Fractals of Change

Metered Pricing – Is Sauce for the Goose Sauce for the Gander?

Reader and friend Aswath is a supporter of metered pricing by ISPs. We disagree on this and he commented, fairly enough, that I’m apparently contradicting myself when I praise the metered pricing at Amazon S3:

“I share your enthusiasm for S3. Indeed I have been using it for my application as well. I have been hoping that you will touch upon the metered pricing, since in other contexts you have expressed a preference for fixed pricing model. There are other storage providers who charge for only storage and nothing for bandwidth consumption. I surmise that these providers have modeled usage pattern and have included it in the storage price. But I understand S3 pricing model and feel it is more transparent than the bundled model. I am curious to know your thoughts.

“On a related point that ISPs, especially WISPs should use Amazon's pricing model. Then they do not have to worry about P2P and they do not have to place restrictions on which applications are permissible and which are not.”

Good question.

I do agree that it’s far better for ISPs to charge explicitly for usage than that to surreptitiously, or even openly, disadvantage or restrict certain services in their network. ISPs do have the right to make this kind of pricing decision (and some do); I just think that ISPs will both make their customers happier and make more money if they offer flat-rate all-you-can eat plans, perhaps in addition to metered plans which charge by the byte transferred.

My experience, which I’ve written about before, comes from my time as head of AT&T WorldNet Service where we popularized (but certainly didn’t invent) flat-rate pricing for dialup Internet access. Our experience was both that the flat rate attracted customers who may have been afraid to sign up for a metered plan AND that customers, on the average, paid MORE for flat-rate service than they would have paid if the meter had been running (we also offered a metered plan). Our conclusion was that they were willing to pay us a premium for taking the risk of “excess” usage and for the simplicity of a predictable bill whose detail they would never have to check.

Interestingly, when we introduced this plan, Dan Hesse, who is now head of Sprint, was my boss at AT&T. Without his support I never would have been allowed to do this sort of radical pricing even though I argued that local phone service had been priced at a flat rate for years.

Dan is apparently also still an advocate of flat consumer rates. I was overjoyed to see him, himself, in a TV commercial explaining that Sprint offers one flat rate for all voice, web-surfing, and data transfer on its mobile phones. He needs to change the game to succeed in a tough turn-around of Sprint. Flat rate is a game changer.

The argument against flat rate pricing is that there will be “abusers” meaning those who really do find a way to use scads of service. I would certainly agree that resale of a consumer service is an abuse. But what about becoming a volunteer hub for P2P file sharing?

Most of the time (because capacity is only limited during peak hours) it doesn’t matter whether there’s a lot of file sharing going on. In fact, moving files around off-peak can be considered a service to the network because it puts content closer to where people consume it and makes the network more valuable. At peak times networks may experience congestion. Networks certainly should force equal sharing when capacity is over-subscribed rather than targeting certain applications; especially when we don’t have a competitive broadband industry in the United States and have to worry about providers using traffic management as an excuse to handicap apps (like VoIP or video) which come from their competitors.

Networks may choose to do what Verizon Wireless has recently done, put a high upper limit which most users won’t come near on what was formerly an unlimited service and turn the meter on when you go over the threshold. Other networks slow down the data rate of those who exceed a certain usage. These aren’t evil strategies if they’re properly explained and advertised. But they might not make good marketing sense. Competition will help sort that out (I hope) but the movement of the wireless carriers to unlimited voice (and data for Sprint) is some indication of what the market wants.

So back to Aswath’s question: why do I like Amazon’s very metered pricing for S3 if I’m such a fan of flat rate pricing? It’s because S3 is NOT a consumer service; it’s a service which is designed for resale; a service which is built to be baked into other people’s services. I’m sure some users of S3 are tens of thousands of times bigger than other users. It’s a real advantage to us small users to buy exactly what we use – not what we think we’ll use but what we actually use – and not a bit more.

Those of us who use S3 as a backend resource for services that we sell to consumers benefit from paying for just what we use. We benefit again if we sell to consumers on a flat rate basis and both have an easier time signing them up and receive a premium for predictability and simplicity. 

Verizon OPEN Wireless

Very surprising and welcome announcement from Verizon Wireless yesterday:

“Verizon Wireless today announced that it will provide customers the option to use, on its nationwide wireless network, wireless devices, software and applications not offered by the company. Verizon Wireless plans to have this new choice available to customers throughout the country by the end of 2008…

“ ‘This is a transformation point in the 20-year history of mass market wireless devices – one which we believe will set the table for the next level of innovation and growth,’ said Lowell McAdam, Verizon Wireless president and chief executive officer.”

