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Re: Lessons from the AU model

  • From: Tom Vest
  • Date: Tue Jan 22 13:07:04 2008


On Jan 22, 2008, at 3:01 AM, Mark Newton wrote:


On 22/01/2008, at 3:59 PM, Tom Vest wrote:

When the cable is full or EOL'ed its owner should have earned
enough to build a new one at current market rates.

I believe that someone will be able to "build" (i.e., finance) more, when/where more is required.

Faith-based network rollouts. Neat :-)

Just faith in the "rationality" of a system with lots of independent feedback loops. If your faith has conflicting tenets, e.g., it compels you to believe that banks will demand, and you will be able to credibly promise, bubble-era returns on gross facilities investments, then I think we can chalk the rest up to religious differences and call it a day ;-)

Sounds like change is afoot however; I wonder how closer to flat- rate AU will come after one or two new cables are completed... ? 

My guess?  There'll continue to be industry-wide acceptance of
the notion that a limit you never reach and don't care about
is indistinguishable from no limit at all, and quotas will
continue to steadily rise, stimulated by the lowering of
the costs of supply, so that more and more people will never
reach them and never care about them.

Occasional rhetorical indulgences notwithstanding, I'm a pragmatist; an ever-rising upper limit that 99% of the population never ever notices is not much of a limit. However I've rarely (actually, before now, *never*) heard the AU/NZ situation described thusly.... I must be spending too much time with the wrong 2% I guess. And I've yet to hear how one will be credibly define or sustainably (and legally) maintain such escalating limits.

_Most_ people couldn't care less about whether their monthly
limit is 100 Gbytes or 150 Gbytes.  But there are a small number of
people who will be unhappy with any number smaller than 6 Tbytes,
which is roughly the amount you can download on a 24 Mbit/sec
ADSL2+ access tail if you run it flat-out 24x7 for a whole month.

If new cable systems lower the cost of getting across the Pacific
by a factor of 2, then 24 Mbit/sec of transpacific for that customer
will _still_ cost us about $3000 per month, so you won't see us
flocking to service those sorts of customers.


You don't know what the "cost" is today; you only know the price.
The implications left as an exercise for the reader...

There is simply no way that any provider in this marketplace is going to offer
to service any customers on those terms. To get Australian
providers to sell "unlimited" access you'd need the price of
crossing the Pacific to drop by two orders of magnitude.

...

Despite the best efforts of some people to run their broadband
access at line rate, residential broadband is very much a
"CIR + burst" kind of service.  All of our customers can burst
to line rate (they're paying for it, so they should be able to
get it).  None of our customers can burst at line rate 24x7 for
a month without paying for it.  You can work out the CIR by
dividing the number of bits in the quota by the number of
seconds in a month.

Here's another dynamic you missed. The coexistence of flat-rate and metered access creates two tiers of regional markets: the flat rate ones that generate lots of content and service innovations, attract lots of talent and FDI, and over time come to occupy an increasingly central position in the evolving global L2/L3 topology -- and the ones that don't, whose native innovators and content providers prefer to ship out or offshore production to the former. Metered access exacts a price at the national level. 

I don't doubt that at all, and the USA has certainly done very
well out of it.

But how sustainable is it in the long term?  You guys are
about to have some serious economic challenges that are
going to affect us too, but nowhere near as much as they'll
affect you.  I don't doubt that a difference in Internet
access pricing policies has benefited your economy, that much
is completely obvious.

ok.

But if you're going to get all
macro and holistic on me

(actually that's my job)

all of a sudden, are you prepared to
assert that the benefit it has brought to your economy
outweighs the other consequences that your ways of doing
business have been creating?

I wouldn't attempt to justify anything (and folks that know me will attest that they often hear something like the opposite), but even if I did, even for purely rhetorical amusement, I would start by pointing out that flat-rate access doesn't have any relationship to anything else you might be obliquely alluding to here. Being macro doesn't imply or necessitate being a dope ;-)

Because from where I'm sitting, it looks like the native
innovators are in India at the moment,

Hard to argue with that. Since "constructive" innovation is a gross numbers game (e.g., education * addressable population), demographics ultimately drives a lot of dynamics -- once other bottlenecks are relieved.

and the global L2/L3 topology that's been built over the last five years has been
centering itself on Singapore, Hong Kong and Tokyo,

No question, and that recent trend shift has contributed a lot toward reducing asymmetries in inter- and intra-regional capacity between Asia and ROTW.

and most of the high-growth parts of the US economy have been based
on unsustainable debt rather than actual, existing money,
and despite your claims of high growth my standard of living
in Australia is at least as good as yours.  So don't be too
hasty to tell me all about the benefits of doing business in
the American way.  Not yet, anyway. :-)

Sigh. Am I going to have to secure Canadian or Swiss citizenship in order to be able to have a straight conversation about flat-rate access? For the purposes of any future discussions of this subject, let's just stipulate that I'm talking about Japanese flat-rate, or Korean flat rate... will that help to keep us on point?

Where I come from household water is already metered, so I'm
not sure what you're talking about :-)

Agreed, but I almost never hear my water vendor claiming that my rates need to be increased so they can cross-subsidize a new, separate national plumbing platform. 

That's exactly what my water utility is claiming.  Australia
is in the worst drought in recorded history, and all the
water utilities are saying their rates are going to rise
so that they can afford to build desalination plants and feed
them with electricity.

