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Goodbye, All-You-Can-Eat Web; Hello, Higher Broadband Profits

June 2nd, 2008 | 7 Comments | Posted in ILEC News, Analysis

Not sure why this is big news but Time-Warner is testing the concept of metered bandwidth usage with broadband customers in Beaumont, Tex.

Come on, we’re talking about a cable company looking at yet another way to squeeze even more profits out of a lucrative business where there’s little or no competition, and price increases are usually met with a shrug rather than a backlash.

Face it, broadband access has become a must-have utility for many people. You need it, you’ll pay for it - and don’t try to convince me people could downgrade their services to dial-up. In many ways, broadband has become like gasoline; people will pay whatever it takes to get to where they need to go.

As a result, the cablecos and telecom carriers know they have us by the short and curlys. That means they can experiment with new concepts such as metered usage, bandwidth shaping and throttling with little fear of a backlash. If metered usage is seen as a way to boost sales and profits, it’s going to happen.

Given the cablecos and carriers can do pretty much they want given the, um, competitive landscape, nothing should come as a surprise. This is just the beginning of the New Web - a place that will be a far cry from the Wild West that has made the Web so much fun, interesting and innovative.

I can understand Michael Arrington getting all hot under the collar by calling Time-Warner’s move “Going Medieval”, and accusing the cable companies of “standing in the way of economic growth and innovation”. But come on, Mike, you’re a big boy so none of these moves should come as a surprise.

Unless governments change course and decide to intervene, which seems like a huge long-shot, broadband is what it is, so get used to it.

More: Silicon Valley Insider suggests Timer-Warner’s experiment will fail due to competition from carriers. Come on, there’s is no “competition” given the cablecos and carriers want to damage the Golden (Broadband) Goose.

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Net Neutrality Finally Rears Ugly Head in Canada

May 31st, 2008 | 13 Comments | Posted in ILEC News, Analysis

Netneutrality
At one time, Canada was among the world leaders in Internet access, ranking second beyond South Korea in broadband penetration.

Those days now seem like a distance memory as Canada moves ever closer to becoming a second-tier online country that discourages innovation.

Case in point is network neutrality, a debate that has raged in the U.S. but has been ignored or shoved under the carpet by the federal government and regulators in Canada. Either no wants to discuss net neutrality or it’s ignored. Meanwhile, the two largest ISPs in Canada - Bell and Rogers - are openly throttling and shaping broadband traffic all in the name of “managing” their networks.

Canada’s Industry Minister, Jim Prentice, said recently he would prefer to see consumers deal with their complaints against Bell and Rogers as opposed to the federal government getting involved. That’s inspiring leadership given the Internet has not only become a quasi-public utility but a key pillar for innovation and economic development.

Meanwhile, Rogers, Bell, Telus and other broadband providers are racking up bigger profits while hiking prices and treating bandwidth as a scare resource by shaping/throttling traffic and introducing bandwidth caps. In other words, they’re creating artificial scarcity - something Mike Masnick could explain better than I.

What’s particularly sad and ironic about the federal government’s approach to Net Neutrality are two key developments:

1. In 2005, Rogers and Bell were allowed to purchase Inukshuk - a nation-wide wireless broadband network. By approving the deal, the federal government removed the possibility for consumers to have more competition and choice. Ironically, the federal government is currently trying to introduce competition and choice in the wireless market after letting the fourth national carrier, Microcell, be acquired by the leading carrier, Rogers, in 2004.

2. The CRTC, the federal telecom and media regulator, recently said it will start to explore the idea of regulating the Internet (Ha!) after deciding in 1999 that it was not going to regulate the Internet. If you want to encourage innovation, economic growth and productivity, regulating the Internet is a joke unless your goal is to create bureaucracy, policy and opportunities for lobbyists.

For all the talk about the federal government encouraging the technology sector, the sad truth is it isn’t doesn’t truly walk the walk when it comes to encouraging innovation.

