Selling data consumption tiers rather than connectivity

Net neutrality makes comeback in California; lawmakers agree to strict rules | Ars Technica: Wiener's office told Ars that the compromise version will remove a ban on "application-specific differential pricing," which the bill defined as "charging different prices for Internet traffic to customers on the basis of Internet content, application, service, or device, or class of Internet content, application, service, or device, but does not include zero-rating." That means an ISP could sell add-ons to data plans that let customers buy extra data just for a certain type of website or online service. A customer's base data plan would still allow browsing to any kind of website or service in this scenario, but the package of extra data could be restricted just to social media sites, or some other category, Wiener's office explained. The effect would be similar to zero-rating, but Wiener's office said it wouldn't involve exempting any traffic from the customer's base data plan. (Emphasis added)

Mobile device users are familiar with their carriers' business models: selling tiered plans based on the amount of data consumed. The more consumed, the higher the price tier. As well as functional costs such as throughput being throttled back once a certain consumption threshold is exceeded.

This story suggests the expansion of this pricing model to landline-based service. And that the development likely motivated providers of advanced telecom service providers to successfully lobby the U.S Federal Communications Commission to recently scuttle its 2015 Open Internet rulemaking that would have made doing so problematic. If landline like mobile providers can sell finite "bandwidth by the bucket" (or scoop of ice cream to use the Verizon Wireless analogy), that provides them a pricing rationale to offer discounted or better service to end users accessing their proprietary content -- the "walled garden" consumer facing model that characterized the early days of the Internet with ISPs like CompuServe and AOL. And telephone service for decades before, when calls were billed based on minutes used and distance of the call.

The real policy issue here is whether providers of advanced telecommunications services should be able to maintain vertically integrated business structures and product offerings based on those business models of the past and whether doing so is good for consumers. At a time when Internet protocol-based telecommunications can provide so much more than the bill per unit voice phone call of legacy POTS (Plain Old Telephone Service) or distant TV channels of the legacy CATV model.

Brought to you by broadband: TV viewing via connected devices up 65% since 2016

Brought to you by broadband: TV viewing via connected devices up 65% since 2016: Connected devices have made video streaming easy and ubiquitous -- 74% of U.S. TV households now have at least one internet-connected TV device, including smart TVs, streaming media devices (like Roku, Amazon Fire TV, Chromecast or Apple TV), connected video game systems, and Blu-ray players. Similarly, households with over-the-top video service are expected to exceed 265 million by 2022. Given the tremendous growth of broadband-powered devices, USTelecom remains committed to supporting policies that foster the innovation and investment necessary to keep pace with consumer demand.

This is an important trend driving the vertical integration of advanced telecom infrastructure with content such as this month's merger of AT&T and Time Warner.  It represents the "cable-lization of the Internet" as some have termed it and a return to the "walled gardens" of the early 1990s such as AOL and CompuServe. These services functioned as integrated platforms for content as well as communications such as email for a recurring monthly fee. We are witnessing a revival of the model, this time with bundled video content those early platforms couldn't deliver.

It's a regressive trend and counter to the move toward Internet protocol-based telecommunications since then that enables access to innumerable information and communication services (including Voice Over Internet Protocol or VOIP), obsoleting the walled garden model of a generation ago. It also represents a misplaced emphasis on entertainment over telecommunications. Capital is diverted to purchasing content rather than constructing and upgrading infrastructure. That reinforces neighborhood redlining as the big ISPs concentrate on affluent, high density neighborhoods where they can maximize ARPU and ROI with their video bundles.

FCC's repeal of Open Internet regulation sets stage for mega versions of 1990s era AOL, CompuServe walled gardens

The U.S. Federal Communications Commission has restored the regulatory framework that treats Internet protocol-based communications as an information service. The move reverses the commission’s 2015 Open Internet rulemaking classifying IP as a common carrier telecommunications utility under Title II of the Communications Act. So instead of an open Internet, the United States is turning back the clock to the closed, proprietary walled gardens that existed prior to the advent of the World Wide Web in the mid-1990s.

It’s even a greater back to the future policy move than appears at first glance. It sets the stage for media producers to consolidate with the companies that own the “pipes” – cable and telephone companies that serve more than three quarters of American homes, businesses and schools. After all, if those pipes are to be regulated as information services rather than telecommunications, companies that create information take on an integral role in this vertically integrated business model.

Consequently, the future could bring more combinations like Comcast’s acquisition of NBC or Verizon’s takeover of AOL and its pending deal for Yahoo! Under the new regulatory policy, it’s not inconceivable a big cable company or a telco could similarly make a play for Netflix.

Even Amazon, clearly in the information service business with its original offer of books and now its own production video content, could be a potential merger partner for one of the big pipe players. An Amazon-Verizon walled garden, for example, would provide this information content along with socks, towels and any other imaginable consumer commodity with both companies taking a nick of the revenues. Prime members might be eligible for a discounted monthly rate for Verizon connectivity.

The result would be a supersized version of the original big online information services: CompuServe and AOL. Both provided electronic mail along with content prior to the debut of the Netscape World Wide Web browser in the mid-1990s that swung open the garden gates to a vast digital universe. CompuServe even charged its subscribers by the minute to read “premium” content -- not unlike telephone long distance service. Such a billing scheme might well make a return under the FCC’s latest regulatory framework.

Last year Google abandoned its vision of building proprietary fiber to the home infrastructure to make its content more widely available. It could follow the adage, “If you can’t beat ‘em, join ‘em," and concede its effort to outshine legacy incumbent telcos and cablecos and their outdated metallic telephone and cable TV networks by merging with one of them to create a colossal proprietary information service.

U.S. at inflection point on premises Internet infrastructure

The United States is at an inflection point relative to premise Internet infrastructure serving homes and small businesses. The “walled garden” business model of legacy incumbent cable and telephone companies has reached the limits of its reach. Connecting the remaining 20 to 30 percent of premises outside the wall isn’t economically practical as testimony at a U.S. House Small Business Subcommittee hearing this week in upstate New York illustrates.

Mark Meyerhofer, a government relations administrator for Time Warner Cable, said while there has been a change in the national mindset that favors a greater focus on unserved areas, nevertheless “It remains extremely challenging to extend broadband to most rural areas of New York State, where geographic isolation and topographic issues make it economically infeasible for companies to reach these areas,” Meyerhofer explained. “Investments simply cannot be recouped before it is time to reinvest.” Although Meyerhofer was specifically referring to only one part of the country, his testimony applies elsewhere across the nation including many suburban and exurban areas where service gaps exist. That economic reality of the walled garden Internet also applies to Google Fiber, which plans to expand into several metropolitan areas.

The other challenge faced by the legacy incumbent providers (but not Google Fiber) is the ever growing demand for more Internet bandwidth. It’s similar to the problem facing manufacturers of silicon-based microchips that eventually will reach a physical barrier where no additional circuitry can be crammed onto the chip. That will require the incumbent providers to change out their metal wire-based premise service infrastructure with fiber optic connections to accommodate the additional bandwidth demand and stave off technological obsolescence. But barring a revolutionary breakthrough that significantly reduces the cost of constructing fiber to the premise infrastructure, their shareholders aren’t likely to approve of such large capital expenditures that could cut into dividends as shown by Verizon’s 2012 pullback of its FiOS fiber to the premise product offering.

Given the growing consensus that the so-called “last mile” premise Internet infrastructure challenge can’t be met within a commercial framework, it strongly suggests other business models including a nonprofit cooperative or public works approach similar to that used for roads and highways will be necessary in many areas of the U.S.