Tag Archives: Comcast

What’s the difference between Ma Bell and Comcast?

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If you were born in the 80’s or before you know that Ma Bell was the only phone company in town. Born any later than that you were born into a world without a single monopoly for telecommunication. That’s right, we’ve had a point in our collective history where there was only a single phone company. There are rules in place that prevent something similar from happening with Comcast, but we’ve been there before. However, I believe there are critical differences. AT&T knew they were a monopoly and they were a state sanctioned monopoly. They did everything in their power to keep prices down to prevent being broken up. AT&T actually had a broader monopoly than what Comcast could ever hope to have. They made the phones that worked on the line, they made all the telecom technology that made it work, and they designed the services that made it work. This is something called a natural monopoly, which I’ve written about before. A former founder of Comcast has declared Comcast a natural monopoly.

The biggest difference between Comcast and AT&T, back in the day, was that they did everything they could to keep the government happy. Was it perfect, no clearly not, there were shady business practices, but we as a society benefited greatly from Bell Labs. To this stay is still one of the greatest research facilities that ever existed. If it wasn’t for Bell Labs our current way of life would be very different. I highly suggest checking out the book on it.

Comcast claims to be pushing innovation with their X1 Xfinity platform, but that’s not really true, it’s simply a new operating system pushing content. Voice activation isn’t innovation and if that’s your main selling point then you’re in serious trouble. As I mentioned yesterday, the Netflix deal is a major concern, the Verge is saying the Internet is fucked and that we need to be contacting the FCC daily to un-fuck it.

I’m not entirely sure that the FCC can fix it. Congress has greatly hamstrung the FCC in dealing with internet companies, furthermore, their solution of calling the internet a Utility won’t work. If you aren’t aware we’ve had big pushes to deregulate the utility industry which unfortunately hasn’t really made rates better in many cases or in the long run. I think that it’s fair to say that in the telecom industry this is true as well. The impact of the AT&T break up has been this long term collection of conglomerates that continually increase price as well as “Fees” which similar to baggage fees are hidden from the “price” of the service. So, treating the internet like a utility isn’t going to work. What we need to do is treat it like a road.

Everyone that uses a car on the road is taxed based on use (Gasoline taxes) everyone pays for a portion of the maintenance based on other local taxes too. No, these aren’t perfect and are going to be under pressure based on hybrid and electric cars – and new models are being proposed. Of course one way to do this is through toll roads (which really never work) or through some sort of black box in the car to measure mileage (which no one wants).

Essentially it’s a pay for bandwidth consumed, so if you’re a high consumer of bandwidth you’d pay more, but the rates need to be realistic and the goal would be to cover expenses and continually improve service while making it cheaper. Which brings me back to AT&T – the president of Bell Labs had one mantra anything could be tested but only if it could lead to a “Better, cheaper or both” network. A public internet similar to a road that was paid to continually get cheaper, better, more secure, and faster is the only way to truly un-fuck the internet. It’s not likely to happen because it’s not a capitalist response. However, the internet these days is similar to public transpiration – it’s goal isn’t to make money, it’s goal is to enable economic activity. If think of it that way, then we can see the long term benefit of the whole economy rather than singular actors.

Data, Monopolies, and the Comcast/Netflix Deal

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So, apparently, there are these groups that sell bandwidth for data transit to companies like Netflix. These companies interface with the major ISPs like Verizon and Comcast and connect the broader backbone of the internet to specific ISPs. These interfaces, like any interface can become over burdened – similarly to a congested intersection on the road. The problem is that with data information can be lost or transmitted extremely late, the lost data is called a “dropped packet.” These packets are like little packages of data that will likely provide some desired bit of image, article, or video.

These companies have typically provided “peer connections” that are free to transmit data because, well you’re paying to access the data and Netflix is paying to allow you to send the data. Win-win for both user, ISP, transit company (Cogent), and Netflix. Pretty good system right? Well it was until Verizon and other ISPs went and decided that they wanted to charge Cogent to for access to their networks so their users can access the data that Cogent is transmitting for Netflix.