Lowell’s right. And Verizon Wireless is right to open up. There’s plenty of room to be cynical about this; after all, Verizon Wireless is trying to STOP the FCC from putting an openness requirement on the 700Mhz spectrum to be auctioned. Very well-informed Om Malik posts: “Do we really believe that Verizon is going to be happy being Pipes-R-Us?” He point out many ways this there may be less to this announcement than meets the eye.

As an optimist, I think Verizon’s acting in enlightened self-interest which is just great. Here are some of the factors which may have influenced their decision:

1. They DO have the best network coverage in the US – especially for data coverage. Best way to capitalize on that is to have developers build appliances and apps which run on their service.
2. Because they are CDMA (a protocol NOT used in most of the rest of the world), they run the risk that no new stuff will be developed for their network, especially if it remains a walled garden. The US is a big market but the rest of the world is even bigger.
3. The next time somebody develops an iPhone-like breakthrough – and somebody will – they want it run on their network, not be locked to AT&T.
4. Amazon’s Kindle, which could but doesn’t run on Verizon’s network, is a clear example of how usage may be sold bundled with a device. They’re not going to be a better bookstore than Amazon. They need these innovations to be on their network.
5. They know that the next year or so will bring huge device innovation including (I think) wireless connectivity in almost every GPS and associated services. They know that their network and their data service – EVDO – which can do handoffs at 80mph is well positioned to benefit greatly from this
6. As voice minutes turn to VoIP minutes and WiFi minutes, they’re better off keeping some of that traffic onnet even as simple bits rather than losing it all. Note that, to their credit, they DID change their terms of service to allow VoIP over their data service.
7. The FCC has said that the huge chunks of 700Mhz spectrum going up for auction have to be used “openly” by the winner. It would be hard for Verizon to operate a network which is half open and half closed. Maybe they DO want that spectrum, don’t think they can change the rules, and want to be ready for it.

If you’re torn between my optimism and Om’s pessimism, Galeal Zino suggests a test:

“Let's see which comes first:

“1. Articles about the millions of dollars of deep packet inspection and payload-based billing systems that Verizon is going to incorporate in order to "manage" their soon to be "open" network.

“2. Articles about third-party mobile devices that interop with Verizon's network, using CDMA for voice when necessary, and using unrestricted IP to place VoIP calls using third-party solutions when more appropriate.” 

Kindle – Reader Questions and Comments

In a recent post, I opined that Kindle may be more important as a crude opening wedge for free (sponsored) Internet access than as a change-agent for the way people read books.

Reader ellen has a good question:

“The free internet service after the $400 buy price sounds too good to be true. I would certainly buy one for that reason alone.

“I am going to ask a really dumb question. Does getting wireless access to the internet mean every time you are near any wireless you will be able to log on or does it mean you have to go through the same towers as cell phone access? Having had so much trouble with at and t cellular for my phone would sprint have to be well covered in my state? No one around here uses sprint for cell access. Everyone uses verizon, because for some reason it is best in my area of massachusetts. After many years and 4000 leftover rollover minutes I a dumping at and t for verizon.”

Ellen, that’s a good question. You shouldn’t buy a Kindle if you aren’t usually in a place where there is a good signal from Sprint. EVDO uses the same towers as voice service; so, if Sprint voice isn’t good where you are, EVDO won’t be either. Verizon also supports EVDO but that won’t do you any good with Kindle because it’s tied to Sprint’s network. Moreover, it is possible to be in a place where voice service is good and data not. If you know someone with a reasonably modern cellphone who has Sprint service, ask him or her to look at it near your house and see whether it says “EV” or “1X” where it shows the data connection (different phones display this differently). 1X is a slow data network and Kindle won’t work on that; it is rapidly being replaced by EVDO by both Sprint and Verizon.

Reader Aswath, who is a smart guy, is confused:

“I am a bit confused about the "free" access to the Internet. If I am right in interpreting this, then why do I have to pay a monthly fee to read FOC? That is why I thought that I could access only those sites to which I have subscribed (signified by a bookmark in the browser?). But then both you and Pogue [nb. NY Times writer David Pogue in this article] say it differently. Hence the confusion.”

