Why The Telcos Hate Innovation

from the it's-a-threat dept

Business Week is running a fascinating essay that highlights all the reasons why the telcos hate innovation. They're not technology companies, which is highlighted by how little they spend on research. They're in the business of extracting as much money as they can from their network right now -- which is a short-sighted and eventually self-destructive plan. They view real innovation as a threat, not an opportunity, because tech innovation is usually about driving down the cost of infrastructure. That doesn't help them squeeze more money out of it. As the writer of the essay points out, this is evident in the telcos continued fight against things like muni-WiFi, even as they quietly get involved in muni-WiFi projects themselves.

The article also highlights how this lack of technological innovation from within the telcos means that even in areas where they have every opportunity to innovate, such as IPTV, all they're doing is catching up to what the cable providers already deliver. They're missing the opportunity to do much more. In fact, this is a great way to view the net neutrality issue. If the telcos were really about promoting innovation (and the author makes fun of AT&T for claiming it needs to merge with BellSouth to be able to innovate), then network neutrality wouldn't be an issue at all. The company would focus on making its platform (the network) as accessible and as fast as possible -- to encourage more innovation and development from third parties. Instead, the telcos focus, not on encouraging innovation, but on setting up roadblocks. The roadblocks give them the power to squeeze more money out of the network -- but at the expense of actual innovation that would make their networks that much more valuable.


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    vegas, Jul 21st, 2006 @ 3:42am

    Amen!

     

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    Anonymous Coward, Jul 21st, 2006 @ 6:08am

    VONAGE FTW!!

     

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    christopher, Jul 21st, 2006 @ 6:22am

    Outsiders got it wrong.

    AT&T did need to merge with BellSouth and SBC to innovate: all of the real brains are still locked up in AT&T, but when you're in survival mode you can't innovate, you can only keep the lights on.

    Telcos might not innovate any more, or haven't in awhile, but keep in mind the transistor, switched trunks, UNIX, and C programming language came from the big T.

    -C

     

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    Sol, Jul 21st, 2006 @ 6:24am

    Booyah!

    So I'm leaning towards net neutrality, not because I support having the gov't regulating the Internet, but because I fear what the telcos seem to be doing to stifle competition and not innovate themselves.

    Lesser of 2 evils? Why does it seem those are the only 2 choices... :)

     

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    Anonymous Coward, Jul 21st, 2006 @ 6:26am

    Don't confuse IPTV with Cable TV, IPTV is not just TV over the internet, its interactive, its rich, its full.

    One problem with the IMS issue is that content will still be created in silos and then plugged into the network. True convergence is where the network works with any device, anywhere, anytime. IMS is just the half step to true convergence. The cost savings of convergence is having one network that distributes content (voice/video/data) to any device, be that a TV set, a computer, a handheld, a cell phone etc.

    Why go with IMS then? Because changing the network into a true convergence model is expensive, and you have to have a pipe that will be able to deliver it, so why deliver the cart before the horse.

     

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      Old Wise Guy, Jul 21st, 2006 @ 9:14am

      Re:

      "Why go with IMS then? Because changing the network into a true convergence model is expensive, and you have to have a pipe that will be able to deliver it, so why deliver the cart before the horse."

      Are pipes the same as tubes? And if trucks can't handle stuff just being dumped, how can we expect it of a horse?

       

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    Tarky, Jul 21st, 2006 @ 6:44am

    hhhmmm

    http://en.wikipedia.org/wiki/IP_Multimedia_Subsystem

    For those that don't know.

    The premise of this post is correct.

    In the past the telecoms built innovation. DARPA and Bell Labs created the original 'Internet' (ARPANET). But since the breakup of the original AT&T the telecoms have evolved into cash cows and the mechanism in Washington to protect 'the sacred cash cow'.

    I agree that the business model of inhibiting innovation has become the goal to block users at the 'consumer' level from directly utilizing 'new' products such as VoiP.

    The irony is breathtaking...

     

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    GreatPointTarky, Jul 21st, 2006 @ 7:27am

    Tarky is correct, also AT&T wants to be the "old" AT&T again and what better way to do it but merge with Bell South.