Why can the ISPs do this? They are acting like monopolies in many ways. These companies are essentially islands of monopolies that do not compete with each other. With little incentive from the market to change behavior they are able to seek additional monies from their customers and providers without much risk of member defection. Furthermore, as Verizon is continually posting higher and higher Average Revenue Per User (ARPU), they are making more from the same number of people. When you have no where to go, that means raters are going up, and if they aren’t investing that additional money, that means profits are going up.

What does this all mean? It means that Netflix is getting the squeeze in a way that they weren’t expecting and with the proposed merger between Time Warner and Comcast things are only getting worse. The ISPs are able to say that they aren’t negatively hurting Netflix alone, because everyone that uses Cogent is getting hit the same way. It’s intentional according to the Cogent CEO. To get around the Cogent bottleneck, Netflix has decided to have a direct connection between Comcast and Netflix. This means that Netflix services will have less of a bottleneck to compete with other bits of data. This is a big deal for Netflix as lost data packets likely mean blocky video or video that is unwatchable.

Netflix decided to push for their members by paying for higher speed access directly to Comcast. This is great, but on the other hand terrible. It’s terrible because one of the greatest champions of Net Neutrality has bowed out of the fight giving in and paying to provide higher speed video quality to their members. It’s good because they are doing what’s right for their members, even though Comcast is at fault here by making cynical business choices to negatively impact the quality of the services provided over their pipes.

This could have interesting implications if a company decides to use this clear agreement as an obvious breach in the NBC/Comcast Net Neutral agreement. This could, if pushed correctly, have serious far reach implications for the company. However, I’m not sure who would push for this law suit. Hulu won’t, as it’s partially owned by Comcast, maybe Google will as they are looking to compete head on with Comcast as an ISP, video content provider, and in other realms. Another potential is Aereo that has already won a few major victories over NBC/CBS in copyright (The company streams over the air HDTV as a DVR service). So if they don’t have equal access as Comcast or Netflix, they could certainly sue over this – as it would hurt their business growth possibilities.

Update: Apparently Netflix is in negotiations with both AT&T and Verizon as well. Furthermore, Verizon believes that these agreements are clear that we don’t need more “regulation”in the form of net neutrality. Clearly, if a monopoly can extract as much money from both their members and the content that brings value to their networks, there’s no need for regulation!

I think that these practices are going to seriously impact the ability of smaller firms to compete. I also would fully expect a company like Twitch to start feeling the pressure next.

Is Net Neutrality regulation commie nonsense?

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Network Economy

Regulation’s a bad thing, right? Personally, I think there are instances where regulation is an amazingly good thing that drives innovation. We also need to be cautious about who is saying regulation is good or bad. Back in the 90’s we’d hear that regulating in anyway to prevent acid rain would cripple business and kill our economy. This clearly didn’t happen, we have acid free rain for the most part, we have more productive manufacturing than ever. We also hear that regulating CEO pay by median rather than average is significantly more complicated to the point that a place stacked full of MBA’s can’t figure it out. Then there are regulations that pick winners like Solyndra and turns out to be a disaster. These cause higher taxes and are actual drains on the economy (personally I’m on the fence about experimenting with new technologies and having the government support them, but that’s me).

What about the FCC “regulating” net neutrality? I think that it’s important to look at how this all started. First, I’ll start with a bit of a history with the telecoms, then move to how the internet was developed, and move to comparisons between other monopolies.

AT&T has been described as a natural monopoly. This was partially helped by the US government because the government wanted coast to coast telephony and selected AT&T as the standard for that activity. This gave AT&T incredible market strength, but was also extremely fragile as it was continually under threat of being broken up for being a monopoly (which is was). To do everything they could to avoid this, the geniuses at Bell Labs continually designed ways to keep their costs down, improve quality, and make very thing better. They also had some government deals that helped them a lot (military contracts for telecom stuff, like the first satellite). The value of AT&T’s network grew every time a person joined the network.