Internet access IS free through the builtin browser on Kindle. You can, for example, read Fractals of Change in the browser – free – just as you do in the browser on your PC or Mac. However, you can also elect to pay 99 cents/month to subscribe to FOC. That is confusing; why would you pay for something you can have free?

Well, two possible reasons. One, the version you pay for is presumably (I don’t have a Kindle yet) better formatted for the Kindle screen. It has no ads and doesn’t have the sidebars that the browser version does. The Kindle browser is described by Amazon as “basic” so that may make FOC pretty ugly when viewed that way.

More important in the case of a blog or other periodicals which you can subscribe to is that they are downloaded to the Kindle automagically rather than being fetched from the web. That makes a difference if you are going to want to read this content when you’re offline – on a plane, for example, or traveling through country where Sprint EVDO (and therefore Amazon Whispernet) is not available – assuming you were online at some time so that the download could take place.

Both of these reasons for buying content rather than consuming it free are even more important for books. You can read my novel hackoff.com: an historic murder mystery set in the Internet bubble and rubble free at www.hackoff.com. Many people, however, don’t want to read a whole book online. You can also download and print PDFs free.(but not on Kindle). Or you can get it nicely formatted so that you turn pages as in a book rather than scrolling and read it on Kindle offline – but that costs $4.76. If you do that, BTW, Amazon stores it on your virtual bookshelf forever even if you delete it from Kindle to make room for more books. Probably the real comparison here is with the hardcover edition available from Amazon for $18.96.

Reader Marc Orchant did try hackoff.com on Kindle: “hackoff.com looks great on the Kindle. The formatting is clean (e.g. Q&A in the first chapter) and I'm looking forward to reading it as I count myself among the survivors of those perilous bubble days.” Nice to hear. Thanks, Marc.

Reader Terry Gold also likes Kindle (wish I had mine): “I've had a Kindle all weekend, and I'm already planning on how I can get rid of most of my paper books. I'll keep the ones that mean the most to me, but for everything else, this is the way to read. I just had Amazon send me a sample of your book even though I have the hard copy and I can read it on the web. The Kindle changes reading for me.”

On a somber note, reader Dylan Salisbury asks: “What happens after someone hacks into a Kindle and tethers their PC to the internet connection? If they had really "bought" that internet connection, it wouldn't be a problem (you can run any traffic you want over your own connection, right?) -- but I have a feeling such uses will be shut down or denied.”

I think Dylan’s right. If such hacking becomes noticeable, it probably would be shut down in some way. And that raises an interesting question: is it a violation of Net Neutrality to shut down some uses of “free” Internet access? I’d say no in this case since Amazon hasn’t been using the free access to the web as a selling point and it’s pretty clear what it’s for; but certainly there may be plenty of argument over this.

Kindle – Shape of the Web to Come?

Forget the argument about whether or not you want to read books on a device instead of on comfortable paper. Forget whether you want to pay a subscription price for blogs like Fractals of Change that you can also read free in a variety of different ways. The Kindle points to a possible future for the WorldWideWeb in a way that has nothing to do with books.

Kindle comes with free browsing! Free! You pay once to buy the device and then you browse free anywhere that Sprint EVDO reaches, apparently for as long as you have the Kindle. Remember all that stuff I blogged about buy vs. rent? Here’s a chance to BUY your roaming Internet access for a onetime fee.

After the mandatory questions about e-books and e-book readers that we’ve agreed to ignore in today’s post, David Pogue gives some attention to the importance of free browsing albeit buried well down in his piece in The New York Times:

“But the part that will really rock your world is the Kindle’s free wireless cellular broadband service.

“Now, if you just splurted your coffee, you’re forgiven; “free” and “wireless broadband” have rarely been used in the same sentence before. The Kindle goes online using Sprint’s 3G cellular data network — the same service that costs $60 a month for corporate laptop luggers. The Kindle’s price tag stings less when you realize that Amazon is going to pay your entire wireless tab.

“So the Kindle can get online almost anywhere — not just in little coffee-shop hot spots, but in cabs, in lines, in doctor’s offices.

“There’s even a crude Web browser. It’s fine for text and graphics, lousy for Web layouts and useless for streaming audio or video. But with some effort, you can use it to get news, rebook a flight, monitor blogs and even check Web e-mail (like Gmail).”