    Unfortunately even if they did merge with Bell South, the old ways won't come back, they'll just continue to figure out how to milk the customer.

    AT&T has no clue, SBC helped them lose it...

     

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    Maverick, Jul 21st, 2006 @ 7:41am

    Telecom innovation

    Verizon is spending billions to create a fiber network to the customer premise that can deliver reliable high-speed internet, high-feature, high-quality television with HD content above and beyond what cable offers, and carry VOIP and/or "old network" telephone calls.

    Funny that a "protected cash cow" would spend this much time and money on innovation, huh? Mock AT&T all you want, but Verizon isn't resting on its laurels.

     

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      Anonymous Coward, Jul 21st, 2006 @ 7:57am

      Re: Telecom innovation

      And with Lightspeed, AT&T is doing fiber to the curb. Lightspeed is a whole lot cheaper, and by the time the full capabilities of IPTV come into play, they can go to the home. Nothing that is currently being done (to the curb) would be a waste.

       

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      Wizard Prang, Jul 21st, 2006 @ 10:18am

      Whose billions?

      "Verizon is spending billions..."

      Whose money are they spending? Weren't they paid taxpayer dollars to do this back in the 90s?

      http://www.newnetworks.com/broadbandscandals.htm

      You call it "Resting on its laurels". I call it "Taking the money and running"

       

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      Net, Jul 21st, 2006 @ 7:07pm

      Re: Telecom innovation

      ...And the roadblock you mentioned are put in place by your elected officials. Verizon has to go to each municipality individually to apply for a video franchising license. Wouldn't it be easier for the government to allow franchises by state or county?

       

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    Jason Mac, Jul 21st, 2006 @ 8:13am

    Lack of innovation is not the problem....

    The problem with telcos is that there is so much legacy overhead in their normal operations, that any innovation gets smothered under the huge creaky beuracracy long before it can reach the light of day.

    This is not that different from other large old industries....

     

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    Anonymous Coward, Jul 21st, 2006 @ 8:31am

    > They're in the business of extracting as much money as they can from their network right now -- which is a short-sighted and eventually self-destructive plan.

    Telecoms are *greedy*, not *stupid*. Just because you don't like them having their way with your little boy-pssy doesn't mean their business plans are self-destructive or unsustainable. Telecoms have proven that they can sustain their business plans indefinitely in a free market. The startup cost of being a top-tier phone provider or ISP are astronomical. This makes telecoms inheretly stable.

    Saying stupid and inacurrate things like "telecoms are self-destructing and short-sighted" does not help fight them. They are very smart. Stupid evils don't last. Smart evils do.

    If you want to fight the telecoms, you have to convince people to hold politicians accountable for the anti-trust violations of telecoms and to pressure politicians to allow freedom for new technologies like VOIP and satelite TV/ISP.

     

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    Richard, Jul 21st, 2006 @ 8:53am

    Local duopoly and Global Duopoly

    Utitlies pricing will always be a problem. The most efficient solution is good regulation to force them to be net neutral.

    Letting the Telcos go into all sort of businesses was an error. Politicians gave up to Telcos poweful lobby. Lobbying is good but it must be regulated too.

    Now, that they have a local duopoly (TDM or VOIP) and global duopoly (Verizon, AT&T), there is less incentive to innovate.

    By the way, I do not expect Telcos to create the new technology. This what I am doing working in a next generation equipement vendor. Still, I would like them to be more interested.

     

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    Jason D., Jul 21st, 2006 @ 9:03am

    Telcos killed DSL

    There was once a time when there were more DSL lines in service than cable modems. However, big telcos put up hurdles after roadblocks to make sure competitive DSL providers failed culiminating with the recent death of the 1996 Telecom act. Telcos are govmt regulated monopolies. I avoid their services where ever possible.

     

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      Wizard Prang, Jul 21st, 2006 @ 10:25am

      Re: Telcos killed DSL

      Agreed. I do no business at all with my local TelCo.

