com Subject: Re: [IP] Re: There is no business case for broadband Internet [Was re: Interconnect Scaling] 

Hi All,

At first, really let's see what we are selling as the Broadband Access?

Connectivity? I buy a megabit of transit for $50 (just because of there
is still a lack of competition, and we are expecting $20 till the end of
this year). Local connectivity (peerings, IXes) is ~$100/month per
gigabit. So I can do 1:2 or even 1:1 ratio with reliable price. No, we
don't sell connectivity. We do different tariffs for users only to
enlarge ARPU (reach people pays more), but not for our connectivity
engineering.

Wire/spectre infrastructure? Yes, we should include $1-$2 in monthly fee
or our customers  for maintaining our infrastructure, but it is not main
costs.

SUPPORT, Yes, THAT'S main thing broadband providers sell. This means
customers can call to our suport center at 3am and ask a various
question from how to set-up a Windows connection till asking to change
(or make, if new one) wire from our switch to their home. Yes. We are
selling a support and service. Internet, connectivity and so is a really
secondary thing ;)


Bob Frankston wrote:

/I really should do this as a paper in its own right but this debate
provides useful context./
Yes – what is this “broadband Internet”? Are we talking about a TV channel?
We need to be very careful about our terms and definitions. The question 
is what are we selling and can we keep the price above cost. We also
need to be careful about accounting choices in assigning costs. I would argue that the business of selling transport as a service doesn’t scale because it makes far more sense to buy facilities and pay for trenching 
and maintenance



Max is correct in pointing out that the cost of the physical
infrastructure is relatively low – especially if we go wireless. The
question is what is the product? If we use the example of the network
within the house there really isn’t a cost for the bits – once you’ve
paid for a router then the bits themselves have no cost. There is a cost 
for the wires but that’s a fixed cost.



If we scale this outside the home then maintenance becomes an explicit
cost but the problem comes when we try to associate the costs with
“bandwidth” or bits. As we see in the example of the home network the
cost is based on the wires and the devices but not with the bits. With
fiber the cost is primarily about the gear we use to light the network
not the physical transport (one can argue about CAT-6 vs 3 but that’s
not significant for this purpose).



To test the rationale for bandwidth pricing we should start with the
home network and it would be hard to justify charging people more for
gigabits vs megabits. The problem becomes obvious as soon as you run video.
If we extend this to the neighborhood one can argue that there is scarce 
capacity but that’s a social policy not a technical policy. Far better
to deploy sufficient capacity so that the normal applications that use
only a small percentage of the capacity won’t have a problem and those
who do use a huge portion may be affected. Again, we can use local video 
as a test of the rational for bandwidth or bit pricing. It would swamp
other applications and VoD demonstrates that we already have the
capacity for video on a common network. People do want share.
Note the mention of xDSL. If you are using wires from a third party then 
you may have to put up with the limitations. But the xDSL technologies
do not mean that you can’t do better if you owned the wire. I remember
first hearing the term xDSL when working with Tut systems for phone wire 
networking. Marty Graham made the point that the limits are not
intrinsic, it’s similar to the point David Reed made about wireless
capacity. I need to be careful – it’s not necessarily that the capacity is infinite but we can do far better if we didn’t presuppose the limits 
and focused on opportunity rather than doling out scarcity.



So that leaves the cost of spectrum and peering.
While I argue that we shouldn’t have the concept of licensed spectrum we 
currently do and it’s a matter of pricing. There should be significant
reduction in cost by avoiding using the wires but the policy frustrates 
getting the benefit outside of the unlicensed spectrum. Given the
ability to get gigabits using wires and megabits using wireless then
charging for bandwidth makes sense only if the cost of investing in
wires doesn’t give a huge advantage in pricing and capacity.
Both spectrum and xDSL represent arbitrary limits on capacity. There is no real cost for the bits but we are trying to dole out scarcity against a presumed limit. These limits are essential for maintaining prices. If 
we don't have such limits and there is abundant capacity then the
bandwidth pricing model collapses.
There is still a business model for deploying and maintaining the fixed 
assets. If we have the model that this is a community then the company
that does bandwidth pricing can also simply deploy as much physical
capacity as the community wants to pay for. My argument is that the
community’s buying power would reduce the cost to far below what they
would pay with bandwidth pricing. The problem today is that they are not 
normally given the option.
More to the point the tendency to view the network in terms of services as we do with broadband frustrates rational debate and an understanding 
of the true costs and opportunities.
I do appreciate that Max is offering pure bit transport. Ideally he’s in 
the position to switch business model to facilities management. This
would be far more difficult if he were in the triple play business and
worried about being bypassed. The facilities management business is a
very price sensitive business because it is too easy to compare prices
when one is not locked into silos but it’s no different than garbage
collection or other such businesses.