In a previous post I glibly said the Kindle couldn’t be used for email. That’s because I use Outlook, which doesn’t run on Kindle, as a client and forgot how many people use a web interface to read their mail. Duh!

Now, as David says, this is hardly the be all and end all in browsing. It’s not good for porn videos and doesn’t even do color. The browser is “clunky” and should at least work sideways, which it doesn’t, for good web viewing. But the browsing is free!

Will this model spread? That’s the important question. There’s actually a good chance that it will.

Don’t know what the deal is between Amazon and Sprint which supplies the underlying network. Sprint has had a disappointing experience recruiting and keeping customers lately so probably had network assets to spare. But, once a network is built, extra bits don’t cost anything substantial until you have to buy more network.

If a part of the sales price of each device provides capital for network expansion, that’s a scalable model. (Don’t worry about depreciation; the device’ll get obsolete at least as fast as the network assets and have to be replaced so more capital’ll come in). If Amazon pays Sprint on a per use basis instead of a per device basis, that pays the debt on network expansion; the model works either way (or both).

And what about Amazon? Well, they sell the device and presumably make money on that; they’re sold out at the moment. But they also “sponsor” the access. They chose the bookmarks for the browser. The device comes linked to the Amazon account you bought it through. With this device, it is even easier to buy real books from Amazon. In fact, you can download the first chapter free and then decide whether you want the paper or electronic edition. They’ll have a recurring revenue stream as well as the initial sale – and can help pay for the cost of network operation of that’s part of the deal.

Kimble may well be the crude leading edge for “free” sponsored web access. If so, there are profound implications for web development (hint: develop apps that run in a browser), the Internet access business, and even Net Neutrality. There may even be a tie in with Amazon’s hosting business for such apps. Hmmm…

My prediction: we’ll see “free” sponsored access on car GPSes before another year has passed: the opportunity for roadside advertising is huge and the screen is already paid for.

Full disclosure: Both this blog, Fractals of Change, and my novel hackoff.com: an historic murder mystery set in the Internet bubble and rubble are available for Kindle. You can pay to download them from Amazon OR you can use the browser to read them free online. Choice is good.

Comcast’s Wrong Approach

Internet Service Providers (ISPs) have to do a lot more than just provide a pipe from your residence to their facilities to assure that you have a good Internet experience. There is a raging debate, inextricable from the debate on Network Neutrality, both on what the proper responsibilities of an ISP are AND what methods are proper for carrying out those responsibilities.

Recently Comcast has received a serious black eye for blocking BitTorrent traffic in what it says was just a legitimate exercise in protecting most users from the few who abuse their “unlimited access”.

For this discussion to make sense, you have to know a little about what BitTorrent is. Can’t do better than the wikipedia description: “BitTorrent is a peer-to-peer file sharing (P2P) communications protocol. BitTorrent is a method of distributing large amounts of data widely without the original distributor incurring the entire costs of hardware, hosting and bandwidth resources. Instead, when data is distributed using the BitTorrent protocol, each recipient supplies pieces of the data to newer recipients, reducing the cost and burden on any given individual source, providing redundancy against system problems, and reducing dependence on the original distributor.”

BitTorrent has been used to distribute copyright material without authorization. It also has a large and growing amount of legitimate use. As previously blogged, P2P at its best is a way for us users to share our disk space and computing power to obtain free or low cost access to data and/or services we want.

In an example of very thorough professional reporting, Peter Svensson, AP Technology Writer, describes what AP found that Comcast was doing to BitTorrent traffic when it followed up on a tip from a Comcast user. The experiment done by AP was to use BitTorrent to transfer copies of the Bible using BitTorrent (they chose the Bible because it is in the public domain so transfer of it is not a violation of anyone’s copyright). Their conclusion:

“Comcast Corp. actively interferes with attempts by some of its high-speed Internet subscribers to share files online, a move that runs counter to the tradition of treating all types of Net traffic equally.

“The interference, which The Associated Press confirmed through nationwide tests, is the most drastic example yet of data discrimination by a U.S. Internet service provider. It involves company computers masquerading as those of its users…

“Each PC gets a message invisible to the user that looks like it comes from the other computer, telling it to stop communicating. But neither message originated from the other computer — it comes from Comcast. If it were a telephone conversation, it would be like the operator breaking into the conversation, telling each talker in the voice of the other: "Sorry, I have to hang up. Good bye."”