      When I moved two years ago they wanted me to pay them $40 for the privilege of remaining a customer. I said "no thanks", and went to the competition (cable co), who did free installation and have provided faultless phone service.

      Recently I asked the Telco for the price of a basic phone line - about $15. When you add Call Waiting (alone) the price goes to $30. $15 for Call waiting?

      What a bunch of jokers.

       

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    Andrew Schmitt, Jul 21st, 2006 @ 9:04am

    Same Channel, Same Content

    It's always the same old story here at Techdirt, the Telcos are big, fat and greedy. They should abandon their business models, open their network, and embrace the tech price elasticty model where demand rises faster than prices drop.

    I don't get it. They already offer flat rate internet pricing. Speeds have been going up over the years. They have not and currently don't block any applications. How is their 'platform' not open to all right now?

    It shouldn't be a surprise that the only VoIP providers making money are the ones that own the network - the cablecos. And there are no barriers to entry for VoIP companies. Owning and squeezing profit from the infrastructure is good business.

    The 'field of dreams' business model where you sink a big investment and wait for the return may work for a $1M Web 2.0 startup, but not for a $10BB venture. Try to find anyone in the world who will sink that kind of investment without knowing where the return will come from.

     

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      Mike (profile), Jul 21st, 2006 @ 10:45am

      Re: Same Channel, Same Content

      The 'field of dreams' business model where you sink a big investment and wait for the return may work for a $1M Web 2.0 startup, but not for a $10BB venture. Try to find anyone in the world who will sink that kind of investment without knowing where the return will come from.

      Um. Okay. How about Intel? They invest billions on each new chip without any guarantee of return. They do it, though, because they believe that's where the market is heading and they want to lead the market with innovation.

       

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        Anonymous Coward, Jul 21st, 2006 @ 10:57am

        Re: Re: Same Channel, Same Content

        Mike, you bring up Intel, so lets go with that. Can someone other than Intel sell those chips? Can a competitor sell Intel's chips (with no infrastructure costs) at a lower rate to take Intels customers away?

        Would you, if you were a Verizon executive, take heat from Wall Street for laying fiber, lay fiber if you knew competitors could offer the services you want to offer, undercut your rates and use your fiber optic lines?

        Who would invest $10 Billion dollars to lay fiber, only to see those same customers buy Vonage for Voice, Google for Video and who knows for whatever else?

        Where is the return on that? Seriously, if that were your money, would you do that? I think not.

         

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          Mike (profile), Jul 21st, 2006 @ 11:32am

          Re: Re: Re: Same Channel, Same Content


          Who would invest $10 Billion dollars to lay fiber, only to see those same customers buy Vonage for Voice, Google for Video and who knows for whatever else?


          You seem to totally miss the point. Vonage and Google and all those other things are WHAT MAKES THE DAMN NETWORK VALUABLE IN THE FIRST PLACE.

          The telcos didn't invent those services. It's only because those services exist on the network that the telcos have this access to sell.

          So the point of keeping the network open and free is to encourage MORE of these types of innovations to make their network MORE valuable. When they try to put up roadblocks so that only their approved services work they make their own network LESS valuable and will be able to make LESS.

           

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          Pay for Pipe, Aug 1st, 2006 @ 5:21pm

          Re: Re: Re: Same Channel, Same Content

          What it boils down to is the telco/cable duopoly provides the last mile pipe to the internet and for the most part people don't want to pay for the content that these parties provide because there is better or cheaper content. It is not as though people are getting a "free ride" on the telco/cable companies infrasture, they pay a monthly fee. This is where the telco/cable companies need the innovation so they can provide a differetiated product rather than just a pipe. If you want people to pay for something you have to provide a service that they want. As of right now the only serivce being provided is access at somewhat decent speeds to the Internet.

           

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        Andrew Schmitt, Jul 21st, 2006 @ 11:15am

        Re: Re: Same Channel, Same Content

        That's a good example. Intel spends Billions but before the market was this big they only had to spend millions on a fab. The risk of spending $2BB on a 45nm fab is quantifiable based on 20 years of CPU volume curves.