More: The government and Mr. Prentice may have to acknowledge the Net Neutrality issue sooner rather than later in the wake of the NDP MP Charlie Angus (a former rock musician) introducing a private members bill, C-552, earlier this week that would:

“prohibit network operators from engaging in network management practices that favour, degrade or prioritize any content, application or service transmitted over a broadband network based on its source, ownership or destination, subject to certain exceptions.”

As well, there was a public rally earlier this week on Parliament Hill in Ottawa. You can learn more about how to support Net Neutrality at SaveOurNet.

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The Web As We Know It is Dying

May 17th, 2008 | 8 Comments | Posted in ILEC News, Analysis, Media

Buffalo
As an eternal optimist, this is difficult to admit: the Web is dying a slow, but painful, death.

The wonderful, Wild West, anything goes landscape that has made the Web so fascinating, innovative, fast-paced and useful is poised to disappear just like the buffaloes did when the settlers appeared and proceeded to slaughter nearly 30 million of these majestic animals.

On the Web today, the “settlers” are the telephone carriers, cablecos and government agencies who are hell-belt on re-making the Web to fit their economic and political agendas. If they succeed, there is no doubt they will savagely attack the Web - maybe not to near extinction like the buffaloes - but into something unrecognizable than what exists today.

This aggressive multi-pronged attacks starts with something seemingly innocuous - technology called traffic shaping that makes high-speed networks more efficient for the majority of customers by deliberately slowing down some traffic such as P2P and video that uses a lot of bandwidth.

While traffic shaping doesn’t seem evil because it’s aimed at all those bad music and movie downloaders, it is an alarming trend because an increasing number of high-speed service providers are inspecting everyone’s traffic and taking direct control of how traffic flows on the Web even though consumers are paying a pretty price for access.

It’s encouraging to see the Canadian Association of Internet Providers put the spotlight on traffic shaping by filing a complaint with Canada’s telecom regulator against Bell Canada’s traffic shaping activity. The CRTC has asked Bell to provide “full rationale” why it shapes traffic, which could offer some valuable insight into how traffic shaping being implemented.

In the U.S., traffic shaping was thrust into the spotlight earlier this week when Charter Communications unveiled plans to test an “enhanced” service where in which it will monitor how it customers surf and search on the Web so it can deliver contextual advertising. Charter is essentially saying that it not only wants its customers to pay for high-speed access but also wants the ability to squeeze more money out of them by selling their souls to advertisers. That’s troubling.

While the carriers and cablecos do their their best to castrate high-speed service, regulators in North America continue to waffle over issues such as Net Neutrality and whether the Web should be regulated.

In Canada, the CRTC made a smart decision 10 years ago by deciding not to regulate the Web. Now, it’s thinking about getting into the regulation business by
holding public hearings next year amid complaints from content makers that their efforts are being broadcast in a, heaven forbid, regulation-free environment.

Gee, I can’t wait to see government regulation of the Internet if, in fact, it is possible to regulate it.

Finally, let’s talk about the cost of high-speed access.

Let’s face it, high-speed access has become a utility like electricity, water and the telephone. It’s a public utility that has gone private and, in the process, competition has disappeared. Not to look too fondly at the days of slow dial-up access but at least there was a healthy competition as opposed to the monopolies and oligopolies that exist today.

For the most part, high-speed access is not inexpensive but it’s something people are happy to purchase because it gives them a big pipe to the Web that they can use how they like - be it just checking e-mail and surfing the Web, or legally downloading or watching/listening to movies and music. It’s like owning a car, and being able to drive it wherever and however you like (within the limits of the law, of course!)

Unfortunately, ISPs aren’t happy happy just to sell high-speed access that’s being marginalized by traffic shaping technology. Now, they want to put a cap on how much bandwidth you consume - a move some suggest is anti-competitive. Rogers, for example, has placed a cap of 60GB, which will disappear pretty quickly if you want to download high-def movies.

Of course, Rogers and other ISPs will be more than happy to sell you more bandwidth - a move that makes their lucrative high-speed businesses even more lucrative. (Note: You notice that broadband carriers and cablecos don’t break out the profitability of their high-speed units? Probably because they’re very, very profitable.)