Note to nerds: the invisible message is an RST packet, part of the TCP protocol. The correct use of RST is documented here by the IETF and does NOT include its use by any intermediary. Electronic Frontier Foundation confirmed the AP results and also provided additional technical information.

Even if we give Comcast the benefit of the doubt and assume they are not influenced at all in their decision of what traffic to block by the fact that P2P protocols like BitTorrent are used to distribute material which competes for precious user attention with the content that Comcast sells, what Comcast is doing is still wrong if not illegal.

The Internet is as fantastically useful as it is because each of us can communicate with each of our friends and get data from any source using any protocol or data transfer method invented or yet to be invented which works on an IP network – I’m simplifying and exaggerating slightly but only slightly. Each of us “sees” the same Internet. Communication becomes much more constrained if each of us sees a different and perhaps incompatible Internet. You can see Google but I can only see Yahoo. I can upload photos to Flickr but you can only upload to dotPhoto. My email can’t get to you; you and I can’t share files (although we can both share with Ellen – today). Gee, almost sounds like mobile phone networks – or cable networks.

I also don’t want anyone or anything masquerading as my computer. Period. If traffic has to be blocked, there are ways to do it without pretending to be me.

Comcast’s reported response was slimy. AP quotes Comcast spokesman Charlie Douglas as saying: “Comcast does not block access to any applications, including BitTorrent.” AP then continues: “Douglas would not specify what the company means by "access" — Comcast subscribers can download BitTorrent files without hindrance. Only uploads of complete files are blocked or delayed by the company, as indicated by AP tests.” Of course in BitTorrent, there has to be an upload for every download.

Contrast the approach taken by Comcast with that taken by Cloud Alliance, a small Vermont wireless ISP which also has to manage its network to assure that some customers don’t hog all the resources. During periods of congestion Cloud Alliance restricts the bandwidth available to all customers. It does NOT try to decide which applications users should run and which they should not. It does NOT spoof being the user’s machine. And it DOES tell the truth about its policy. I know how Cloud Alliance manages bandwidth because the method was described by Michael Birnbaum, who runs the WISP, in a comment on Fractal of Change.

For much more commentary on the Comcast fracas see recent posts on David Isenberg’s blog and a very comprehensive explanation by Susan Crawford.

More on how Cloud Alliance manages traffic is here.

At Least Verizon Isn’t GFing the FCC

When  I was at the old AT&T, the unlovely word “grin-fucking” – GFing for short - was used to describe the common practice of pretending to agree with someone while preparing to stab him or her in the back. Verizon Wireless, however, is being right out front in its opposition to the part of the FCC order for the 700MHz spectrum auction which requires that the winning bidder for the C band keep that spectrum open for user-chosen devices and applications. Here’s the meat of what they filed:

Not surprisingly, Verizon doesn’t want you to use “their” spectrum to download ringtones or games from anyone else. More seriously, they wouldn’t want you to use VoIP over WiFi or something nasty like that and bypass their tollbooths. Since they don’t really need this spectrum anyway but have a lot to gain by making sure it doesn’t fall into dangerous competing hands like say Google, it makes all the sense in the world for them to file suit and gain either delay or change.

But it is surprising that at&t, after initially opposing the FCC’s openness provision, now says that they can live with it and that it is a reasonable compromise between what Google wanted and what they wanted. Why is at&t being so reasonable?

Could it be that the new at&t understands GFing as well as its predecessor? Could it be that they are confident of their ability to avoid actually complying with these conditions even if they nominally agree with them? Could that confidence be based on the fact that the FCC does not seem to be enforcing the conditions which at&t agreed to just last year for buying BellSouth? Or on the fact that neither Congress or the executive branch or the judiciary has ever forced them to live up to all the promises for investment and new services they made in return for deregulation? Or are they confident because anti-trust seems to be out of style and the Justice Department has advised that “competition” will determine whether net neutrality is a good idea?

Hmmm…

At least we know where Verizon stands.

The More Things Change…

In preparation for speaking tomorrow at a conference of rural carriers, I’ve been reading an excellent history of Waitsfield Champlain Valley Telecom, a rural Vermont carrier which managed to provide DSL early to 100% of its customer despite the fact that they’re spread out across mountains and valleys. The quotes below are from the early days of voice but they have an eerie familiarity.