        New silicon entrants who target smaller markets or markets with a great deal of uncertainty use the fabless model. TSMC, UMC, others spend $2BB and spread the risk over tens of different semiconductor applications.

        Your analogy fits better with a TSMC than an Intel. TSMC provides a platform and lots of semiconductor companies profit from it.

        I still don't understand how Verizon or AT&T in the retail broadband area have set up 'roadblocks' to other people using this platform.

        Verizon or AT&T are DEFINITELY doing this on the Enterprise side. It takes weeks to get a T-1 and it still costs a fortune.

        I think they would be shocked if they offered DS-3 Broadband for $1k/month, with very high reliability and 1 week turn on, how many DS-3's they could sell. Obviously, there would have to be some stat muxing at those rates but think about the business applications that would emerge with that kind of bandwidth.

        Your arrows are well meant, but shooting them in the retail consumer broadband is misguided.

         

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        David Siegel, Jul 31st, 2006 @ 9:44am

        Re: Re: Same Channel, Same Content

        Um. Okay. How about Intel? They invest billions on each new chip without any guarantee of return. They do it, though, because they believe that's where the market is heading and they want to lead the market with innovation.

        Comparing the R&D costs at a hardware vendor and a services provider is like comparing apples and oranges. Intel's product came from R&D, and their next product will come from R&D. If they don't do R&D, then they have no next generation product.

        Contrast this with the telco. The telco is, in many senses, nothing more than a systems integrator. They take the products of hardware vendors (products that were the result of that vendors R&D), string them together, turn them on, and begin selling services off of them. Once they have acheived this, they face Clayton M. Christensen's Innovator's Dilemna just as any business does. They have to weigh the risk of cannabalizing their existing revenue, revenue which may be offsetting equipment that was capitalized and is still being depreciated (i.e. they are still paying for it on their books). This is basic business.

        The other question telco's ask themselves is what the output of the R&D will be. Since telco's don't build hardware themselves, the output is often given freely to vendors to use as input for their next R&D cycles, and revenue from patents rarely result in enough money to justify the expense of the R&D.

         

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    Anonymous Coward, Jul 21st, 2006 @ 10:18am

    money money money moooney..... moooooney!

     

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    Man In Black, Jul 21st, 2006 @ 11:01am

    Re: hhhmmm

    If the telcos really were interested in innovation of services they would themselves be using their own network for VoIP. Digital phones would be from them (and would have been for years now) and they would be ahead of what the cable copmpanies are doing now, converting their analog infrastructure to dual use and offering digital services, not behind. There was digital capability on telco hardware long before cable and satellite digital services came along but telcos chose not to fully extend that capability to the consumer level. If it weren’t for the cable companies offering broadband they would probably still have consumers using modems and paying extra for the high analog usage of those lines as well as offering only leased digital lines to business for horrendous amounts of money. (oh yah, they still do)

    Why shouldn't someone else be allowed to use their own infrastructure to do what telcos specifically and deliberately chose not to do. What the telcos are doing with roadblocks and lobbying now is nothing short of protectionism and sour grapes over their own failure to use their own invention. They chose to reach for my wallet instead of reaching for the future, why shouldn't they pay for it, I already did.

     

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    Anonymous Coward, Jul 21st, 2006 @ 12:21pm

    Mike, services are what makes the damn network valuable correct. If someone else sells those services over the network, then the network isn't valuable. Thats my point.

    Could I sell advertising on Techdirt? That would bring value to me, but not much to Techdirt. Could I set up a grill in a movie theater and sell hotdogs and profit from that? Sure, I could undercut the moviehouse price, consumers would benefit, but the theater owner would get pretty pissed.

    Hell, I will make it easy, would a bar owner let me walk into his place and sell beer out of a cooler for a buck a bottle? I would make a profit and the consumer would benefit, how do you think that would go over?

    Sure, those services make the network valuable, but without the network, those services are also worthless. You seem to think that its ok for services to be worth something, yet you deny the right of the network to be valuable also.