I’m going to miss the free-wheeling, anything goes Web. Although the Web had a relatively short existence, it left nothing on the table and lived life to the fullest.

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Canada Needs an Arrington!

April 7th, 2008 | 5 Comments | Posted in ILEC News, Analysis, Telecom Regulation

It has been interesting to watch Michael Arrington (aka the “Wizard of Web 2.0″) launch a tsunami of outrage against Comcast in California after his high-speed connection was cut off on Friday night, and Comcast failed to provide him with a sufficient response. As Jeff Jarvis notes, Arrington is one guy you “don’t want to piss off”.

What I found particularly interesting about Arrington’s high-speed temper tantrum is how much Canada needs a Michael Arrington - someone to lead the charge against high-speed ISPs that operate sweet profit machines in a market where consumers increasingly get the short end of the stick.

If you’re a high-speed customer in Canada, your troubles include:

- Steadily higher prices, although the ISPs contend you also get faster download speeds (in theory, I would argue).

- Bandwidth shaping/throttling - something the ISPs argue they need to do to “manage the network” to battle all those evil P2P. This includes Bell Canada throttling its wholesale customers that re-sell Bell’s high-speed service.

- Bandwidth caps (They’ve been around for several years, although didn’t get much publicity until recently.

- An unfortunate lack of competition. In most markets, there are only two players but price is never used as a competitive tool. It didn’t help that the Canadian government let Rogers and Bell acquire Inukshuk, our only national Wi-Max player.

- A federal government with no willingness to explore network neutrality, even though it’s becoming an issue that could impact our ability to compete and innovate

Canada needs something who’s willing to lead the charge, wave the flag and make it clear that I the consumer is “mad as hell and I’m not going to take this anymore! Maybe, it’s Michael Geist or perhaps the Canadian Association of Internet Providers, which recently filed a complaint with the CRTC asking it to direct Bell Canada to cease and desist from throttling its wholesale Internet service.

We need an Arrington to galvanize our high-speed discontent into a loud and vocal rebellion. The time has come.

For more on the throttling issue, check out Wayne MacPhail’s story on Rabble.ca.

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Time-Warner’s Being Smart Not Greedy

January 18th, 2008 | 10 Comments | Posted in ILEC News, Analysis

Everyone seems to be up in arms about how Time-Warner plans to penalize broadband users if they consume too much bandwidth.

The sky is falling, it’s the end of broadband as a buffet service, Time-Warner is evil, consumers are being ripped off, blah, blah, blah.

Look, Time-Warner isn’t being evil; it’s being smart and, arguably, serving the needs of consumers in a better way.

Huh?

People love broadband but they use it in different ways for different reasons. Some people download copious amount of video and data while others like the speed but use it primarily for e-mail and a modest amount of Web surfing. Should both groups pay the price very month? No.

What Time-Warner is really suggesting is the introduction of tiered services based on your usage profile. If you download a lot, they’ll be happy to give you tons of bandwidth if you’re willing to pay for it. If you’re a “regular” broadband user, you’ll be able to select a tier that meets your needs.

This is no different from what BT offers in the U.K. with bronze, silver and gold packages. In Canada, the ISPs such as Rogers and Bell Canada have done the same thing with lite, regular, extreme and ultra-exteme plans. The faster connection you want, the more you pay. Simple.

For Time-Warner, its proposed plan does two things: introduces the concept of tiered service based on bandwidth, and compels heavy users to pay more for more bandwidth. This is something all ISPs are going to embrace sooner or later. Time-Warner’s is going be chastised in the short-term but fairly soon everyone will be doing it.

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AT&T’s Big Brother Plans

January 17th, 2008 | 1 Comment | Posted in ILEC News, Analysis, Telecom Regulation

Orwell
This sounds crazy but an AT&T executive James Ciccioni has raised the idea of monitoring every single packet traveling over its Internet network to see if intellectual property violations are happening.

Slate’s Tim Wu picked on this bizarre notion - something he described as Orwellian. Since when did AT&T start to position itself as an IP policeman? Has it started to cave into pressure from the music and movie industrial for tighter regulation on how people use the Internet?

