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SBC CEO: Pay up if you want to use our pipes
acousticiris writes "If there were any delusions that Ma Bell Wasn't Back, SBC CEO Edward Witacre has cleared that up in an interview with Business Week Online. When asked about Google, Vonage and other Internet Upstarts he responded in typical Ma Bell Style: 'How do you think they're going to get to customers? Through a broadband pipe. Cable companies have them. We have them. Now what they would like to do is use my pipes free, but I ain't going to let them do that because we have spent this capital and we have to have a return on it. So there's going to have to be some mechanism for these people who use these pipes to pay for the portion they're using. Why should they be allowed to use my pipes?'."
Don't they have ISP fees much like we do, whom probably pay the phone company for using their "pipes"?
In undeveloped countries, the consumer controls the market. In capitalist America, the market controls you.
The comment is interesting, but an empty threat. The *customer* is paying for the pipes. The companies that the customer contacts are not using the broadband pipe except on behalf of the customer: any downstream transmitted across that pipe is paid for by the customer. As a specific example, I can pay for various downstream speeds with my cable company and DSL is ordered with a speed for upstream and downstream. That price breakdown makes it clear that the broadband payment I'm making is for both upstream and downstream, otherwise why would my upstream remain constant but my downstream increase if I throw more money at the cable company?
On the other side of the fence the "Internet Upstarts" are paying for *their* pipes as well. Even the pipes "in the middle" are indirectly paid for, although that process can sometimes breakdown (as Level3 and Cogent are proving). It isn't like there is some magic way to get access from point A to point B "for free". The costs are just bundled in your access bills. What ticks off a telecom is that the prices for packets are so darn *cheap*. It makes land line voice look expensive, which is driving the adoption of VOIP.
If they decide that paying for your pipes (both directions) doesn't give you access to the services you want, the only option is to impose filtering. If they decide to filter, block or otherwise prevent the customer from unhindered access to Internet products they will be in violation of the common carrier provisions. Which is fine if they want to then make a stab at blocking *all* bad stuff the Internet contains. However, I suspect that's not where they want to be, as without common carrier status they become liable for anything they *fail* to block.
Frankly, all this comment proves is that they are desperate for revenue and yet know they can't raise rates on telephone services (thanks to regulation) so they are flailing around for anything they can think of. Legal probably sent him a "memo" right after that comment got back to them though, as I'm pretty sure *they* understand the ramification of the implied threat.
Sig under construction since 1998.
Better yet, why should we continue to subsidize a dying business? First, you bitch when municpalities try to install subsidized internet for the masses, then you bitch when people try to use a monopoly connection to eliminate your services.
Stop whining and change your dying business model.
More
What a moron.
What the hell does he mean by people using his "pipes" for free? I pay every month for my access. And I'm not paying for wires strung to my house, I'm paying for bandwidth, for the ability to get packets in and out of my router. Nothing free here, I paid for it.
Yes, there's someone on the other end making money on this and the greedy bastard thinks he should get "his share". Does he want that to apply to every transaction?
I called and ordered a pizza for delivery last night. Do they get a cut?
I checked my bank balance and paid a couple bills this weekend. Do they get a transaction fee?
I do work from home some days. Do I need to give them a portion of my pay when I do that?
Your man here runs a phone company. His customers pay him for voice service, and also he gets paid by broadband providers for the right to run internet connections over the same line (or possibly he sells broadband himself - I don't know exactly how it's done in this particular case).
He has now noticed that some people are using the broadband connection instead of the voice service. There go his profitable long-distance and international charges! He charges a nontrivial amount per minute for a call to Tokyo, but these people are rolling it all into their modest monthly broadband fee! Aargh!
The words 'buggy whip manufacturer' spring immediately to mind.
Real Daleks don't climb stairs - they level the building.
What do you mean, their own demise? Google is one of the things that make the internet more useful and more attractive to people.
Oh, wait, you mean that a useful and attractive internet means people are going to not sign up for SBC broadband! Of course, how silly of me that I didn't see your impeccable logic for what it is immediately!
I suffer from attention surplus disorder.
In context, he is talking about VOIP.
In effect, SBC is providing the means by which VOIP providers are competing with SBC's phone line business. That's what bother him.
But he has to understand, if SBC is going to offer generic internet service, they have to tolerate customers using it for whatever they want. What Whitacre and his ilk would like is to regulate what customers can do with the service. This would start with shutting out competition and progress to charging for each protocol, port, destination, etc..