    Answer my question, if you had to make the decision, would you lay fiber to equip consumers with high speed access if you knew that all they would buy from you would be that access? Would you take your $50 a month for data? Would you invest a thousand bucks to wire that house for that return?

     

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      Mike (profile), Jul 21st, 2006 @ 12:37pm

      Re:

      Mike, services are what makes the damn network valuable correct. If someone else sells those services over the network, then the network isn't valuable. Thats my point.

      That's a total contradiction. The network is only valuable if the network owner can sell the services? You really believe that.

      Could I sell advertising on Techdirt? That would bring value to me, but not much to Techdirt. Could I set up a grill in a movie theater and sell hotdogs and profit from that? Sure, I could undercut the moviehouse price, consumers would benefit, but the theater owner would get pretty pissed.

      This is the best example you have? I don't even know how to respond other than to stand amazed that you think this is a valid analogy. First, the Techdirt is example is totally meaningless. That's not about making the site more valuable at all. In the movie example, many would argue that it's not so silly. If there was real competition for food prices more people might be willing to go to the movies and buy food there. It could work out to the theaters advantage and the consumers advantage.

      I'm amazed that you actually consider the monopoly position of the theater owner as a good example. In what sort of world do you live in that you consider the monopoly and artificially high prices a good economic and societal outcome?

      Hell, I will make it easy, would a bar owner let me walk into his place and sell beer out of a cooler for a buck a bottle? I would make a profit and the consumer would benefit, how do you think that would go over?

      This is a total strawman argument, and has no bearing on the discussion. Let me give you a better example that actually fits the discussion at hand. Let's say the owner of a tremendously large building can charge admission to that building -- but to do so, he needs valuable services inside. He can try to set them all up on his own, or he can let anyone set up shop there -- and as the marketplace competes the better services survive and gaining entrance to the building becomes that much more valuable, so more and more people are willing to pay to enter.

      Sure, those services make the network valuable, but without the network, those services are also worthless. You seem to think that its ok for services to be worth something, yet you deny the right of the network to be valuable also.

      Hmm. I don't deny that at all. You seem to misread what I'm saying. If the telcos want to offer their own services, more power to them. But, they shouldn't block out other services. They should let them compete.

      Answer my question, if you had to make the decision, would you lay fiber to equip consumers with high speed access if you knew that all they would buy from you would be that access? Would you take your $50 a month for data? Would you invest a thousand bucks to wire that house for that return?

      Ah, the strawman again. If this is the way the telcos view it then they're shortsighted and stupid -- and, frankly, deserve to go out of business.

      1. They can still offer more services and they can still charge for them. If they really are better/more convenient then people will buy them and they'll make more money.

      2. The $1000 to wire each home number is bogus and you know that.

      But, yeah, if I had the money to invest, and I could get REAL broadband speeds and an open network to as many customers as possible, I'd absolutely do that. And, I'd encourage all sorts of service providers to offer services to make my network that much more valuable. The more, the merrier. And, I'd try to offer additional services myself, knowing that I was competing with these other ones to provide the absolutely best service available.

       

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        Frank, Apr 20th, 2007 @ 9:44pm

        Re: Re:

        > 2. The $1000 to wire each home number is bogus and
        > you know that.

        Yeah, you're right, it is bogus -- it's a lot more than that if you count the cost per home served that than home passed.

        There's a reason why Verizon waited until the FCC gave the approval that that they didn't have to share their fiber with others. Verizon wasn't about to spend umpteen billion dollars only to be told by the regulators how little they aught to be leasing it for. The risk is too great, otherwise.

        Frank

         

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    DB, Jul 21st, 2006 @ 1:43pm

    Answer my question, if you had to make the decision, would you lay fiber to equip consumers with high speed access if you knew that all they would buy from you would be that access? Would you take your $50 a month for data? Would you invest a thousand bucks to wire that house for that return?

    Interestingly enough, a water company, a phone company, a gas company, an electric company, and a cable company have installed lines going to my apartment with no gaurantee that I'll pay them anything...

     

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    MnZ, Jul 21st, 2006 @ 3:40pm

    Interestingly enough, a water company, a phone company, a gas company, an electric company, and a cable company have installed lines going to my apartment with no gaurantee that I'll pay them anything...