The fact that one person joined Network A over Network B could further impact the growth of that network. Let’s say Person A is friends with 5 people and is already on Network A, it’s likely, if they are really good friends and A is known for making good decisions, that those five people will join A on Network A. The value increases by more than simply 5, because all five of those people can talk to each other as well as every other person they know on Network A. Now if Person A has more friends, but not as good of friends and they actually are better friends with Person A’s friends they will also likely join Network A. This sort of cascade effect will continue to happen. This is also known as Metcalfe’s law.

When AT&T was force to break up, all of that interoperability remained. Instead of one big monopoly there were regional ones instead. As we’ve seen over time, these same regional operators have slowly re-joined back into 2 Bells versus the non-Bells. AT&T being split is a type of regulation for sure, but it did spur some interesting competition for a time.

How the Internet was designed:

The internet was originally designed to operate in many different application layers. Essentially the bottom of the stack was Internet Protocol which was agnostic to the type of information being sent across it. At the time, the most efficient method was over Ethernet so there was not any requirement to be concerned over the application medium. Over time there would be some concern, but that was really addressed by the protocol.

What would happen is that the applications that required information to be sent on either end would translate the information to be used by the layer below it to send out, such as a web browser to the OS, to the network driver to IP, across the internet to the network driver to the OS to the web server application. Across this entire process the actual data being sent was unknown to any of the nodes in between the application layers. (If you’re interested in this check out Internet Architecture and Innovation).

Of course the companies providing the bandwidth for that did not want to find itself in a similar role as they had after the break up of AT&T where they were forced to become “dumb pipes” for whatever people wanted to send across their network. To prevent this they created capabilities like deep package inspection and other tools to identify what content was being shipped across their lines. This also was the beginning of violating “True” net neutrality.

Why were they dumb pipes? Because they were defined as a common carrier to increase competition across the land line providers and ISPs the telephone companies had no choice. This lead to the explosion of ISPs like AOL, Century Link, and so on. What has happened since? The broadband lines have been ruled that they are not “Common Carriers“. Meaning that the data across the line can be treated however the companies that own the lines want.

Why is this bad in a network economy?

In a network economy, being able to fully control anything and everything can be very bad for the consumer if there is no other option. Now, you could argue that there are options, but in most cases because of other monopoly rules there are few options for allowing a new ISP.

A perfect example where a network monopoly isn’t a big deal is in Smart Phones. The iOS App Store is a natural monopoly in a network. The more people using the iPhone the more valuable it became and more app developers developed apps. It never became a problem that Apple regulates the entire experience BECAUSE there were other networks you could shift to, such as Blackberry, webOS, Windows (whatever mobile version you want to include), and, of course, Android. All of these ecosystems offer very different options for devs. Additionally, within Android there are competing App stores which further benefits the consumer. If there were no other competitors to iOS and it’s App Store the constraints that Apple puts on their product would likely be viewed as very anti-competitive and a type of “foreclosure.”

Market foreclosure is using one monopoly to enable another monopoly. Now, regardless of if you think that this should have happened or not, it did. Microsoft was hit for using it’s Window’s OS to foreclose on the internet browser market and was looking to do the same with their music player. What resulted was that MS was required to offer other browsers when a new Windows OS was launched and helped to reduce the market share of IE.

How does this apply here? Comcast is already trying to do the same with Netflix in the streaming video business. Comcast owns the content (Universal, NBC, etc), the connection (Comcast Cable ISP), the rules (data caps), and if they want to charge to access their network or not. Eliminating the rules of net neutrality tilt the table in the direction of Comcast to a degree that Netflix may never recover. If Netflix, at one point 2/3 of all internet traffic, had to pay for every bit they streamed to allow for an enjoyable streaming experience they would be bankrupt in very short order.

I get that Comcast’s of the world don’t want to be dumb pipes, they own the content and that’s king. However, not every ISP owns content (Verizon/AT&T) so they aren’t at such an advantage to companies like Netflix. However that’s where AT&T’s data plan comes in. Which would essentially level the table compared to Comcast. We, as end users, wouldn’t see any benefit out of this. It’s not that our subscription fees would lower or we’ll magically get faster internet. This is simply rent seeking behavior and bad for the economy overall. Only true new competition can lead to that. Changing these rules have zero impact on that competition.

