[170060] in North American Network Operators' Group
RE: Level 3 blames Internet slowdowns on Technica
daemon@ATHENA.MIT.EDU (Naslund, Steve)
Sun Mar 23 22:00:11 2014
From: "Naslund, Steve" <SNaslund@medline.com>
To: Joe Greco <jgreco@ns.sol.net>
Date: Mon, 24 Mar 2014 01:59:51 +0000
In-Reply-To: <201403211501.s2LF171x005077@aurora.sol.net>
Cc: "nanog@nanog.org" <nanog@nanog.org>
Errors-To: nanog-bounces+nanog.discuss=bloom-picayune.mit.edu@nanog.org
>> We don't know because the service provider rolls that cost up along=20
>> with th=3D e services they sell. That is my point. They are able to=20
> >spread the costs=3D out based on the profitable services they sell.
>Okay.
>> If they were not able to =3D
> >sell us services I am not sure they could afford to provide that=20
> >infrastruc=3D ture.
>That's a crock. You can always provide infrastructure without selling ser=
vices on top of it. It's wire. Or fiber. Or whatever. If you're not abl=
e to subsidize the >infrastructure with services, then what you actually ge=
t is a less distorted reality where you can actually identify the component=
costs (circuit, services, etc).
Sure you could do that. I'm not denying that you could. I am saying good =
luck making money on that or getting that business model funded.
>> In fact, having been a service provider I can tell you that I paid t=3D=
=20
>> he LEC about $4 a month for a copper pair to your house to sell DSL=20
> >service=3D at around ten times that cost. I am sure the LEC was not=20
> >making money at =3D the $4 a month and I know I could not fund a build o=
ut for that price.
>Why would you try to fund a build out on that?
How are you going to get more than that? I am saying you CAN'T fund a buil=
d out that way. That's why a pure infrastructure model is not economically=
viable unless you have exclusivity that forces people to use it.
>Why wouldn't you instead charge for the build out as a NRC and then charge=
for maintenance as a MRC?
Because your customer will not pay a NRC for a residential build-out. I kn=
ow from experience that it is hard to get even business customers to eat a =
reasonable construction cost of a couple thousand dollars. Try that model =
against an incumbent cable company and see how that works. Will they be wi=
lling to pay thousands to be on your fiber network not knowing what the ser=
vice is like until they commit or will they be more likely to go with the i=
ncumbent cable company with a simple monthly charge. =20
In a low density area you can never fund a build out which is where univers=
al access charges came from and the reason that rural LECs are exempt from =
competition. In return for building a network that is not profitable easil=
y they get exclusive access to sell services on it to give them a chance. =
Will your NRC be reasonable anywhere outside a major metro area?
>What you're suggesting reeks of the deliberate cost distortion games that =
go on so often. My personal favorite is cell phone contracts where the cos=
t of the >phone is *cough* "subsidized" by the carrier. But what's really =
happening is that the customer is paying for the phone over the term of the=
contract, and if >the customer doesn't get a different phone at the end of=
the contract, then the carrier ... lowers their monthly rate accordingly?=
No, of course not... they >
>keep it as profit.
The carriers do subsidize the cost of phones and often they are free. You =
can also get your phone upgraded on a schedule that is usually a couple yea=
rs at most, you just have to ask. This is a legacy model to get customer=
s past the entry point of phones that might have cost up to $1,000. Just l=
ook at the cost of a cell phone without any service attached to it. It is =
much greater than what you pay when you buy a phone with service. It is th=
e customer spreading the costs out over the life of a contract because more=
people care more about monthly costs than overall cost. Do you think peop=
le want to fund communications infrastructure to a home they might move out=
of in a year or two? By the way, how do you continue to collect the NRC i=
f I do move? I can sell my home tomorrow, Do I still have to pay for you=
r fiber build? Can you mandate that the grandma that moves in has to pay f=
or it now even if she does need high speed services?
It's not a cost distortion game. What is going on is that the LECs origina=
lly built their network out with the model of a captive customer that they =
could recover costs from for the life of the infrastructure so a 20 - 30 ye=
ar payout was reasonable. Unfortunately for the competitive communications=
provider, the capital markets will not fund a model like that and the cust=
omer is not captive anymore. Would you bet that any of your customers will=
be with you 20 -30 years from now? Just about every transport level provi=
der of fiber networks got in serious financial trouble. Look at MFS, Globa=
l Crossing, Williams, etc. The more successful model is like Level 3 who s=
old service on top of an infrastructure (much of which was bought out from =
under failed transport only providers). It was hard to make money on the c=
ity to city and country to country fiber network. The fiber to the home wi=
ll be completely unprofitable without exclusive access or the ability to se=
ll multiple services on it.
The economic reality is that if I build out an expensive infrastructure I h=
ave to pile on as many high priced services as possible to order to maximiz=
e the revenue from it. A customer who does not balk at a $200 a month TV/=
voice/Internet service is not going to be happy getting a bill of $50 a mon=
th for a fiber loop. The services are what the customer really wants and w=
here you can add bells and whistle with little added expense. The infrastr=
ucture is the expensive part.
BTW, if you think that NRC infrastructure charge would ever go away, you ar=
e kidding yourself. Here in Illinois, we have been paying for the construc=
tion of our tollway in perpetuity. When it was originally built the state =
promised to remove the tolls as soon as construction costs were recovered. =
We are still waiting and will be forever.
If you want, you can criticize the model of the free economic that use prof=
it to determine viability but unfortunately someone pays the bill in the en=
d. Whether it is government funded, a grant, or a commercial enterprise, e=
xpenses get recovered. The only difference is that in a free market the cu=
stomer gets to choose what they pay for. In any other model, everyone pays=
whether they like it or not. I think our communications model had to deve=
lop as a managed monopoly otherwise it would not have been the universal so=
lution that it is today. Now we have to deal with the downside of the mono=
poly as well.
Steven Naslund
Chicago IL
