Let's Up The Ante: We'll Pay John Sununu & Harold Ford Jr. $1,000 To Pay Netflix's Broadband Bill

from the crickets? dept

So we just wrote about a truly ridiculous opinion piece by two ex-politicians, John Sununu and Harold Ford Jr., claiming that Netflix somehow didn’t pay for its bandwidth. They complained about the supposed “free ride” that Netflix was getting. As one of our commenters pointed out, this is sort of like the “free ride” that Ford Motor Company gets from the highway system.

But Derek Kerton may have had the best idea of all, noting that Sununu and Ford will almost certainly ignore our request that they swap their broadband bills with Netflix. Derek suggests we up the ante, and offer to actually give Sununu and Ford some money if they agree to pay Netflix’s broadband bills for the rest of 2011. He’s putting up $500 and we at Techdirt will match his offer and put up another $500. So, that’s $1,000 for Sununu and Ford Jr. if they’re willing to pay Netflix’s braodband bill. Hell, we’ll give them some time to think it over, and say they only have to pay for the last quarter of the year. If they’ll pay Netflix’s broadband bills for October, November and December, we’ll give them $1,000 ($500 each). Some others in the comments have also offered to chip in as well, so perhaps we can raise the ante a bit more.

So here we go. According to Sununu and Ford Jr., this is “free money” that we’re offering them. Will they take it? Will they agree to pay for Netflix and its very cheap “free rider” broadband bill? I’m not holding my breath.

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Comments on “Let's Up The Ante: We'll Pay John Sununu & Harold Ford Jr. $1,000 To Pay Netflix's Broadband Bill”

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Marcus Carab (profile) says:

Re: Re:

So are you saying that every broadband service in the world should be paying additional fees for the “highway”?

Please, elaborate on this complete overhaul of broadband economics that you are proposing. I’d like to see your thorough explanation for how this new model will function. Maybe it’s not a bad idea, but it’s a pretty drastic change, so I’m assuming you have lots of detailed research and projections to back it up, right?

Harrekki (profile) says:

Re: Re:

nope, YOU are wrong. per the quote from the original article:
“This ignores the hundreds of billions of dollars in sunken network investments needed to create that one-penny marginal cost efficiency at the customer’s end.”

they are talking about making Netflix pay for the highway. no one pays for the highway, according to ISP’s, we pay for the driveway (since they already put the money out for the highway). Asking Netflix to pay for the highway that no one else pays for is just a flat out double standard and to claim anyone else does is a lie.

Reading Comprehension: you must have missed that class.

Ben (profile) says:

Re: Re:

OK, Netflix pays their ISP.

Their ISP pays their “ISP” for all the bandwidth all their customers use (including Netflix, but presumably there are others). Why would Netflix have to pay their provider’s bill (the “highway up to the end users driveway”)? I think you don’t get it.

On the “other” side, I pay my ISP (Verizon at the moment; it used to be Comcast; I’m still trying to decide which is the lesser of the two evils). Verizon/Comcast/Evil#3 pays for it’s connection to the Web. By your logic I should need to pay for my ISP’s “highway” to Netflix’s “driveway”. It just doesn’t make sense.

Hmmm. Now I need to start working up plans for an ISP called EvilNo3…

ComputerAddict (profile) says:

Re: Re:

I understand the point they are making too, and you’d have to be pretty dense to believe it. They are using the 3 year old methodology of if you cant see it, it doesn’t exist.

Have you ever run Trace route? take a look at this site: http://network-tools.com/default.asp?prog=trace&host=www.techdirt.com you can see Companies C and D (Level 3 and Center 7) Do you think that Mike pays level 3 for bandwidth? no. Does level 3 get paid for their bandwidth? yes. they are paid By Center 7, who is paid by the datacenter hosting techdirt, who are paid by Floor64. Everyone gets their cut. Just because you don’t see level3 and center 7 on your hosting bill, doesn’t mean they aren’t paid.

Derek Kerton (profile) says:

Re: Re: Re:3 Re:

Level 3 is definitely a Tier 1. It mostly passes off its cargo through peering arrangements, not transit agreements.

But I think the AC gets it, other than the scale of Level 3.

