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?


  1. Brett Glass4:31 PM

    Larry, one thing you do not mention above is that the cost of the resources needed to transmit the (lower quality) version of the same program to your laptop cost hundreds of times more. Why? Because the program was unicast, as a stream, to your laptop, using expensive Internet backbone bandwidth. For this reason, consumers who want this form of delivery should expect to pay more for it.

  2. Brett,

    You raise two issues -- quality and cost. Quality is a moving target -- as Internet infrastructure and other technology improves and builds out, the balance will change.

    For cost comparison, I think you have to make some assumptions about people's desires and viewing habits. In the last 6 months or so, I have watched a few NBA playoff games, the Tour de France, the world track and field championships and a Sunday Morning News show and Sixty Minutes perhaps every other Sunday. I might watch a movie on TV once a month. When my grandchildren come over, we watch quite a bit of Sponge Bob Square Pants. I get my TV via satellite -- I would be surprised if I have ever watched more than five non-local channels.

    How does broadcast compare to Internet for me? I am not asking to be snarky -- I would like to see some good analysis and data -- a model with parameters for viewer habits, caching, multicasting, etc.

    I do not know anything about the distribution of viewer profiles today, but I bet market researchers do. No one knows anything about what the distribution of viewer profiles would be if we had an open, competitive, on-demand system for transporting video bits. I guess that is a topic for market researchers to address. Perhaps there is some relevant data from other nations.

    There is another issue -- competition. If this were a free, competitive market, I would be happy to compare the offerings of companies that broadcast bundles of channels with others that delivered various services on the Internet. (I'd be interested in a channel that bundled Sponge Bob, the Tour de France, and the NBA playoffs). But, where I live I have two land-line ISP choices -- Verizon and Comcast -- and they both have obvious conflicts of interest with the Skypes and YouTubes of the world.

    Caching, multicasting and protocols yet to be invented must also be considered.

  3. The information-service business model is costing us dearly
    Tuesday, June 09, 2009
    Permanent link as of 7:50 AM


    I completely agree with Larry Press on this one. There is too much differentiating between information services like Internet and Television. Being somewhat older as I am I was surprised that the phone still costs money even when someone else calls me, years ago that was free. I admit I don’t understand the whole thing. To me it seems as if air should be free.
    I am a full time student in college and feel I need some way of getting onto the internet for my studies, but of course it is much too expensive. The comparisons of water and gas should hopefully get people worried enough to do something about it.
    At this time I am currently choosing between cable Internet and DSL. Cable Internet on one hand is a little faster, but on the other hand it doesn’t slow down from 7 to 10:00 at night, while they both seem to accomplish mainly the same things.
    Within our class outline the post would fit under technology and on my part it would fit all skills and concepts.