Intranets and the Cloud: The Lack of Functional Difference Between Comcast’s Xbox and Regular Broadband Traffic

             Those clever folks at Comcast want us to believe that there is a functional difference between routing Netflix traffic to an Xbox 360 terminal versus conventional Internet routing via a cable modem.  See http://blog.comcast.com/2012/03/xfinity-on-demand-on-xbox-and-your-xfinity-internet-service.html.  Comcast states that routing to the Xbox 360 “will not travel over the public Internet and is delivered in much the same way as we deliver your video service to your set top box.”  Besides the company notes that only the worst of the worst bandwidth hogs would ever exceed the company’s generous 250 Gigabyte download monthly quota.

             As a threshold matter the company wants to differentiate the Internet and the Internet cloud from individual networks.  But of course we understand cloud computing and the Internet as requiring seamless connectivity between and among disparate but interconnected networks.  If we focus on the first of possibly many links from Netflix downstream to subscribers’ Xbox 360 terminals, are we to infer that Comcast owns to leases every possible segment in the complete link from content source to content end users?  If the answer is yes, does that mean that Netflix’s primary Content Distribution Network, Level 3 never handles Xbox 360 terminal traffic?

            While Comcast has a robust and broadly distributed network I seriously doubt that the company exclusively uses its own network assets to secure the complete routing of Netflix traffic to Xbox users.  Nondisclosure agreements block any transparency in understanding how carriers route traffic, but I cannot believe Comcast would give up the opportunity to continue charging Level 3 a surcharge for Netflix traffic and would gladly free Level 3 and other carriers of the long haul carriage burden.  In other words I suspect Comcast receives Netflix traffic in the same way—via Level 3 mostly—for both Netflix traffic destined for a cable modem and end user computer and Netflix traffic destined for an Xbox 360.  If anyone know this to be incorrect, please set me straight.

            I assume that the only difference in routing occurs in the so called last mile routing from the point where Comcast receives Netflix traffic.  This last link hardly qualifies for the broadsweeping pronouncement by Comcast that Xbox360 traffic is the functional equivalent of cable television content.

Pricing Power and the Lack of Competition in Broadband and Video

            Readers of this blog may have inferred that I am sick and tired of bogus claims made by many telecom operators that competition forces sleepless afternoons.  Year over year I receive biannual rate increases from my cable operator and in the last two years the notices include double digit percentage increases for broadband.  The FCC has not gotten around to noticing that broadband regularly becomes more expensive, perhaps offset by increases in bit rate.  Ironically the FCC’s assessment of video competition notes that markets with robust DBS competition actually have higher rates than areas lacking such “competition.”  Of course the FCC and the operators explain that the higher rates represent greater value in light of the many more channels available to subscribers.  Just how much greater utility does one get from having access to many channels that offer nothing of interest and certainly go unwatched?

            Moore’s Law tracks a regular reduction in cost as capacity increases.  Certainly computing power and basic telecommunications transmission costs decline consistent with Moore’s Law.  The Law never applied to content, and one can understand double digit rate increases in light of uncontrolled gouging by sports programmers and the ability of Multichannel Video Programming Operators like Disney to force bundling of must see channels with less desirable ones, e.g., ESPN and ABC versus ABC Family (formerly the Christian Broadcast Network).

            Cable operators regularly tie desirable programming with undesirable content with large program tiers.  They also compel bundling by offering “discounts.”   Until recently I could get the combination of basic cable and discounted broadband for about the same price as undiscounted, stand alone broadband.

            Now Verizon has embraced compulsory tying or bundling.  The company must have pricing power in broadband or some weird marketing strategy in thinking that it will make more money by refusing to offer standalone DSL service.  Soon prospective Verizon customers can acquire DSL service if and only if they also subscribe to the company’s wireline telephone service.  This is bundling a desired service with something many subscribers no longer want or need, just like cable service tiering.

            Incumbent ventures can force bundling or tied services only if they have pricing power, i.e., the ability to raise prices and increase revenues without suffering significant reductions in subscribership.  Verizon forces consumers to subscribe to wireline telephone service subscriptions as a precondition for a DSL subscription.  Apparently the broadband marketplace in the U.S. is so UNCOMPETIVE than carriers can force or compel subscription bundles.