Monday, March 5, 2012

Metered Broadband and the Bellhead Way

       Leave it to the telephone companies to come up with a way to defeat success.  Rather than work to make smartphones the third screen alternative to television sets and computer monitors for video and data, 3 of the 4 national wireless carriers want to strap on a meter.  Ostensively to discipline “bandwidth hogs” wireless carriers have eliminated unmetered service giving new meaning to the word unlimited  and handicapping ways for smartphones to become more than a handset for telephone calls and texting.

       Smartphones can provide users a Swiss Army knife array of features and services, provided the phone companies play along.  At first they did considering unlimited texting and data plans a way to increase revenues.  To promote use the companies offered “unlimited” “all you can eat plans” like that offered by wireline telephone companies and cable television operators.  The carriers reduced churn and had a mostly content and stable consumer base who appreciated knowing their “all in” cost of service.  Until recently both wireline and wireless broadband operators understood that additional downloading Internet content did not adversely affect revenues even as it rewarded curious “web surfers” who did not have to worry about the cost of additional use.

       Now wireless companies have to consider solutions to congestion problems largely because of successful marketing.  Consumers have embraced the wireless revolution, no doubt baited with subsidized smartphones and meterless service.  While the carriers quickly blame the FCC and a spectrum shortage, they did not fully appreciate the stimulus effect of “free” handsets and unmetered service.  Unwilling or unable to ramp up capacity, the carriers have switched to rationing by price.

       The wireless carrier are quick to trot out impressive scholars to justify metering based on a simple rationale that most resources require metering to prevent waste and subsidies flowing from low volume users to high volume users.  But if pressed these very same scholars might acknowledge that metering matters only when the risk of congestion exists: when demand for the last few kilobytes of data downloading causes the network to fail, or service to degrade.

       Wireless carriers have a congestion problem in some cities.  Rather than understand this as an embarrassment of riches, they consider high demand a nuisance.  The carriers can remedy this nuisance with the spectrum they have already acquired, but not yet activated.  As well these carriers can accrue major benefits for themselves and their subscribers by considering congestion evidence that they are making progress in achieving parity for the smartphone screen.  Don’t the wireless companies want  their subscribers to consider smartphones mobile computers and television receivers? 

       Perhaps not.  This out of the box thinking would require Bellhead telephone executives to conside ra longer term future where technological convergence makes it possible for telephone companies to serve as players in all sorts of information, communications and entertainment markets.  These companies see the revenues and profits they leave for others to capture and want their “fair share.”  But rather than work to enhance the value proposition of their wireless conduit and thereby solidify their control over what consumers may consider a preferred medium, Bellhead management thinks only about short term problems.  When wireline subscribers were “tying up” dialup lines for hours of narrowband telephone lines, the carriers did not see the solution as new and more expensive broadband services.  Now these very same companies want to shake down app creators with downloading surcharges and retail broadband subscribers with throttled service or higher fees.

       History repeats with short term thinking that frustrates consumers with ticking meters and places a premium on not having to compete and innovate until the last minute.  In the short term the wireless carriers will leverage scarcity to favor their own content and corporate affiliations, raising new questions about network neutrality.  Verizon recently announced a wireless movie streaming service that surely will work well despite the congestion problem.  Will Verizon expedite and favor its “mission critical” movie bits, leaving Netflix traffic to languish?  Will Verizon offer not to debit its movie traffic from subscribers’ monthly downloading quota, even as heavy Netflix users may soon find their habit triggers new surcharges?  Suddenly congestion and scarcity become vehicles for wireless carriers to tilt the competitive playing field in their favor and forestall the need to embrace change.

2 comments:

Anonymous said...

As formerly regulated monopolies, the telcos' business models are always predicated on scarcity, even if it has to be ginned up out of abundance. This scarcity/abundance disjunction is the fundamental economic distinction between analog and digital businesses.

Larry Martinez said...

The owners of conduit recognize where the profits are: control over content, control that appears obtainable with a "clean" engineering rationale - network congestion. Net neutrality now rears its ugly head again as the attempt to wrestle control over content for spectrum scarcity reasons.