Level 3 and Comcast have been at each other’s throats for years. Most recently, Comcast tried to get Level 3 to change from a free peering deal to a paid transit deal…in fact, this Nov 2010 article frames the entire issue around which Ford and Sununu are now lobbying:


Reading the article above will make you 10 telecom IQ points smarter. I guarantee it. You’ll also see how both Comcast AND Level 3 are duplicitous in this debate. The Nov. article is also prophetic with this quote from Matt Wood, associate director of Media Access Project: “Netflix will have to raise its costs…but ultimately customers will pay.”

Once again, if Abraham Stoltzfus (above) wants clarity on how the core network deals work, just read:

Jason Still (profile) says:

Re: Re: Re: Re:

Level3 is a backbone provider, as are AT&T, Verizon, and other major communications companies.


I’ve been out of the ISP world for a many years now, but here’s how I remember things:

Let’s say you want to connect to awesomewebsite.com. They’re hosted at a facility that has a connection provided by Level3. Your ISP is AT&T. You pay AT&T so that your connection can bounce around inside their network (both backbone and non-backbone). When your connection leaves their backbone and hits Level3 the costs are now covered by the people on their side (the hosting company, who passes the cost on to the website owner). The backbone providers don’t charge each other (as far as I remember) because they’d both just charge each other the same amount and each end up owing nothing.

The road analogy does, sort of, work here. Take a road that is maintained by the counties it is in and crosses county lines. Taxes collected in county A cover their side of the road, taxes in county B cover their side, and no one (yet?) thinks people traveling from A to B should have to pay taxes on both sides just because they drove down the road.

Ezekial Sauders says:

Re: Re: Re:2 Re:

So AT&T is a backbone but they also sell service as an ISP, do they pay themselves for access to the backbone? How were the backbone providers chosen to run this monopoly, how can we guarantee they will stay in business thereby keeping the internet up and running and would it be possible for some other company to become a backbone provider?

Also why are companies allowed to charge for internet service by the MB when it doesnt cost backbone providers any more money to provide 10MB or 10TB the equipment is most likely paid for most likely requires little to no maintenance unless a piece of hardware malfunctions. Its the same way with phone calls, in the old days, phone companies had to pay people to make manual connections between people, now it is all done by computers so there is virtually no cost to the phone company for you to make a call and whether you call across the street or across the country the cost to the phone company is the same since they own all the lines. In fact if you make no calls or 10,000 calls, there is no increased cost to the phone company to connect those calls so how do they get away with charging outrageous fees to make long distance calls.

Rich Kulawiec (profile) says:

Re: Re:

No, the users pay for their “driveway”. (Actually: given the usurious rates charged for tiny amounts of bandwidth by consumer ISPs, the users OVERpay for their “driveway”.)

As to the rest: are you not aware of how peering arrangements work? If you are, then you’re not displaying that awareness. If you’re not, then perhaps you shouldn’t comment on things you don’t understand.

Anonymous Coward says:

Re: Re:

We consumers pay for our download speed (And a very low upload speed)

Large companies pay for their very, very large upload speed (And a much less useful matching download speed because I’ve not heard of any contracts that allow a faster upload speed then download speed)

We pay download, they pay upload, the whole road seems to be paid for by me. Not that I would mind someone else paying my download bill for me but it seems immoral to request Netflix pay for something I also use to access Youtube, Techdirt, Google, Gmail and other things. If I JUST used the internet to access Neflix, sure I’d kinda like it if they could pay for my download too.

But I use the internet for a lot of other things, and I payed the download price for the privilege of using the internet to use those things, and they payed hard cash for the privilege of offering those things to me. What, do you want to give the ISP a cut of every financial transaction over it? Do you want youtube to pay for every visitor, keeping in mind that many visitors might be bots who don’t even want anything and are just (Ineffectively) trying to DDS the site?

Rich says:

Re: Re: Re:

Your upload speed is not slower than your download speed because you don’t pay for it. Of course, you do. The reason it’s slower is that the infrastructures that most broadband is built on (e.g., cable, satellite, etc.) were not originally designed for two-way communication. The Cable industry, for example, has come up with a many ingenious ways to get upload speeds as fast as they are. They will never be close to download speeds until the infrastructure changes. Which we will probably never see in our lifetimes.