“Steady but slow growth in the number of telephone subscribers characterized the monopoly period. Bell invested its scarce capital in its most profitable markets, the cities…”

“In this environment, rural areas like Vermont held little hope of getting telephones without the residents taking matters into their own hands”

“Many of the independent providers were marginal operations that employed cheaply built and poorly maintained facilities and suffered from a shortage of capital and managerial skills.”

“The company [AT&T] carefully doled out lines to cities and territories where it could make money, and refused access to its lines to any upstart telephone company, making it impossible for independent companies to act as any more than a closed community of communications.”

One quote which I wish were appropriate to today isn’t:

“The company’s monopolistic attitude was looked on unfavorably by the government, which began under the Sherman Anti-Trust Act to pressure AT&T to change its tactics.”

Today’s FCC seems to take all evidence of consolidation as proof of competition.

Rent vs. Buy – The Driver of Economics

We the people like to own stuff and not pay rent to use it (BTW, rent includes taxes but that’s another story). They the oligarchs like to own the stuff and charge us rent to use it. The rise of a middle class has historically meant the rise of a property-owning class. The underclass pays exorbitant rents.

The telecommunications world – or at least the US part of it – is a battle of rent vs. buy.

Economics says that ownership or rentership is all based on access to capital. Certainly capital is a huge part of the equation – can you spell “home loan”?; but it’s not the whole story. Advancing technology traditionally favors ownership. Regulation often protects the oligarchy’s perceived right to collect rents. Public or cooperative ownership of common infrastructure plays a role in encouraging or discouraging widespread private ownership of the stuff that needs the infrastructure.

A couple of examples:

Housing: It’s the American dream; ‘nuff said.

Transportation. When people walked, they owned their own means of transportation but they didn’t own the infrastructure. Some roads charged tolls explicitly; on others bandits collected rent; in some jurisdictions taxes or impressed labor paid the rent on the infrastructure to keep it repaired and keep the brigands away.

Then there were horses that most people couldn’t afford. To ride on a horse or in a  carriage, you paid rent. The upper class had horses and carriages to rent; the lower class rented or walked; the middle class – what their was of it – had just enough horses or carriages for their own use. Note that neither walking nor horses nor carriages are very practical without the common infrastructure of the roads.

Trains are invented. Almost no one owns his or her own (except for private railroad cars). Unless you’re a railroad magnate, you’re a renter when it comes to rail transport. Businesses might own their own rail cars but they paid rent to the railroad to pull them over its tracks.

Then there are trucks and cars. Yes, they are inefficient from an energy POV compared to trains. But they are delightfully free. And they can be owned, not rented. Note, of course, that they depend on an infrastructure of highways which we do pay rent to use in the form of tolls and gas tax. Travel exploded as some of the friction of transaction costs disappeared.

Communication: We use to buy stamps (rent!) to send letters. Now we OWN computers (not cheap) or Blackberries and can send email “free” or at least without paying by the message or by the kilobyte (usually). Of course we do still rent infrastructure in the form of access to the Internet and, through that rent, pay our share for the backbone of the Internet. Communication use exploded as the friction of transaction costs disappeared.

Historical note: In the early days of email, email pioneer MCI Mail charged by the “MCI Ounce” – I think it was a thousand characters. That’s when email was a distinct service with its own backbone network.

You didn’t used to be able to own phones; you had to rent them from your friendly carrier monopoly. The Carterphone decision put an end to that oligarchy rebt-collection scheme and spurred a connectivity device industry. We do own our phones now but we still pay rent for access lines and backbone network (local and long distance charges) if we’re using the Public Switched Telephone Network (PSTN). But, when our phones are hooked to the Internet, owning the phone has extra value. You can call (some) other phones which are also hooked to the Internet without paying special rent for the fact that you’re talking instead of sending email or photos. The “phone” in this case can be a computer as it is for more Skype users or a special adaptor as it is in the case of most Vonage users.

If we OWN a radio, we don’t pay any rent to reach other people DIRECTLY who have compatible radios whether these are walkie-talkies or sophisticated ham sets. We own; we don’t rent. But if we own a radio which has to connect through a network (WiFi, say, or cellular), then we still have to pay rent to the network owner for use of the radio.

