Dear Fred — I think your statement:
“In the early days of the Internet, when dial-up was king, the telco companies were in the driver’s seat. They had the customer relationships. They had the on-ramp to the Internet. But they did not create Google, Skype, Facebook, or even TCP/IP.”
… is misleading. It assumes that the telcos and ISPs have at one time ever had a good grip on their internet customers. As a former manager with just such a company, in fact one of the most profitable ones in the world, I can tell you most confidently that this has never really been the case. And since the advent of the consumer internet, Big Telco has never had the opportunity to successfully inflict their business model on the Internet … until now.
In the earliest days of consumer and internet, before SLIP and later PPP, BBSes and ISPs offering gateways to the internet did indeed control users’ access to the internet which, back then, was mostly email and newsgroups and mediated at the command line by their terminal server — and they took advantage of the limitations of TCP/IP and fully-mediated the experience.
But SLIP/PPP, and more notably the web browser, changed all of that. With the browser you could establish your IP connection automatically and you could set your homepage to any site you liked with a click of a button. This instantly killed the “on-ramp” opportunity for ISPs, particularly as the technology became easier and those “Internet Access Kits” were no longer filling store shelves and being mailed to consumers when they signed up by phone for their ISP. This one attribute is what built Yahoo!
And in the mid-1990s, AOL subverted the major telcos by leasing dialup ports from them in the hundreds of thousands and provided an online experience that was, in its darkest moments, almost completely proprietary and provided zero upsell opportunities to the carrier. This was as it should be. It’s a model, by the way, that Apple and RIM have now largely copied for the iPhone and Blackberry.
But Big Telco was never really in the drivers’ seat in any of the ways that mattered. Customers clamored for broadband, and in fact for Big Telco ADSL was a defensive strategy that optimized the cost impact of dialup customers holding up circuits and purchasing extra phone lines that way exceeded the design parameters of those big ol’ neighbourhood switching centres. For a time, it also fended off the Cable Companies.
In 1997, I joined up with BC TEL, Canada’s 2nd largest Telco, with much the same belief that you stated today — but I was incorrect. In fact, one of the first things I did when I joined the team was to kill an expensive project which would have forced all of Western Canada’s residential ADSL customers to LOGIN via a carrier web portal to activate their IP connection … it was like Wayport writ large. This would indeed have catalyzed the carrier’s opportunity to more fully-mediate the users’ experience online, but it would also have driven a lot of customers to Cable Broadband. While broadband is indeed faster than dialup, its most convenient attribute is that it’s always on.
With Hotmail, carriers soon lost that other conduit to their customer — email. For a number of years the prospect of a customer losing their email address by switching providers was a concerning one — and it was indeed considered a major retention tool, and this defined the budgets allocated toward maintaining email infrastructure. Nowadays, it’s different. I probably have an email address with my current broadband provider, Novus, but I couldn’t tell you what it is. Hotmail (and Gmail and everything else) represent the second penny dropping, and ISPs no longer have meaningful communication with their customers except via billing statements and costly telephone calls.
So having been relegated to dumb pipe providers, particularly since the advent of broadband, the Carriers are taking a third run at it, having been thwarted by progress at every other turn. Telcos like to make their money by bundling and rate-scaling — in fact, it’s really the only thing they’re good at. “Marketing” departments exist to dissect their userbase and lock them into increasingly costly plans and rate groups while baffling customers through the chicanery of their service statements and packages.
So, then… what is the heart of the carrier, since time immemorial? The Billing System. It’s their core IP. Their greatest investment. The crown jewels. And I’m sorry, but Isenberg’s theory of the “stupid network” sounds scary to them, even if the cost of metering and billing for a network service far exceeds the cost of supplying that network in the first place.
Now, with metering and traffic shaping and outright blocking, this is the carriers’ first real opportunity to realize their ancient business model in a way that cannot be taken away from them, except by the FCC and CRTC, and it’s easier than ever: rather than compete with third-party applications and web services, they can use them to create bundles — without even having to do business with those third-party companies and startups themselves.
It requires a huge investment in equipment from Ellacoya and their competitors, but this is the kind of project a Telco has no problem allocating funds towards. After all, this infrastructure is at its heart just a much more complex, glorified Billing System. That’s a big thumbs-up in the carrier world.. no bother that if equivalent investment was made in pipe and routing there would be no need for concern regarding bandwidth constraints.
But the broadband metering opportunity is what those gentlemen, in their cigar-hazed and hundred-dollar Port-soaked backroom meetings, would call their finest hour. For more than 15 years, Big Telco has struggled to find ways to attach their traditional business model to the internet, and in most respects has failed miserably. Meanwhile, their cash cow (Voice) became just another internet application. Profits have suffered and voice became too cheap to bill. If your only tool, the Billing Systems, are your hammer, then every problem indeed looks like a nail.
And so while the entire rest of the technology world is trending away from billing for that which is too cheap to bill, our friends at the carriers continue to fight the realization that they do not need legions of employees doing customer segmentation analysis and engineering toll booths along their dumb pipes to be profitable, they don’t need to be 35,000 or 45,000 employees strong, they don’t require billing systems that cost tens of millions of dollars a year to build, modify, and maintain, and they don’t need to have decamillion-dollar CEOs at the helm.
They need to focus on building lots of pipe and keeping it running, and that takes neither of those things. It also doesn’t require a very complicated billing system.  But none of these things does much to keep the good times rolling.
Rulemaking I am generally against. But the one rule I am in favour of is that carriers, or even regulators, should not exploit their position to make their own rules about how when or why we use connectivity. This is a free speech and free access issue.
And if the carriers crumble because they can’t monetize services properly (this is their complaint and threat) then I am in favour of bailing them out, nationalizing them, downsizing their staffing, and making the salaries and bonuses of their executives a matter of public discourse.
that’s a great history lesson and i am sure you are right about the hurdles the telcos faced.
i couldn’t actually tell from your post whether or not you think the FCC’s proposed rulemaking is good or bad policy.
i’d be interested in your opinion