Derek Kerton (profile) says:

Re: Re: Re: Re:

The portion of bandwidth dedicated to upload or download is a deliberate decision. It is a zero sum game. Whatever the technology, the available bandwidth can be sliced between up or down.

Just like a 4 lane highway could be one way north, 1 lane south & 3 north, 2 & 2, 3 south & 1 north, or one way south.

They have allocated it as it currently is because, as you seem to understand, people tend to download a lot more than they upload. That reality is not changing, even with user generated content. Stuff like Netflix and Hulu assure that download is still what people need more of.

Derek Kerton (profile) says:

Re: Re: Re:2 Re:

Dedicated line. Like a T1, or an OC1 or OC3


A business-class service. Also sold as “partials” by some service providers.

You get the whole pipe to yourself, get guaranteed minimum speeds (unlike “best-effort” consumer service), and a Service Level Agreement to assure your QoS.

Prices start around $150/mo in the USA.

Derek Kerton (profile) says:

Re: Re: Re:4 Re:

There are no caps on dedicated lines, in all the situations where I’ve see such deals. You can use the full capacity of your pipe all month long.

Prices are higher to reflect this unlimited (and guaranteed to be available) bandwidth.

Check out XO communications offers:

You’ll note that no pricing is displayed. I did a research report on this industry a year ago, and my conclusion was that the prices are dropping so steadily that no vendor wants to post the deals they are currently making…or all their existing customers would want to re-set their deal to the new low market price.

Anonymous Coward says:

Re: Re: Re: Re:

Hmmm…that is half true, the networks had limitations in the beginning and that is why it was asynchronous, now American ISP’s use the upload portion to limit bandwidth usage, you see the less upload you have the slower is your download too, that is why in America upload speeds are ridiculously small, when other networks around the world the difference is not that much.

In other networks in Europe you mostly see a 3:1 rate in America you see 6:1 or more.

Derek Kerton (profile) says:

Re: Re: Re:2 Re:

No. It’s not half true. It’s all true.

For example, in a DOCSIS 3 cable system, certain frequencies are allocated for upload, others are allocated for download. The cable head-end ‘listens’ on the upload channels while it broadcasts on the download channels.

Normally, the upload channels are lower than the download channels, so that your cheap CPE gets the benefit of the better propagation characteristics of lower frequency. Your CPE is cheap because it needs to be priced to scale to every home, while the head-end equipment is much higher-grade.

Those download channels could be re-allocated to more upload if that is what the average user actually did. But they are not dynamically allocated in real-time.

It’s called FDD for Frequency Division Duplexing. If that’s a new concept to you, you have no business trying to correct me. Now, TDD, or Time Division Duplexing, used in some systems, uses the same channels for up and down transmission, using chunks of time for each direction. There are systems that can dynamically alter the proportion of up/down. This is not used by any fixed line ISP that I know of.

“American ISP’s use the upload portion to limit bandwidth usage, you see the less upload you have the slower is your download too”
…which is just entirely wrong.

AW says:

Re: Re: Re:3 Re:

I’ve read through most of your posts and wanted to give you extra thanks for your intelligent and knowledgeable posts on this topic. It’s members of this community like you that truly make this a great place to come and truly understand the topics of the day. As has been said before it’s the users that make the community as good as it is and it is appreciated.

AR (profile) says:

Re: Re:

“Netflix pays for their driveway (net connection to a peering point), but they don’t pay for the highway (network) up to the end users driveway.”

Netflix, like you, pay their ISP (peer point)to connect to the Internet (usually higher for business class). The ISP is, in all actuality, a integral part of the Internet. Providing connecting cables, routers, and servers (backbone). These connecting cables connect one ISPs servers to another ISPs servers (Internet highway). Thus building the Internet upon handshaking standards agreed to and used by the ISPs for communication between each others servers. You, like Netflix can also host your own servers that rely on these same communication standards, but still need the ISP to connect. The cost for installing and maintaining the cables and standards (highway) are not exclusively born by the Isps. these costs are passes on to all the costumers (business class usually higher) that connect. Essentially you, and Netflix, pay for incoming and outgoing data from your, and their, endpoints, along with everything in between.