The great battles over net neutrality, separation of network infrastructure from services, and regulation of radio frequencies are mostly important to the players because of the implication on rent vs. buy. There are only two reasons left why we still pay special rents for voice: the owners of much of the infrastructure like collecting these rents and the owners of much of the infrastructure also have the regulatory clout to slow down competition like VoIP. Nevertheless, it won’t be long (says I) that voice communication everywhere and anywhere will be as free of arbitrary rents as email. Voice is data in all but the regulatory environment.

Is it quite possible – even happening in some places – that access networks whether wire, fiber, or over-the-air will become common property or community infrastructure. Then owning an access device will free us from having to pay access rent (but beware of taxes). BTW, this doesn’t have to mean public ownership, it could mean a condominium right in infrastructure; it could mean that access right is purchased along with the equipment which does the accessing.

Rent vs. Buy is a theme I’ll come back to. However, if you’re planning a new business and want to know whether you’re perpetuating the past (which can be a good short-term strategy) or inventing the future, ask yourself whether you’re helping your customers buy their way out of paying a rent.

P2P – Boon, Boondoggle, or Bandwidth Hog? – The Dark Side

Yesterday’s post explained how peer-to-peer (P2P) applications use the processing power, bandwidth, and storage capacity of participants in a service rather than centralized resources. This makes such applications generally less subject to catastrophic failure, much less subject to running out of resources (since each new user brings new capacity as well as new demand), and much cheaper FOR THE PROVIDER of the application in terms of hardware and bandwidth required.

It’s the FOR THE PROVIDER part that’s the rub. Let’s consider the case of BBC’s iPlayer service. For a seven days after most broadcasts, UK residents over 16 years old can download the show free and store it 30 days on their PCs for later viewing which can be offline. The current version doesn’t even download ads with the shows.

Sounds great, right? Just what TV should become on the Internet. Not so fast, according to British ISPs. They complain that this new service will overload their networks and that BBC has no right to do this (although the British regulator has given them permission). The ISPs say they may have to throttle the number of people who can get the shows or “protect” themselves in some other unspecified ways. Usually (by Fractals of Change, at least) the UK is held up as a model of a competitive market for broadband services where issues of net neutrality don’t raise their ugly heads. What’s going on here?

I suspect that the fact that iPlayer is a P2P service is at the root of the problem that ISPs have with it. If BBC downloaded shows to those who requested them directly from its own servers and if the service proves as popular as it might, BBC would have to buy huge (or huger) pipes of its own into the Internet and ISPs would get some revenue from that. However, in a P2P implementation, it is likely that only a few seed copies will be downloaded directly from BBC to the first people who ask for a particular show. Subsequent requestors will get their copies from the first requestors. BBC describes it this way in their terms of services (TOS):

“When you install the BBC iPlayer Library you will also install peer-to-peer file sharing software from Verisign Inc. This software has a file share feature that enables other BBC iPlayer users to download BBC Content through your personal computer (using part of your upload bandwidth), via a secure link, to their personal computers. … When you use BBC iPlayer Library you shall not have the option to 'switch off' the peer-to-peer functionality as this is a core component of the BBC iPlayer Library.”

BBC also warns: “… you are responsible for paying all expenses that you may incur in connection with your access to and use of BBC iPlayer including your internet service provider charges and any excess charges to that provider if you have a cap on downloads and/or uploads…”

OK, fair warning if you’re in the habit of reading TOS carefully. But this warning does NOT appear in any of the marketing information for the service which I saw.

So why should the ISPs be upset? If the users upload too much, they’ll be charged more and the ISPs’ll get paid more – not by BBC but by the users themselves. The problem is that not all ISPs have upload or download caps. Those that do usually don’t advertise them very prominently if at all. Moreover, most users may be well below their caps now – almost certainly are. So the users will use bandwidth which, from their point of view has been sitting idle, and either won’t pay the ISPs any more or will be outraged if they are presented with a bill or thrown off an “unlimited” service for overuse.

It is highly unlikely that you use more than a small fraction of the bandwidth on your connection to your ISP most of the time – usually your connection is idle. But ISPs count on the fact that most connections are idle most of the time; there isn’t nearly enough backbone capacity to handle all the traffic which would result if all the local connections were busy all the time.

“Oversubscription” isn’t fraud; it’s the correct way to design networks which are inexpensive enough for their users to use. The phone network wouldn’t work if all phones (or even more than a small fraction of phones) were offhook at the same time. The highway system wouldn’t work if every driveway were disgorging and engorging its maximum capacity 7x24. The backbone of most networks is designed assuming that most spurs will be idle most of the time.