Along with Time-Warner’s plans to charge for broadband service by how much traffic you generate, it’s difficult not to sense that the broadband market in the U.S. is changing as ISPs look at new ways to impact how their customers use a service that has evolved into a utility.

Maybe AT&T thinking is not unlike how electrical utilities monitor usage, and how they can sometimes work with the police if they determine that a household is, for example, using an extraordinary amount of power (An indication of a grow-house being operated).

Is it time for broadband to be regulated? - as much as it pains me to suggest the idea. If ISPs are monitoring how customers use broadband, maybe there’s a need for someone to be monitoring the monitors.

More: Boing Boing’s Joel Johnson calls AT&T idea “retarded”, while CNet has an extensive analysis story.

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High-Speed Internet = High Prices in Canada

January 12th, 2008 | 10 Comments | Posted in ILEC News, Analysis

There used to be two facts about high-speed Internet access that Canadians used to boast about: we had the highest penetration of broadband users in the world, and prices were reasonable.

Well, neither of those are true anymore. In terms of access, we’ve fallen out of the top-10 as the digital divide in Canada takes hold. (I mean, there are still more than three million dial-up users hanging around!). And when it comes to high-speed prices, they continue to creep up as the cablecos and carriers focus on ARPU (aka squeezing more money from their customers).

Rogers, for example, will be raising prices for three of seven high-speed packages - claiming the new rates are being introduced “so we can continue to bring you improvements through innovation, now and in the future”. (Rogers is also raising the price for many of its cable packages, while increasing the “system access fee” for its telephone service by more than 30% to $5.95/month from $4.50.)

If you’re a Rogers Yahoo Hi-Speed Extreme customer, you’ll now be paying $54.95 a month rather than $52.95, while Hi-Speed Ultra-Lite customers will pay $23.95 rather than $21.95 (a 10% increase). For Extreme customers, the silver lining is download speeds have been bumped up to 10mbps (Warning: If you’re using a P2P service, throttling bandwidth management may apply.)

Sure, there’s competition if you want to switch to a carrier like Bell or Telus but they’re also looking for ARPU bumps. Meanwhile, everyone keeps talking about WiMax but the Inukshuk network is owned by Bell and Rogers so don’t expect any bargains there either.

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The Dawn of the Free Local Call

July 19th, 2007 | 4 Comments | Posted in ILEC News, Analysis

Since the emergence of VoIP and industry disruptors such as Vonage and Skype, many people have been talking about the day when local calling would be free. Well, that day is coming. In fact, it’s coming in September when Ooma launches.

Aside from being a silly name (the new realities of a crowded domain name world), Ooma plans to sell a $399 piece of Linux-powered hardware that lets you make free calls in the U.S. (Hey, Canada’s like attached to the U.S.!). According to Om Malik, all you need is a broadband connection and you’re ready to go. You can also purchase units called Scout that let you extend Ooma across the house by plugging it in phone jacks. For more on how Ooma works, check out TechCrunch and Walter Mossberg.

In terms of Ooma, free local calls and its impact on the telecom industry, I’m still trying to get my head around it.

Obviously, the local phone service providers (carriers and cablecos) are going to hate it. The carriers have their hands full with cablecos stealing high-margin local phone customers, while the cablecos love the local business because it generates more revenue and helps them sell multi-service bundles (aka the triple and quadruple plays).

There’s obviously a lot of different ways to look at Ooma but perhaps the most intriguing is how Ooma, Slingbox and all the other devices that leverage the power of broadband will change how broadband is marketed and sold. Right now, broadband is a great business for carriers and cablecos. There’s still plenty of growth left, competition is modest (most markets have a DSL and cable supplier) and prices have been rising. For carriers, the growth of broadband has tempered the loss of local customers.

The question is how carriers and cablecos will react when traffic on their networks continues to climb due to services offered by third-parties such Ooma, Slingbox, YouTube, etc. There will come a time (and it’s coming soon) when the carriers and cablecos will say “Enough, the free ride is over”.