So saying Netflix is getting a “free ride” is very dishonest, and In my opinion borders on libel or slander.

AR (profile) says:

Re: Re: Re:

Your right as I reread it it should be edited to read:

Netflix, like you, pay their ISP (peer point)to connect to the Internet (usually higher for business class). The ISP is, in all actuality, a integral part of the Internet. Providing connecting cables, routers, and servers (backbone network). These connecting cables connect one ISPs network to another ISPs network (Internet highway). Thus building the Internet upon handshaking standards and Internet protocall addressing agreed to and used by the ISPs for communication between each others networks. You, like Netflix can also host your own servers (or local networks) that rely on these same communication standards, but still need the ISP to connect to everyone esle. The cost for installing and maintaining the cables and standards (highway) are not exclusively born by the Isps. these costs are passes on to all the costumers (business class usually higher) that connect. Essentially you, and Netflix, pay for incoming and outgoing data from your, and their, endpoints, along with everything in between.

Hope this helps clairify. Sorry

Anonymous Coward says:

Re: Re:

Ok, the guy who replied on Aug 24 at 12:02 pm…seriously, you are that dumb? NOBODY pays for the “highway” as you put it…do you? no…you pay for your driveway as well. So are you saying you should be paying for much more? Ok…you go for it chum… Hey maybe we should all pay for how far our browsing takes us!? Maybe a website in China should cost you more to browse than a website in the US?
Seriously, don’t reply if you are an idiot.

ArkieGuy (profile) says:

Re: Nothing's Free!

The point you seem to be missing is that Netflix rent it’s “driveway” monthly and part of that driveway rental goes to the “highway” provider monthly. Nothing is free!

What actually happens is Netflix pays an ISP for service, the ISP pays for a bigger pipe from a backbone provider (what you are calling a “highway”). My ISP also pays for a backbone provider for a big chunk of monthly bandwidth and then provides a small slice of that to me.

Basically, the highway is already being paid for by BOTH parties (a percentage of both Netfix and my monthly service)…

So, where EXACTLY is the free ride, I don’t see it?

Anonymous Coward says:

Re: Re:

Netflex + the users who pay for their broadband pay for the bandwidth. ISP’s need to provide for the completely and utterly overpriced bandwidth that we pay for, thanks to the fact that the U.S. government establishes monopolies on almost everything. Bandwidth is cheaper in many other countries because they have better government.

and don’t give me the population density argument either, that’s been refuted by the fact that various countries with higher bandwidth at cheaper prices have population densities higher than some U.S. states and lower than other U.S. states, yet all U.S. states share one thing in common, low bandwidth at high prices.

Derek Kerton (profile) says:

Re: Re: Re:

This is why you are wrong:

The US federal policy has always been to offer telecom services to people in any state at similar federal rates. To do so, the government set up the Universal Service Fund, which puts a USF tax on the dense population areas (where it is much cheaper to deliver telecom to a customer), and it uses the collected fees to subsidize the rates in rural areas.

Suggested reading: http://en.wikipedia.org/wiki/Universal_Service_Fund

As such, most of the US pays a rate that is based on the AVERAGE cost of providing telecom services in the USA. And the USA is, relatively speaking, very sparsely populated. Your effort to compare other countries to US densities state-by-state is irrelevant, since federal policy has pushed for a single unified market, as much as possible.

So I will give you the population density argument. And the difference between you and I is that I understand all the factors at play, such as the very important USF, the rural broadband stimulus package (also a transfer from dense areas to rural) and the desire of the ISPs to offer somewhat similar rates to all their customers.

Here’s more about how US policy for universally accessible service is being extended from phone dialtone to Internet:

I am on your side of the debate versus Sununu…but I prefer to use accurate arguments as opposed to emotional ones. Like I often say here: you can hate telcos for a variety of real reasons, you don’t need to make up fictional ones.

:Lobo Santo (profile) says:

Re: Re: Re: Sharp shiny edges

Perhaps pair off such persons, give each a blunt-ish instrument and tell them there will exactly 1 entry into a rehabilitation for corrupt politocos in exactly 5 minutes.

