Apples and Oranges

Saul Hansell has done some good analysis of the broadband market (as I noted here), and I’m generally a big fan of the NYT’s Bits blog. But this item mixes cable TV apples with switched Internet oranges. And beyond that just misses the whole concept of products and prices.

Questioning whether Time Warner will be successful in its attempt to cap bandwidth usage on its broadband cable modem service — effectively raising the bandwidth pricing issue — Hansell writes:

I tried to explore the marginal costs with [Time Warner’s] Mr. Hobbs. When someone decides to spend a day doing nothing but downloading every Jerry Lewis movie from BitTorrent, Time Warner doesn’t have to write a bigger check to anyone. Rather, as best as I can figure it, the costs are all about building the network equipment and buying long-haul bandwidth for peak capacity.

If that is true, the question of what is “fair” is somewhat more abstract than just saying someone who uses more should pay more. After all, people who watch more hours of cable television don’t pay more than those who don’t.

It’s also true that a restaurant patron who finishes his meal doesn’t pay more than someone who leaves half the same menu item on his plate. If he orders two bowls of soup, he gets more soup. He can’t order one bowl of soup and demand each of his five dining partners also be served for free. Pricing decisions depend upon the product and the granularity that is being offered.

Using another food analogy, what if I sit down at a restaurant that offers “All-You-Can-Eat French Fries,” and then proceed to demand five million pounds of their best fried Idaho spuds. Most likely, the restaurant has a clause, almost never invoked, that limits your potato intake. Perfectly reasonable.

We haven’t even touched on the different business models. Some TV channels are premium subscription. Some are advertising based. For cable and satellite, basic cable is paid for by a combination of subscription and advertising. The whole Web is huge mix of subscription and ad-based models. We are still trying to figure it out, as the newspapers can attest.

Hansell also ignores the key architectural differences between cable TV and broadband Internet service. Traditional cable TV is a tree-and-branch, one-way, broadcast system. Broadband Internet is an interactive, two-way, switched system. In cable TV, every program goes to every home, where you, via your set-top box receiver, choose which channel to watch. Almost a gigabit per second of content is coming into your home all the time, but you only watch one channel (a couple megabits worth) at a time on each TV display. Given the architecture of cable networks, my choice to watch ESPN has no affect on my neighbor watching ESPN or any other channel. But if we each choose to stream Web clips of that monster LeBron dunk, or any of the endless Web video offerings, we are now receiving individualized packets destined only for us. 

The choice and interactivity of the digital Internet are among its most powerful advances over the broadcast era. Cable companies have obviously moved a long way toward the digital interactivity of the Web, both with broadband Internet offerings and “on-demand” video services, enabled by their upgrade from analog to digital networks over the last 15 years.

Broadcast and switched networks each have advantages. For example, by far the most efficient way to deliver broadcast content is satellite. We can deliver several hundred channels of video to the entire continental U.S. with just three geostationary “birds” and inexpensive roof-top dishes. Switched networks allow for two-way interactivity and can economize on bandwidth. Among all our various telecom, cable, and media networks, we use both broadcast and switched, narrowcast, multicast, and a host of technologies and architectures to store and deliver content in the most effective way, depending on a number of factors, including the value and timeliness of the content, latency, jitter, interactivity, legacy architectures, and business models, etc. Verizon’s new FiOS network delivers TV video like a “broadcast” cable network, where AT&T’s Uverse network is switched, delivering individual streams to each home. Mobile phone networks that carry voice and now data are interactive switched networks, but new services like MediaFlo from Qualcomm broadcast content to every mobile user’s phone to be stored and played back upon their choosing.

Among this varied and highly dynamic range of technologies, which continue to advance at the torrid pace of Moore’s Law, the architectures, products, prices, and business plans continue to change. We need more experimentation with products, prices, and business plans, not less.

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