What it does do though is negatively impact the creation of new businesses that want to stream video or provide a novel product that requires high bandwidth and equal rights to streaming. Removing the protections on net neutrality dramatically increases the cost of streaming that otherwise could go into building that startup’s infrastructure. Think of the problems at Twitch.TV with their growth. My subscription fees pay for the growth of the network that I subscribe to regardless if it’s something like Twitch or Comcast. Anything else will go to shareholders and CEOs.

Could we develop other options like a Mesh network? It’s possible, but for that to work the option would have to be a public/private venture. Most citizens aren’t going to help create that and likely don’t have the technology savvy to do so. To further complicate this issue many ISPs are actually pushing to make it illegal for cities to create their own ISP.

In many cases regulation is bad for business. However, in cases like net neutrality it’s returning the net to it’s roots and enabling much stronger competition based on the merits of the company providing the service, not the arbitrary whim of network owner.

Sponsored data and YOU!

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This could be your lucky day, your cellular provider is going to start offering packages where certain content doesn’t cost you anything in your data cap. This is awesome. You can start streaming more and more video/music/whatever it is that you stream from your favorite services. However, not all of your favorite services will be free of data charge! So make sure that you tell your favorite service that YOU want THEM to sign up and make their content data cap free to you! All those service providers have to do is pay your cellular provider money to stop the data caps! No, seriously, AT&T wants to do this.

Is this a problem? I think it depends on who you are. For a consumer in some cases this is pretty awesome. Let’s say you love to watch video games being streamed on Twitch.tv by your buddies over at KBMOD and Twitch decides to pay money to prevent your data from being charged against your data cap. But you’re also a huge fan of MLG and MLG just decided to start their own Twitch competitor but they can’t afford to pay those same fees. Well, guess you’ll be only watching MLG from your PC or on wifi. Too bad your favorite shows are on while you’re not able to use Wifi though! O well, Twitch is there for you though!

This is a niche market obviously. Not everyone cares about watching someone play streaming video games or even streaming video games to your phone so you can keep playing a game you were playing from home. A lot of people care about TV and movies though. We can look at this as something that’s really analogous to what Comcast was trying to do to Netflix close to two years ago. In April of 2012 Comcast announced that its Xfinity streaming service would not be charged against your Comcast data caps while Netflix streaming service would be. Netflix’s CEO argued that this violated Net Neutrality because it provided preferential treatment to one source of data over another.

What is Net Neutrality? Well, there are two different arguments, which I discuss in a blog here, where one is saying everything must be treated equally, while the other one argues that there are nuances and we can treat data differently because we need to “Groom” our networks. Internet and network purists believe that you shouldn’t even be able to determine what the data is or what the source of that data is if you’re a point along the network, just where it most recently was and where it needs to go next. The only application that can read the data in the package is the application that requested it.

AT&T’s plan, similar to Comcast’s, is in violation of Net Neutrality and the FCC will step in to regulate this type of “service” because it’s, in the end, bad for the consumer. Unfortunately, there are limitations to what the FCC can do and even potentially what AT&T can do.

There has been much more of a push for encryption and it’s likely that these pushes may actually enable more of a return to the true meaning of Net Neutrality. If all of our data is fully encrypted, deep packet inspection tools (which tell if the data you’re getting is video, music, or whatever), won’t work very well as that information will be encrypted. Furthermore, if your application’s data is all encrypted and AT&T won’t be able to tell if your data is your data then there’s no value in paying for “privileged” data status from AT&T.

It’s one of the reasons why I’ll likely support company’s like Wickr, an encrypted Snapchat competitor, which told the FBI to screw itself when they were asked to put a backdoor into their encryption. It’s important that we work to protect our data and support companies that do so in terms of Net Neutrality and encryption.

What companies do you support that encrypt and fight for net neutrality?