Whichever one lives can have a frontal lobotomy and exactly zero additional medical treatment and be on his merry way.

Though, perhaps I’m just a touch biased against corruption.

David Cortright (user link) says:

I really don't get this proposal

The whole premise behind this proposal seems flawed. Which has left me confused because usually I emphatically agree with TechDirt’s stance on issues.

Even if one believed that NetFlix should somehow ante up for downstream network traffic, I don’t understand why Sununu would agree to pay it for them. As a politician, he wants to fix the root cause of the problem and get NetFlix (and presumably every other internet service endpoint, like say… YouTube? BitTorrent? The Chinese students using traffic to send DDoS attacks against foreign sites) to pay on an ongoing basis. No one else should be covering the costs for these companies, whether it is the internet infrastructure companies, or individual politicians.

CommonSense (profile) says:

Re: I really don't get this proposal

They’re not asking Sununu to pay the additional costs he’s trying to make Netflix pay, they’re asking him to pay the current costs of Netflix’s internet connection, which he claims is nothing (they’re getting a ‘free ride’). They are basically taunting Sununu, letting him know we all know he’s lying through his teeth, and putting him in a lose-lose situation (lose-lose for him, but a win for everyone else). He loses if he admits he was lying, and he loses if he takes the bet, because he’ll end up paying a lot more than $500 in just the last quarter of the year.

Anonymous Coward says:

Re: I really don't get this proposal

You could have stopped right after “I don’t understand” because clearly you don’t. Everyone who is connected to the Internet pays their provider a fee for the amount of bandwidth that they use. Those that use more bandwidth pay more dollars. In the case of Netflix this is tens of thousands of dollars a month. (Maybe even hundreds of thousands of dollars a month.) I know that my company pays in excess of $7,000 a month and we use a LOT less bandwidth than Netflix does. The various ISP companies pool all of the money that they collect from all of the users, including you and me, and they maintain the various tubes and pipes that make up the Internet. In some cases they pay the other companies that they are connected to in order to deliver the content. What is left over is called profit. In the case of the typical ISP, hundreds of millions of dollars a year in profit. In some cases, billions of dollars a year. No one is getting stuck with anyone’s free ride. I’m not sure why this isn’t clear but somehow people like you and the politicians who think that the Internet is made up of tubes don’t seem to have a clue. Hope this helps.

Anonymous Coward says:

Re: I really don't get this proposal

Except nobody is covering anything for them, they already pay their dues, that is the whole point of the proposal if people don’t believe that Netflix and others don’t pay for their connections they should pay their networks bills to see if that is true.

Are you going to pay Netflix bill this month because you believe they don’t pay anything and are free riding the intertubes?

Put your money where your mouth is! NOW!

Hint: Everybody stopped talking about Google and how it freeride the system, apparently Google bought enough dark fiber to string up the entire west coast not to mention it also build trans-oceanic cables that other “freeriders” will have to pay for it LoL

Paul L (profile) says:

SOLUTION: Fees for Useful Services

I’m always astonished reading stuff like this. I think many people simply don’t understand how the Internet is built, maintained, and funded.

Each entity ALREADY pays for bandwidth to send/receive their data, be it an end user or content provider such as Netflix, Google, YouTube, or TechDirt. Content providers generally use far more outbound bandwidth than inbound, and end users generally do the opposite. The key point is both parties are ALREADY paying.

If you want to use the highway analogy; this is like my city charging WalMart extra taxes because too many people use the existing roads to get to WalMart. As a result of all these people going to WalMart, they make money and should have to pay for the privilege of allowing their customers to use the existing highway infrastructure to get there.

Using this train of thought, we need to ignore the fact that WalMart already pays taxes to the city, state and federal government which in part goes to fund these roads. We also need to ignore the fact that consumers pay these same taxes too to fund the infrastructure.

I think Netflix and Google should demand that the ISP’s pay for the Netflix/Google bandwidth because it’s the content companies that create the value that entices consumers to get Internet access in the first place! These companies create the useful services that cause people to even want to get ON the Internet.

AT&T, Comcast, COX and every other consumer broadband provider out there should be paying Netflix in order to make sure their customers have access to that service. After all, why should Netflix foot the bill for the bandwidth that Comcast’s customers are sucking up?