We have to preserve the common carrier principle in internet access.
Clearly this is a man who is comfortable with the idea of monopolies being granted to him (and not his competitors) and uncomfortable (even angry) about anyone figuring out how to compete with him. My read on this is that, given a choice between innovation and staying in a monopoly world where he is king he'll choose the latter.
Welcome Back Ma Bell, we haven't missed you!
Exactly.
Next thing you know, some county somewhere is going to charge Amtrak for driving through without paying.
How about this... We give anyone who wants to be an upstart the same access to putting fiber in the ground as SBC and see if they like that.
rant: Eliminating any monopoly in the United States of America has been impossible for some time now (see: campaign contributions). Personally, I think the telecommunications industry is one of the first that needs to be seized and freed back up.
Get paid to code OSS
Why should they provide their customers the service they signed up for? They promised to provide access to the internet for a certain price, not to some subset of the internet that agreed to pay their extortion. If they can't make a profit, why is this Cogent's fault? Did SBC inform their customers they would be used like this? Will they be compensated for being unable to connect to work because SBC's CEO isn't getting a big enough bonus check?
My other car is a Popemobile
After that, I'll push for cars, entertainment and space travel... They want to be free too!
Come play Moral Decay!
There is software that can detect VoIP traffic and even identify the carrier. Telcos use this to *protect their networks*, but it can also be extended to protect their profits.
While it is illegal for Witacre to drop all VoIP traffic, it doesn't mean he won't be identifying this traffic and providing it with highly degraded service with added noise, especially if the call's destination is one of his clients. This way he can do his best to maintain his customer base since the average customer will believe that using VoIP is like talking through a tincan.
Sure in the end the buggywhip tech of the old Ma bell will loose out, but it will be a prolonged fight. Witacre rebuilt ATT, he's pretty shrewd. -- the guy just single-handedly overturned one of the largest anti-trust cases ever. I don't think he's going to be easy to presuade with some little "laws".
The guy who supplies a cable to your house has fixed costs and variable costs associated with supplying it.
The fixed costs are the physical line, maintenance, exchange equipment etc.
The variable costs are basically the calls, or are they? It costs them a fixed amount for the infrastructure to enable you to make calls. Once the mainly fixed costs of providing the infrastructure is met then profit starts. I know this is a simplistic description but it mostly hold water. So in effect the business is built around mainly fixed costs.
However if you take away the revenue associated with the making of calls then something has to give to meet these costs which remain largely the same.
This can either be reduced profit, reduced costs or an increase in the fixed charge.
Reducing profit is something companies are unlikely to want to do. In SBC's case their profit $1.2 billion from $10.3 billion represents 11% profit. Not bad and they can afford to lose some from that. But get much below say 6-7% and alarm bells will start ringing. Not least they won't be keen on investing speculative money on a high risk, low margin business like say next gen. ADSL.
Reducing costs. I dare say there could be some of this going on in a business of this size but after not too long they would have to reduce their infrastructure costs. And reducing infrastructure costs would eventually mean reducing service.
The third option is to move the fixed costs onto the fixed costs the customer pays. IE The line rental and the Broadband supply.
Doubtless there are other ways of looking at it but any way must address the issue of fixed costs being paid for.
Ok so I was about to post a gut response and then I went back to RTFA and thought it through again...
:)
Let's try the legacy Ma Bell perspective:
You make a phone call to Joe. You initiated the transaction but both you and Joe pay for access to the network. Even further, in the wireless phone world both you and Joe likely pay per minute for the call.
Now let's try a cable perspective:
You want subscribers who will pay a monthly access fee. To get them, you need the best available content. You MUST get networks such as ESPN, CNN, ABC, NBC, MTV, etc. into your content package. You don't charge ESPN for access to your "network"...
Similarly, newspapers:
You need subscribers. You pay content creators (reporters, comic authors, etc.) for the content necessary to attract and retain subscribers.
It seems the battle is which model does the data backbone (the Internet, if you will) fall into? Is it simply a network by which people and organizations can communicate with no guarantee or claims as to the quality of that content (a la the phone network) or are you selling end-subscriber access to a content service (a la cable TV or newspaper)?