    Yes, but they won't enable those lines unless you pay them for what you use. Just like Verizon won't enable their fibre unless you pay them fior what you use.

    The question is: Can Verizon charge you for what you use?

     

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      Mike (profile), Jul 21st, 2006 @ 3:51pm

      Re:

      The question is: Can Verizon charge you for what you use?

      What kind of question is that? No one has ever said they couldn't.

      What people object to is their attempt to get Google and others to pay for the bandwidth you already pay for as well.

       

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    Anonymous Coward, Jul 21st, 2006 @ 6:56pm

    Mike, are you against tiered rates for bandwidth usage? The more you use, the more you pay?

    If not, could Verizon cut a deal with Yahoo to speed up Verizon customers when they are on Yahoos site?

    Seems to me that one way or another, the consumer will pay, its just a matter of who they pay directly.

     

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      Mike (profile), Jul 24th, 2006 @ 12:37pm

      Re:

      Mike, are you against tiered rates for bandwidth usage? The more you use, the more you pay?

      No, not against bandwidth tiers.

      If not, could Verizon cut a deal with Yahoo to speed up Verizon customers when they are on Yahoos site?

      That's extremely different. That's a tier for just one site. The tiers should be for bandwidth across the board, not discriminating against or for one particular site.

       

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    Meet the new Boss, same as the old Boss, Jul 21st, 2006 @ 10:16pm

    Who will inherit the telecommunications world?

    Most of you may know of a technology called Broadband over Power Lines(BPL). It is being used successfully in Europe and tested in Texas. It is simple: Everyone is already "wired" through the power companies. Imagine plugging your Internet device in the wall for power and soon data. The rest is mute. Be aware cable and phone companies. Thank you Thomas Edison, the New Boss.

     

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    Steve, Jul 24th, 2006 @ 4:15pm

    There are many companies that don't innovate. Much easier to buy another company that has a product in place than spend your own money creating something.

    The Telco's have no vision. They just try to squeeze the most money out of what they have. That's why if the Telco's get there way with tiered internet, they can get away using the same system without a need to upgrade.

     

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    Shawn, Aug 10th, 2006 @ 6:20am

    Good Job, Mike...

    I'm glad you pointed out the horrible analogies that A. Coward was making.

    To refute them, I was thinking more in terms of a Flea Market renting out booths (All booths being equal), then upping the rent of successfull vendors, thus putting the brakes on them and reducing the overall value proposition of the entry fee (Typical Telco behavior as of late).

    Not that my analogy is great or anything, but A. Coward's were terrible, to the point of not actually being an analogy at all (I wonder what AC scored on his/her ACT/SAT?)... Not to mention the straw-man arguments... As I was reading them, I was laughing at how illogical the comments and arguments were. It reminded me of a heated religious debate in some ways...

    :)

    I like hearing people arguing all sides of a debate, as long as its rational. It seems that some people watch too much FOX news and delve into the realm of pseudo-debate/framing/flamebait comments. That doesn't help anyone...

    Keep up the good work, Mike!

     

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    Former BellSouth Manager, Dec 19th, 2006 @ 5:43am

    You Are So Correct!

    Having had time inside the walls I can confirm 99% of the statements in the original post. It IS all about extracting as much revenue as possible and minimizing the cost (or effort) involved to deliver service the customers (forget quality). If you are in management meetings and mention specifics to improve value to customers the others look at you like you are crazy . . . . and the conversation always rolls around only to how to make money from it. I am a capitalist and certainly appreciate free enterprise and a "for profit" organization but not done with such greed and avarice. Overall they are all greedy, evil bastards. I hope technology like VoIP and Wireless wipe them from the map.

     

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    John namath, Jan 20th, 2007 @ 9:33pm

    Faster Bandwidth

    How are Business DSL and T1 providers going to compete with fios service from verizon? Seems to me that once it's rolled out in more major cities, it will be a force to be reckoned with.

     

    reply to this | link to this | view in chronology ]


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