Vincent Clement (profile) says:

Re: SOLUTION: Fees for Useful Services

Like there haven’t been other examples around for a hundred or so years, say like the mail or the telephone.

How does the mail get delivered internationally? I don’t pay the USPS when I said mail via Canada Post to the US. How do international phone calls get connected?

Everyone pays someone to use their service or product.

Derek Kerton (profile) says:

Re: SOLUTION: Fees for Useful Services

RE your last paragraph:

“AT&T, Comcast, COX and every other consumer broadband provider out there should be paying Netflix in order to make sure their customers have access to that service.”

True. In fact, as a model, let’s look at how Comcast and Cox operate as TV Cable networks: How much do they insist ESPN pay them to deliver ESPN TV content to users’ homes?

Wassat you say? They PAY ESPN!!!

Michial Thompson (user link) says:

You REALLY might need to think about terminology


You better make sure that Netflix ACTUALLY hosts their content and is paying for BANDWIDTH… Most of the really large internet sites are using Content Delivery Systems through third parties. They basically host the base servers, but the CDS actually cache their content and deliver it to the customers from the closest server available to the customer. So Netflix could be hosting their entire server farm on a minimum amount of bandwidth while the CDS is the one paying the actual bills for bandwidth.

Anonymous Coward says:

Re: You REALLY might need to think about terminology

Ok little michee, do you think the CDN is doing its services for netflix for free?

Netflix pays them (the cdn), as well as for their bandwidth from their own servers.

The cdn then pays for their bandwidth, so on and so forth.

You should know this as well as anyone else.

Marcus Carab (profile) says:

Re: You REALLY might need to think about terminology

I’m not totally sure that’s the case with Netflix, but even if it was, it wouldn’t change a thing. It’s putting a middleman between Netflix and the bandwidth, sure, but the point remains that Netflix is already paying for bandwidth in some way or another (clearly the CDS business model involves bringing in more money from clients like Netflix than you spend on bandwidth – so it’s still not as if someone is giving Netflix the bandwidth for free)

Almost Anonymous (profile) says:

Re: You REALLY might need to think about terminology


For the sake of argument, let’s assume all you said is true. Do you not think that Netflix would have to pay the CDS for its services? Thus, whatever Netflix pays the CDS actually would be Netflix’s bandwidth bill.

There, isn’t life so much better when you’re not trying to dream up loopholes?

Matt (profile) says:

Re: Re: You REALLY might need to think about terminology

OP is right, if the world is as he believes it to be then Mike has an issue because of his choice of terminology.

Mike offered $1k if two idiots will swap their “bandwidth bills” with Netflix. Netflix’s “bandwidth bill” may be less than $1k (I doubt it, but it could happen) if it is not actually hosting its content. Admittedly, its CDS bill is certainly much much higher, and the CDS company’s bandwidth bill is likely very high.

Michial’s point here appears to be that, as a taunt, this was not carefully worded. He is right. I don’t think that changes its quality as a snarky taunt: public opinion is unlikely to support Sununu and Ford if they accepted the offer and then insisted on a silly loophole. But he is not wrong that the loophole exists.

jimbo says:

they are both obviously full of wind and piss. if anyone honestly expects them to take on this deal, you are in cloud cuckoo land. they are typical (ex?) politicians. in shouting the loudest, they expect everyone to believe what they are saying. i’d like to see them put their money where their mouths are and prove what they say, but we all know that ain’t gonna happen!

Dan0 (profile) says:

someones got some bad math going on, so let me clear it up.

I can’t believe this isn’t the clearest of points.

I build a pipeline. I foot the cost of the pipeline. Say I spend 100 Million building it.
I rent the pipeline to ISPs as well as selling my own services so that they can resell it. I have 2 business models.
1. Consumers I charge 20-50 a month. and I sign up 10000.
2. I sell t-1s and higher to business at $400-10000 monthly.
Say I sign up 10000 businesses 10 for $10k and 9090 for $400.
If one business is running most of my bandwidth at over capacity, it is because I over sold my bandwidth. Typically ISPs sell it at 10/1 which means they sell 10MB for every 1MB they can provide.
If I don’t make any infrastructure upgrades during the first 5 years, I should have $232,160,000. 132 million profit.
Seriously, If you make someone pay 2x for bandwidth and they over sell it, you are a fool.