I think for SBC the answer is "yes". It's both. They have end customers who want access to the Internet FOR the content that's there. They also have customers who just want a communications network for data. Here is another way to look at the power of the organizations involved:
Could a major Internet content/service provider (Google, CNN, Apple iTunes, Yahoo, etc.) approach a network provider (SBC, Comcast, AOL, etc.) and threaten to cut off those network's subscribers unless the network provider PAYS them for their content?
This would be the true coup de etat in the industry. When a single content or service source becomes so demanded by end consumers that it MUST be available on your network to keep those subscribers. I don't know that any website is yet that important... Maybe Windows Update could be, if anyone used it.
Come play Moral Decay!
Telecom lines *should* be free. This was part of the telecommunications act nearly a decade ago. Big providers like SBC get government and municipality-granted monopolies in exchange for 'playing nice' with others.
The original reasoning behind the friendly monopoly was to prevent divergent standards in telecom from emerging and to prevent mass destruction of public property. Think about it this way...one company, one city, many streets and alleyways. Any time SBC lays new fiber, runs new lines, erects new poles, etc. the city is well aware of it. The proper forms are filled out and streets are closed/traffic redirected/people are notified.
Now imagine there are 4 telcos in your city. Each one will be on their own upgrade and repair schedule. Each one will fight for customers. Each one will be loathe to exchange with other companies' traffic. Each one will tear up streets during upgrade cycles. See the problem here? Telecom is considered important enough for city governments not to fuck with it, just like the power company. A phone, a water pipe, and power to every address is not too much to ask for.
If our government worked better, i.e. wasn't so slow and wasteful, I'd wish that we'd have government controlled telecom. We could have a national telecom policy that'd bring us fine things like fiber to the home like Japan, Korea, *insert better connected country here* does. SBC is an impediment to progress, while they're in the position to push it forward, they have to make sure to squeeze every last penny out of what they've already invested. So of course, the CEO will boldly say 'you must pay to use our lines'. The shareholders would expect nothing less. Common corporate bs here.
What would happen if they were unable to exact a charge on companies sharing their lines? To the shareholders, they're giving something away for free. To them, they're losing money on legacy hardware (i.e. the paths they provide have already been bought and paid for many times over). They fought like hell in court to prevent the telecom act, and it's easy to see why. The cable companies have the upper hand here, because the playing field is somewhat more level for them. They're not as strictly regulated and don't have to share their infrastructure with others. They still compete with each other and tear up public property occasionally but they're not as 'necessary' as SBC is. Yet. SBC has said time and again that if they had the right protection they would invest the billions required to put fiber to the curb. Verizon, in some areas, has already beaten them to the punch.
Basically to sum it all up, SBC is becoming a model for corporate greed and sloth. Just like Microsoft or any other company that gets too big, they never want to play nice and share with others for fear of losing a few bucks in the exchange.
I think you missed the point. Google and Vonage are not using SBC's lines. SBC's customers are using SBC's lines (which they have paid for) to access Google and Vonage. This is like the RIAA/Apple skirmish, it's simply that one side sees money being made and wants a cut of it.
The problem is, Google, et. al. already pay for their pipes, too. Nobody is getting a free ride. The end-user pays for their broadband connection (as you've pointed out), Google pays for its Internet connection (Google must have one helluva broadband bill), and the ISP's have traffic interchange agreements between them (I think it boils down to whoever passes more data has to pay - if they 'trade' an equal amount of data, then they probably don't charge each other - although I'm sure it all boils down to the individual contracts that govern peering).
The point is, this guy is a greedy jackass who is trying to make out like other companies are getting a free ride using the bandwidth I and they *already* payed for. If google, et. al have to start paying SBC for the bandwidth I already payed for, SBC better start giving me free DSL service (all this is hypothetical, as I currently use TimeWarner cable for internet access).
The one potentially hopefull thing in all this is, because of the fact that cable companies are competing with the phone companies, (and things like city-wide WiFi networks are being created) SBC doesn't really quite have the clout that its CEO seems to think it does - just imagine what would happen if SBC suddenly disallowed access to all the websites/services that people normally use the internet for, because they didn't pay this fee? All SBC's customers would probably switch ISP's pretty fast, leaving SBC wondering what happened. Simply put, SBC needs Google, Vonage, and the rest of the Internet more than the rest of the Internet needs SBC.
I still do wonder, though, what *geniuses* at the FTC have allowed the re-aggregation of all the baby bells after government spent massive amounts of money, and 10 years of litigation, trying to break them up.