So if BBC succeeds in low cost distribution of its content without buying new capacity of its own and users substantially increase their use of download and upload capacity without paying extra themselves, the ISPs face either providing degraded service or a sudden need to upgrade their networks (or higher charges for uses of other providers’ networks).

Are the ISPs right to try to make BBC pay directly or indirectly for use of enduser bandwidth? Next post a smart reader suggests that Internet access be metered to avoid even the perception of P2P arbitrage at the expense of ISPs.

Timely note: Ironically, as I write this, P2P network Skype is experiencing a rare outage. P2P services are generally more outage resistance than services which depend on a centralized bank of servers which can be subject to all sorts of catastrophes but they’re not invulnerable. Some networks which perform most of their functionality between peers may still rely on a central server to coordinate. Also new software is just as likely to act up in an unanticipated situation when it’s run on a distributed network as it is when it’s run at a central site – this appears to be Skype’s problem; in fact, it’s a bit harder to back out a bad upgrade on a P2P service than a centralized one.

P2P – Boon, Boondoggle, or Bandwidth Hog? – Introduction

Depending on whom you ask, peer-to-peer (P2P) services may be the best thing that ever happened to the Internet or a diabolical arbitrage scheme which will ruin all ISPs and bring an end to the Internet as we think we know it. Some famous P2P services include ICQ, Skype, Napster, and BitTorrent. Currently a new P2P service called iPlayer from BBC is causing some consternation and eliciting some threatening growls from British ISPs.

P2P explanation for non-nerds: a P2P service is one in which transactions take place directly between users’ computers rather than on some central server somewhere in cyberspace. Google search is NOT a P2P service; when you make a query, a Google-owned server somewhere searches a Google database and then returns the answers to your computer. Napster IS (or WAS) a P2P service; the music you downloaded from it wasn’t stored in any central site or sites; it was on the computers of the people who contributed it and was transferred directly from their computers to yours without passing through any central server.

Advantages of P2P

Scalability: P2P services are inherently scalable. If each user is sharing part of the load, more users mean not only more demand but also more capacity. By contrast, if a service runs on a central host, more users will eventually mean that more resources need to be added at the host. If new host resources aren’t added, the service breaks or slows to a crawl or suffers in some other way.

Survivability: If you don’t have a central server, you’re not vulnerable to central failure – nor can terrorists target a service whose elements are widely dispersed. Related post: America’s Antiterrorism Network – Distributed Data Storage. The Internet itself can be considered a network of peers since it has no central site; it was designed to be survivable and its headless nature was an essential element in its survivability.

Hardware Economics: ICQ, an early chat service, was one of the earliest free Internet services to net a small fortune for its founders. The founders could afford to make the service free even as it attracted hordes of users because of its P2P architecture. They didn’t have to have revenue to buy lots of hardware because the work of making connections and even storing the directory was done cooperatively on the computers of their users. Making a service free is a good way to get lots of users in a hurry. But, if it is free and not ad-supported, lots of users can mean a big unfunded hardware bill (even though hardware is much, much cheaper than it used to be, even in the ICQ days). P2P is a resolution to this quandary.

Bandwidth Economics: Here’s where the controversy begins! Suppose that all Skype calls had to pass through central servers; those servers would have to have huge pipes to connect them to the Internet. eBay, Skype’s owner, would have to pay huge sums to ISPs for those huge pipes. That would make ISPs happy but Skype doesn’t work that way. Calls go “directly” over the Internet from one Skype user to another; even call setup is done by using the shared resources of online Skype users rather than a centralized resource (see here if you didn’t know you agreed to help connect other people’s calls when you agreed to the Skype TOS). So the bandwidth needed for both the calls and the call setup is provided by the users. If eBay had to provide all this bandwidth, Skype-to-Skype calls probably wouldn’t be free.

BBC is planning to make most of its content available free over the Internet for a limited time after showing (remember, they are funded differently than American TV). They say their system is P2P meaning that the shows will mostly travel from one user’s machine to another over those users’ own Internet connections rather than being served directly from BBC to each user . “Foul!” cry the British ISPs, “BBC isn’t going to have to buy more bandwidth to offer this service; they’re going to use the bandwidth users already have. Usage’ll go up. We won’t get any more revenue from anyone. Customers’ll complain that their Internet connections are getting slow.”

Who’s right? More here.