Bengie says:

Re: someones got some bad math going on, so let me clear it up.

It’s worse price gouging that it sounds. A large ISP can buy in bulk. Bulk rates are about $1/mbit in 10gb increments.

For any broadband ISP, the backbone connect is virtually free compared to last mile costs.

All of the congestion is on the last mile, which means the ISP is too over-subscribed.

In a free market, if demand was higher than supply, value goes up. If ISPs truly are overburdened, then they should just raise the price to the consumer.

My guess is consumers already know they’re being price gouged and ISPs are looking for another source of revenue.

Derek Kerton (profile) says:

Re: Re: Re: someones got some bad math going on, so let me clear it up.

“so as long as the infrastrusture is there”

…is a clause that obviates a lot of capital investment.

Now, I’ll be among the first to say that marginal costs determine price in perfectly competitive markets, not sunk costs in capital. But is it a competitive market when one vendor is selling the last generation Internet, and another is selling the latest? With Internet service, we are not making “the same phone calls” we made a couple of years ago. People selling faster Internet can charge more.

Since 1997, we’ve gone through many generations of infrastructure. Dial up modems, DSL, aDSL, vDSL, DOCSIS 1, 2, 3, FiOS, FTTC, FTTx, WiMAX, LTE. We have had steadily increasing speeds as a result. That happens not because “the infrastrusture is there” but because somebody keeps investing in new infrastructure. It’s not free.

You say “there is no cost to increasing supply”. But that’s wrong. Supply is increased by investing capital in faster networks. That capital seeks rents.

So if you make the “so as long as the infrastructure is there” argument, then I will happily accept that as long as you are using your dial-up modem to make your post.

dan0 (profile) says:

Re: Re: Re:2 someones got some bad math going on, so let me clear it up.

I think what Jerry meant is as long as they invested in the infrastructure in the first place, there is no additional cost for the bandwidth.

As long as it is a business, it needs to continue upgrades and better bandwidth allocation. What I am up in arms with on this is that these providers that have gotten government support to setup the infrastructure, are now asking for more money to then keep the oversell of bandwidth high, cap users at lower limits, and then charge users more for this. It’s not capitalism when the government allows territorial rights to cable providers, then allows companies to merge and squeeze out competitors. What is left for the consumer to choose? ATT, Verizon, and Cable??? If you are lucky there are 2 providers. If you are lucky, one of those 2 have not upgraded the infrastructure and charge a lower cost because of it.

Matt (profile) says:

Re: Re: Re:2 someones got some bad math going on, so let me clear it up.

Those are all last mile infrastructural changes. Admittedly, they have led to increased congestion at the local level. But is have their been substantial capital improvements in backbone in the last decade? Two decades? Three? (I ask because you seem knowledgeable and I honestly do not know the answer, not to spark a debate).

I did network stuff for a regional ISP during the modem->digital transition (you left ISDN off the list!). We certainly had a capital improvement budget that was reflected in our prices. But we were also charged more each month from our upstream as bandwidth utilization increased. We paid a subscription cost for OC3s and eventually OC12s, and we also paid an incremental cost for our use of them. Where did the marginal cost come from that justified that incremental expense? It sure felt at the time like a monopolistic rent that manifested itself as differential pricing.

Derek Kerton (profile) says:

Re: Re: Re:3 someones got some bad math going on, so let me clear it up.

To answer a few of the points of both you and dan0 at once:

Yeah, there has been substantial investment at the core in the last decade. But it is true that drastic over-investment running up to the dot-com bust and 2002 left lots of “dark fiber” in the ground. So in the decade since then, the increase of Internet use has been able to leverage that sunk cost investment.

But lots more fiber is being laid, undersea cables laid, middle mile trenches for Fiber to the Curb, satellite redundancy, metro ethernet. On top of the physical media being buried, technology improvements are being implemented to get more out of the cables. Coarse Wave Division Multiplexing, faster termination equipment, CDNs, caches, transcoders. All of these upgrades are being rolled out by telecom providers. Some will argue it’s not enough, and they may be right. But those that argue that there is NO investment lose all credibility with me. You have to be blind and have no knowledge of telecom to think that.