The important point is that this is not really broadband as we know it
today when I have to use a FiOSTV router to get their VoD but doing so
breaks the home network due to implementation issues of their NAT and
other design choices.



The remaining problem is the cost of peering. It would be a shame to
limit local connectivity because of the cost of peering with the rest of 
the world but that’s the way prices are often set today. There are a
number of ways to address this:
One is to limit the capacity at the peering point so that you would pay 
for a percentage of the capacity. This is similar to what we do now so
maybe it’s better to look at it in reverse – we continue the bandwidth
pricing but don’t put a cap on local capacity.



A better way is to assume that the aggregated buying capacity of the
community is sufficiently large so that there is relatively abundant
capacity. This is fine except that the video bits may be problematic but 
if other applications work and video doesn’t work very well then there
is an Akamai-like opportunity. In fact, since we often find 50:1 to
100:1 ratios today we are already deploying such solutions.



If we take this path then we can increase the effective capacity by
peering with adjacent communities or using dark fiber to reduce the cost 
of peering with other cooperating communities. At some point these
communities become sufficiently large that we repeat the phenomenon of
the local community switching over to paying for physical infrastructure 
rather than leasing bandwidth.



This is what I consider the end game – investing in the physical
infrastructure by hiring companies to manage and deploy it. We would
already be there except for the presumption that bandwidth pricing is
the way to go because we are presuming a telecom model of services
rather than the Internet in which we do our own network and just need
physical facilities.
We can also step back and look at this from a societal point of view. I keep noting that applying the ARPU model to other infrastructure such as sewers doesn’t make sense – we know they don't have to be profit centers 
because their value is in terms of the external benefit to society.
There’s a joke about which part of the body is much valuable, the brain makes it’s case but one organ simply goes on strike to prove its value. 



What does it mean that these cities are opting out of providing
networking in favor of traditional telecoms? It means they can’t see the 
value in being able to use the infrastructure. One reason is that if
they are locked into the charging for bandwidth model then the cost of
using the transport is high. We might have abundant capacity but we’re
afraid to let the meter run. This the need to meter all the usage makes 
it difficult to deploy applications without a rationale and
justification for each one. Something simple like connecting parking
meters requires a special purpose implementation tuned to the billing
relationship. You could use a cellular model but you wouldn’t want to do 
that per meter unless you negotiate a special deal so you instead
negotiation to be able to aggregate the bits with a local network and
then use a shared cellular modem.



If the cities understood the value both in what is possible and the
reduced costs then instead of looking to offload the network to some
company that thinks it can maintain sufficient control over the way we
network so as to maintain a high bandwidth/service pricing model it
would pay for maintaining the network.



That’s actually what a city does when it does its own network anyway.
It’s a viable business model for the companies that maintain the
facilities. The real problem is that the cities don’t see the value in
having the infrastructure and, in effect, turns the sewer system over to 
ARPU pricing. And then accepts the synthetic scarcity as if it were an
essential scarcity rather than just a way to maintain prices (as usual
http://www.frankston.com/?name=AssuringScarcity).



Perhaps this makes more sense than my general claim that (at a first
approximation) there isn’t a business in transporting bits for hire and 
that we should instead invest in the physical transport. It’s the end
game if we follow this line of reasoning. There are many business
possible so why are we trying to hard to charge the FCC and PTT’s with
maintaining the one that is not viable in itself, and maximizes costs
and minimizes are ability to get the full benefit of our fixed assets?





