Tuesday, June 09, 2009

The information-service business model is costing us dearly

The incumbent Internet service providers have a service-based business model, differentiating between Internet, telephone, text-message, basic television, premium television, voicemail and other services.

This enables them to vary prices to maximize their profit and discourage competition. For example, they charge exorbitant fees for text messages and discourage Internet video by charging extreme prices when download caps are exceeded.

This differentiation between types of data or service is arbitrary. It is all bits.

For example, the NBA playoff game on Sunday was televised and streamed over the Internet. Both came over the same cable:

As we see, the television coverage, including the ads, is being delivered over the Internet with a four second delay. The Internet image quality is below that of the television signal, but that will improve when US Internet speeds catch up with the rest of the world.

The incumbent telephone and cable companies profit from their service-oriented business model, so they will resist becoming information utilities, delivering undifferentiated bits.

Can they sustain that position in the long run? Would we tolerate a water company that differentiated between drinking and washing water or a gas company that differentiated between heating and cooking gas?