You’ll hear them talk about how they’re being forced to make huge investments to upgrade their networks, and how someone has to pay for it. You’ll start to hear and see the carriers and cablecos offered tiered service based on traffic consumption as opposed to all-you-can-eat plans based on speed. You’ll start to see the whole net neutrality debate heat up again as carriers and cablecos push for a tiered Internet in addition to tiered broadband packages.

Ooma is just the tip of the iceberg. That said, it’s a pretty high-profile iceberg with $27-million of venture capital, actor Ashton Krutcher as its creative director and, of course, free local calling. But it’s just one “straw” that will eventually help break the camel’s back, which will eventually change how the broadband industry operates.

Final thought: As much as free local calling is appealing, I wouldn’t rush out and buy a $399 device. It just doesn’t have the same sexiness as spending $200 to buy a Slingbox so you can watch TV anywhere, anytime.

Update: Put Cynthia Brumfield in the skeptics camp while Aswath is “decidedly negative”.

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The Fallout of Bell Canada’s Debt

July 16th, 2007 | 1 Comment | Posted in ILEC News, Analysis

When the mega-billion dollar acquisition of Bell Canada finally closes later this year, one thing is assured: the company will be awash in debt - somewhere in the range of $25-billion to $30-billion.

To deal with this burden, Bell’s private equity investors will have to tap the bond markets, which are already swamped with LBOs looking to be financed. What this means is Bell’s probably going to have to pay through the nose to sell its mega-deal.

To be sure, there will be operating cost reductions - expect thousands of people to lose their jobs and budgets across the board to be tightened. Do not be shocked, however, if the Bell you once knew and love/hated is gone forever.

A good example of what will likely disappear in a frenzy of cost-cutting is many of Bell’s corporate and community sponsorship programs. Whether it’s sporting events, conferences or music festivals, Bell has enjoyed a high profile - and happily paid for the privilege over the years.

If, however, Bell’s new owners squeeze its marketing budgets, many of these programs will disappear or be scaled back. Maybe Telus, Rogers, Videotron or Cogeco will step into the breach but there are no guarantees they’ll be willing or able to expand their own marketing spending.

A common phrase is the near future could be: “Remember when Bell used to sponsor.…”

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Bell Canada: Now What?

July 3rd, 2007 | 5 Comments | Posted in ILEC News, Analysis, M&A

Bell-2
With Bell Canada being snapped up for $52-billion, what’s next for Canada’s largest telecom carrier? Here’s five predictions:

1. Extensive Job Cuts: With Bell Canada burdened by debt, the private equity investors are going to look for ways to increase cash flow. No better way than cutting thousands of jobs despite the fact there have already been extensive layoffs in recent years.

2. The overhaul of Bell Mobility: The wireless business are been a stinker over the past two to three years, highlighted by billing problems, low subscriber growth compared with rivals Telus and Rogers; and the missed opportunity to buy Microcell Telecommunications for a measly $1.4-billion in 2004. The wireless business needs a completely new strategic focus, which may mean yet another executive overhaul. Look for the business to be IPO-ed once it starts to rebound.

3. IP-TV either flies or dies: Bell’s IP-TV strategy has gone nowhere in recent years while cable rivals have surged ahead into the local phone business. Bell needs to decide whether it wants to go high (invest aggressively to launch IP-TV to millions of households) or go home (walk away from IP-TV because it will require too much capital spending at a time when cash flow will be king)

4. Local phone business continues to crumble: Without an IP-TV product, there’s no way Bell can compete with Rogers, Videotron or Cogeco in the multi-service bundle business. As a result, the number of local customers leaving Bell will continue to gain momentum. Solution: Go aggressive on VoIP, which Bell has been reluctant to do because it’s afraid it could cannibalize its high-margin local business.

5. Senior management shuffles: Okay, CEO Michael Sabia has apparently managed to keep his job - and a $31-million pay out in the process. With Bell needing to perform much better, look for many other executive to be shuffled out.

Note: There are reports the takeover battle is far from over. But regardless of who eventually buys Bell Canada, these predictions remain intact. :)

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