-----Original Message-----
From: David Farber [mailto:dave () farber net]
Sent: Sunday, March 25, 2007 13:06
To: ip () v2 listbox com
Subject: [IP] Re: There is no business case for broadband Interent [Was 
re: Interconnect Scaling]







Begin forwarded message:



From: Max Tulyev <president () ukraine su>

Date: March 25, 2007 10:53:13 AM EDT

To: dave () farber net, dewayne () warpspeed com

Subject: Re: [IP] There is no business case for broadband Interent

[Was re: Interconnect Scaling]



Dewayne,
Sorry, but you are wrong about it. I'm doing my small business in Kiev,
Ukraine. There is very popular some kind of broadband connection called 

"Home network". It is an huge (up to 20000 users in some companies)

Ethernet-based network. The most close to this is FTTH technology.



This is a stable and working business. Average client payment varying

from $15 to $20 from company to company. There is no need in high rate
investments - network can connect neighbor houses for its cost as few as
$500 and lower. Costs for connecting a user inside building is less than 

$20, including the cost of switch port and a new cable to his flat.



Now I'll explain why there is (and especially won't be) no real

competition between homenets and others. Let's see:
WiFi. It is oriented.mostly to mobile users, roaming and moving. That's 

why there is relatively high prices. You need to spend ~$200 to make s

connected sphere 50m in diameter. Please, don't say me about "free"

connection. There is nothing free in this world. Somebody should pay,
and he will get his money back from you any case, sure. You will need to 

buy radio frequency. You have to be aware of interference. The highest
speed of such connection is SHARED to all cell users 300mbit now and up
to may be a gigabit in future. WiFi have well-known problems with packet 

losses, jitter and other unstabilities.



CaTV. Good if you have a legacy TV cable. It is more stable than WiFi,

but still have problems with jitter (i.e. VoIP, games, etc durig high
load). It have 2-3 STMs (i.e. less than 300-450mbit) SHARED to ALL (not 

an one cell) users and  1 SHARED STM (155mbit) from them. As there is
free and wider frequency resource, it might be up to 1-2 SHARED gbits in 

the future.
xDSL. Things are more happy. Now is up to 54Mbit PRIVATE connectivity to
the client, 1-2mbit PRIVATE from the client, but no more than 100Mbit in 

the future due to frequency limitation and real cable length to the

client. Nowdays it is not more than 7/1 PRIVATE mbit.



So... Home ethernet network. It is 100Mbit BOTH SIDES (upstream and

downstream) PRIVATE connectivity nowdays and up to 1Gbit PRIVATE

connectivity to the client without changing cable infrastructure. More

than enough? Take a look back, there is minimal comfort speed of the

Internet access became ten times more every five years. This kind of

network capable to high-quality videophones, IPTV, VoIP (as it is good

controlled we implementing QoS well), video-on-demand, application

leasing and so on.



Also home network is a resource itself. People share information each

other, play together, etc. So there is a very little number of people

choose much cheaper xDSL or CaTV connection!



And most of that, there IS money. Even for growing without investments

at all.



David Farber wrote:










Begin forwarded message:







From: Dewayne Hendricks <dewayne () warpspeed com>



Date: December 15, 2006 11:36:14 PM JST



To: Dewayne-Net Technology List <dewayne-net () warpspeed com>



Subject: [Dewayne-Net] There is no business case for broadband



Interent



[Was re: Interconnect Scaling]



Reply-To: dewayne () warpspeed com







[Note:  This item comes from reader Bill St. Arnaud.  DLH]







From: "Bill St.Arnaud" <bill.st.arnaud () canarie ca>



Date: December 14, 2006 5:06:58 AM PST



To: <dewayne () warpspeed com>, "'Dewayne-Net Technology List'"



<dewayne-net () warpspeed com>



Subject: There is no business case for broadband Interent [Was re:



Interconnect Scaling







I would argue that it is not a question of capacity but whether



there is a



sustainable business case - either in the core, or in the last mile.