OTOH, telecom was pretty damned stagnant before 1996.

“It sure felt at the time like a monopolistic rent that manifested itself as differential pricing.”

You are right. Although I would say oligopolistic. There is not enough competition in last mile broadband in the US, but I think there is enough at the core. However, my definition of “enough” falls short of a perfectly competitive industry.

Why would I accept a non-competitive industry? Because I don’t make the laws of economics, I just live with them. Many segments (core, last mile) of a telecom network are what is know as a “natural monopoly”. That is, in a free market, it will tend on its own towards vendors with price power and market control, who are able to extract some rents above Marginal Costs.

The first paragraph in this entry give a good brief on what Natural Monopolies are:

Telecom is characterized by huge capital requirements. Especially in an era with rapidly evolving technology. The massively difficult act of having to bury or string cables over thousands of miles means the barrier to entry is huge. Such a market does not exhibit the MC=P characteristics of perfect competition. In most nations, a regulator steps in to “oversee” that the economic rents being charged are not egregious. For more, read the wikipedia entry above. The buried cables around the nation ARE scarce, and it is that scarcity that is driving the prices, NOT the bits which are almost free to send about.

DanO’s point is correct. It’s not “capitalism” (although I think you mean a free market). It’s a natural monopoly. Before it was a heavily regulated natural monopoly. Now it’s a lightly-regulated oligopoly. Yes, way back these companies got favored treatment, free rights-of-way, land access, franchise (exclusivity) rights for towns, and all kinds of other advantages. The compact with the people was, supposedly, that this would give the telco an incentive to serve the town with universal communication access. It may be hard to conceive, but this was not assured back in the day. Telcos would have happily skipped entire small or remote towns that were unprofitable to connect. Just consider the towns that don’t have DSL right now.

Now, after all that preferential treatment, the telcos do not appear to have much gratitude. But this is a grey area, too. Do they owe us much? They were forced to offer universal service to unprofitable regions in exchange for privileged access. Is that deal complete and history, or do they still owe us? I don’t think the answer is clear. But like you, Dan0, I don’t think they should get preferential treatment anymore.

Sorry people. When we dig down into telecom policy this deep, the answers are not obvious. Lobby groups or not, even the truth is murky and unclear. Making good policy is complicated enough. So we absolutely don’t need paid shillheads like Ford and Sununu deliberately lying to get their payoff.

JackSombra (profile) says:

Actually, considering most (all?) ISP’s charge by bandwidth to their customers (aka both bushiness and end user will either have a pay by usage or a cap on unease in their plan) you could argue the network providers are already double dipping for data transmission, akin to charging both the maker and receiver of a telephone call.

But then this is something Americans are already used to

Anonymous Coward says:

What about this..

I set up a Website that sells Cow Manure. I accept orders over the internet. When an order comes in, I go out back, put some of it in a bag and then I call FedEx come to the house to pick it up. Did I pay any highway tax, gas tax, airport tax, airplane fuel tax, and the other 1000 taxes? No.. (but FedEx did).

Now lets say my business grows so big, that poor Taurus in my backyard can’t fill the demand. I recruit other to sell me the manure and to send it to me so I can sell it. After a bit, I have so much business, I decide to work with a friend that is located very close to Memphis Airport (FedEx’s Hub). My suppliers send their bags to my friend near the airport. I send an email to my friend whenever I get an order and have him sent out a bag. I pay him a shipping + a small service fee for each bag sent.

My friend strikes a deal with Fedex where they will give him a discount because 1. He ship so many bags and 2. The delivery to the customer will take only one flight.. not two flights through Memphis. Fedex costs are cheaper so they they pass on the savings to my friend. I in turn, save money because my friend’s costs are lower.

I’m not “paying” anything to support the highway/airport system. I am not even paying money to the people that use / pay for the highway/airport system. I get a free ride selling my bags.

Now I hope that no one takes that there is any relationship between the Hollywood products delivered by NetFlix and what is in my bags.

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