I'm tellin' ya, man, the parallels to this discussion are
eerie :-)

Is the actual current/sustainable supply of water delivery a trade secret, so that rational analysis is impossible and debates about it are interminable?
Will the cost and capacity of the installed base and new desalinization plants be forever subject to NDA?
Will the requested rate increases reflect an unknown markup or be transparently tied to the fully loaded cost of (expanded) service delivery amortized over some realistic time horizon?
Will that full load have to include a large financing premium based not on risk but simply on someone's ambition to get a piece of (all of) the water action in perpetuity?

There are many parallels I agree. Not so many on the critical points however.

The only people they'll piss off will be the 2% of customers
they don't want in the first place.

Hardly fertile ground for a revolution.

That almost sounds unobjectionable, I'll grant you -- at least in currently unmetered, high demand markets; everywhere else the bandwidth demand for any/every customer segment is nothing more than an artifact of whatever metered pricing plan is currently in place. So the reasonableness of the bandwidth cap level is itself contingent on the reasonableness of the metered plan. 

The metered plan will be reasonable, as dictated by all the
competitive pressures you keep banging on about.

With multiple vendors of metered Internet access, the vendor
offering the best deal will get the customers.

"Best" varies according to the eye of the beholder.  Some prefer
high reliability, zero effective contention, on-net content sources,
titanium-plated CPE, clueful support, and hot and cold running
network engineers.  Some prefer it cheap-and-cheerful, and will
prefer the provider that costs the least amount per month regardless
of the quality.

Some shop at Target, some shop on Rodeo drive.  Some buy Ladas,
some buy BMWs.  You get what you pay for.

But how you pay for it matters. If your BMW comes with a meter that "noticeably" increments every km you traverse, and your monthly car payment varies solely based on usage, then maybe a lot more people will "have" a BMW, but a lot fewer are going to be on the road at any given time. If your whole economy is built around that psychology, then you're likely to have a lot fewer people doing things that assume that drivers are an "addressable" market. More important still, if the rate of innovation, not only in cars but everything else, is somehow tied to the sum of all good and bad experiences on the road, then you're all-BMW economy is going to perpetually lag behind neighboring markets that provide Ladas on a largely unmetered basis.

All I'm saying is that as bottlenecks are eliminated and the cost of supporting Aussie's globally diverse traffic exchange proclivities falls, it'll probably get harder and harder to justify "noticeable" caps or metered pricing models, or any kind of pricing model that seem to defy those trends. That's likely to happen at every level of the market, whether or not you're selling BMWs or Trabants. At least that's what triggered the shift in Japan, in the UK, and yes in the US too.

But even assuming you manage to define a "reasonable" cap, how will you defend it against competitors, and how will you determine when & how to adjust it (presumably upwards) as the basket of "typical" user content and services gets beefier -- or will that simply tip more and more people into some premium user category?

You make it sound like this stuff is hard and unworkable.

Quotas and prices are adjusted according to competitive pressure.
In 2000, Telstra was offering 3 Gbyte per month caps and we were
offering 4.5 Gbyte per month.  Now the industry norm is more like
40 - 60 Gbytes.  I'm sure that in another 2 years it'll be 150 -
200 Gbytes.  Competitive pressure is every bit as powerful in a
metered marketplace as it is in a non-metered one, and to pretend
that the alternative to the current US status quo somehow involves
the end of business as we know it is just crazy talk.

Okay I concede that point; competition within markets with only metered service options can be just as or even more vigorous then competition within unmetered markets. But competition between metered and unmetered markets tends to reward the latter, and competition within mixed markets tends to reward the latter. Moreover, to whatever degree that metering reduces usage, and usage is related to innovation, the unmetered markets are likely to grow and evolve faster.

Maybe flat-rate access is "objectively" unsustainable in some markets, regardless of what (potentially self-interested) proponents claim. Maybe it is sustainable, even in the "long run", despite what (potentially self-interested) critics claim. One thing is certain: to date, only a handful of companies (Internet, wireless voice, or POTS) have *ever* stepped up to any flat-rate service voluntarily. The vast majority of flat-rate providers in business today were just as skeptical, and just as implacably opposed to the idea, right up to the point that competition forced them (and permitted us) to discover that they were wrong. At least that's what happened in Japan, in the UK, and yes in the US and many other places too.

In Canada, which has much lower transit costs than ,au, the benchmark
quota is presently about 100 Gbytes.  How many broadband customers
in the USA would actually have a problem with that as a limit?

Here's a question for you:

Power is metered.  Water is metered.  Gas is metered.  Heating
oil is metered.

The pricing model for each is justified by the scarcity of the underlying finite natural resources.
The prices themselves, and any increases, are sustained by in fact that the underlying cost components are usually transparent to interested third parties.

Even cable-TV is packaged so that you pay more
if you want to use more channels...

Yes, and if I want to buy two books at the bookstore, I have to pay for each one separately.
Premium cable channel prices are sustained by access to otherwise inaccessible content, nothing more.

... what economic fundamentals exist to suggest that Internet
access should be the _only_ domestic utility that's delivered to
households unmetered?

My driveway is not metered. The street in front of me is not metered.
If someone can convincingly, empirically demonstrate how incremental usage of my driveway and the adjacent road -- e.g., how many passengers I'm carrying, how many bags of purchased goods, maybe the value of the goods in those bags, etc. -- imposes sufficient real incremental burden on the system to justify usage-based pricing, then I'll be glad to do my part -- or maybe I'll start looking for a neighborhood with a different accounting regime. Until then, I'm going to look to those other places, and remember past champions of driveway metering, and keep my hands in my pockets...

Peace,

TV



- mark

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Mark Newton Email: [email protected] (W)
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