The reality is that broadband Internet is a brutal business with



razor thin
margins. With the advent of free Wifi Internet services, and now free 


broadband services that we are seeing deployed in Europe - Inuk,



SkyB, etc,



you would be insane to enter the broadband business either as a



public good



community open access facility, or a commercial enterprise.  Cable



TV is



far



more lucrative (and frankly has higher demand) than broadband



Internet.







As a side note I am in Sweden at the moment where there are many



community



open access fiber and wireless networks. It is interesting to see



Telia (



the incumbent) is slowly taking over the management of many of



these open



access community networks.  The electrical companies and



communities are



desperate to unload them because they can't make a decent return



and scared



of their future prospects. We have seen the same problem in my home



town



Ottawa - where the city owned open access and fiber network is being



sold to



Bell Canada, for the same reasons that the city is losing money and



are not



even able to cover their costs.   Of course the incumbents are



making the



usual warm fuzzy statements about maintaining the open access



policy etc



etc. We will see how long that lasts.







In Canada it is the cablecos that are cleaning up and even giving the



telcos



a hard time.  But the telcos are discovering that buying the



management of



open access fiber/wifi networks is far cheaper than building your own



network







Bill















-----Original Message-----



From: dewayne-net () warpspeed com [mailto:dewayne-net () warpspeed com] On



Behalf Of Dewayne Hendricks



Sent: Wednesday, December 13, 2006 1:19 PM



To: Dewayne-Net Technology List



Subject: [Dewayne-Net] re: Interconnect Scaling







[Note:  This comment comes from reader Thomas Leavitt.  DLH]







From: Thomas Leavitt <thomas () thomasleavitt org>



Date: December 12, 2006 8:06:47 PM PST



To: dewayne () warpspeed com



Subject: Re: [Dewayne-Net] Interconnect Scaling







Dewayne,







Despite all the back and forth... it still isn't clear to me whether



the Internet backbone, as most of the mainstream carriers / service



providers have structured their portions of it or are capable of



adapting, is capable of handling the vastly greater traffic load that



the advent of P2P based HD video distribution networks will



precipitate. This seems to be a matter of:







a) whether the interconnects between the various carrier / provider



network backbones are diversified and distributed enough to prevent



chokepoints from developing



b) whether the architectural optimizations of your average P2P



network mean that vastly smaller amounts of traffic will actually run



over the backbone and through any potential chokepoints than might



otherwise be the case... which also seems to be a dependent on what



percentage of the traffic generated will consist of widely popular



(and thus widely served) content versus specialized content that is



less likely to be available from a nearby peer (within a network



backbone boundary)







I suppose that, given the rapid and relatively painless (at least,



apparently so) emergence of Internet video over the past year and the



(apparent) ease with which the additional traffic was accommodated,



we shouldn't worry too much... does anyone have year over year



figures on the total volume of Internet traffic and the percentage



increase year over year? I tried hunting this information down in



Google, but wasn't successful....







Regards,



Thomas Leavitt











Dewayne Hendricks wrote:



[Note:  This item comes from reader Mike O'Dell.  DLH]







From: mo () ccr org (Mike O'Dell)



Date: December 12, 2006 9:23:38 AM PST



To: dewayne () warpspeed com



Subject: interconnect scaling











the mystical powers of "large peering points" still lives, i see







for the better part of a decade, large ISPs have used multiple



point-to-point interconnects between their networks, situated



by the demands of network engineering, not the location of



"peering points".







the *only* magic in MAE-EAST (or MAE-WEST) was that once upon



a time, when the total traffic to exchange was a couple of T1s



worth with 4-5 other ISPs, there was an economy of scale in



buying those T1s as a cross-town DS3 (or later, metro ethernet.)



everybody got their DS3 to the same place and a switch was put



there to connect the dots.  once the traffic between pairs of



ISPs got big enough, the economic optimization that was MAE-EAST



and MAE-WEST fell apart.







that's all they ever were - a policy-neutral economic optimization.







and one that went deeply sub-optimal many, many years ago



(at least for large ISPs - they still get used by smaller



players whose traffic exchange needs can still take advantage



of that particular economy of scale.)







-mo































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