08:42 06.05.2006 | All news from "Tech News and Articles"
The two-tiered Internet and the price of oil
From the transcendental thought dept...
I drive a compact car. I always have. When I was in highschool, gasoline cost me 84 cents a gallon. When I started driving a compact car, it cost me a mere 8 bucks to fill upthe tank with gas. I know that some of my peers in this industry, who are more, ahem, *seasoned*, can recall a timewhen gas was even cheaper. My grandpa Hershel ran a service station in rural Ohio where I know he sold gas for aslittle as a quarter a gallon.
The basic precept of supply and demand in a free economy is an axiom. Itstates that if supply meets demand, the price for a given commodity will remain stable. It states that if the supply ofthe commodity increases relative to the deman, the price of that commodity drops, and if the demand for that commodityincreases relative to the supply--well, then the price goes up.
The basic problem with gasoline--and withnetwork bandwidth--is that the supply of the commodity is in the hands of a select group of people who controlproduction. By slowing the production and delivery of commodities like oil and bandwidth, the price is forced upward.In the case of oil, the cartel which controls the lion's share of global oil production is OPEC, a group ofoil-producing nations which are run mostly by dictators. Iran is one such member, and it is run by a known anti-semiteand radical anti-American. Another member is Venezuela, whose communist dictor Hugo Chavez (who owns a controllingintrerest in Citgo) also holds down a seat in the cartel.
The parallels to the bandwidth market are veryclear. In the case of global Internet bandwidth, whose corporate roots are here in the United States, the cartel whichcontrols bandwidth "production" are the telecommunications and television delivery companies, folks likeAT&T, Comcast, Cablevision, Adelphia, and Verizon. All very powerful organizations with controlling interests inthe domination of core Internet bandwidth as well as last-mile delivery of digital services.
And thereexists among this group of companies, at the boardroom level, a desire to see the Internet more or less divided intotwo classes of service--one for "fast" applications like paid television programming (controlled by the Bellsof course) and another for "slow" applications like the public Web and marginal services offered by competingcompanies like Vonage and Lingo. By placing these competitors in the "slow lane", as some telecom executiveshave suggested, they incent them to pay bigger bucks for premium bandwidth, thus driving up the cost of the bandwidthto everybody but its producers--the big players like AT&T and Verizon.
Here's where the parallels getreally ugly: the producers of both commodities--global bandwidth and oil--have discovered a way in which to drive upthe price of a something that is essentially in unlimited supply, negating the precept of supply and demand. The earthisn't running out of oil, and it will never run out of global Internet bandwidth. If I, as a regional Bell, can createartificial value in my commodity by charging more for bigger chunks of it at a time (that's the Internet "fastlane") I can force the price of competing with me up.
This is exactly what has happened with OPEC. Theoil producers ramp down production, forcing the global markets to bid higher on oil, giving rise to an increase inprices across all oil producers' sales channels, even if they aren't OPEC members. Why? Because those guys can get morefor the same thing. Remember, you only have to be a penny cheaper than your competition to sell a commoditysuccessfully. If the Bells ramp down production of quality bandwidth, the cost of competing with them will skyrocket,content producers will pay more for bandwidth, the cost of content will increase, and the consumer will pay more forsomething that is, underneath all the bureaucratic cover, still basically a commodity in unlimited supply.
It's all about who controls that commodity. How much did you spend for gasoline today? Are you willing toundergo a similar increase in the cost of bandwidth?
http://voip.weblogsinc.com/
I drive a compact car. I always have. When I was in highschool, gasoline cost me 84 cents a gallon. When I started driving a compact car, it cost me a mere 8 bucks to fill upthe tank with gas. I know that some of my peers in this industry, who are more, ahem, *seasoned*, can recall a timewhen gas was even cheaper. My grandpa Hershel ran a service station in rural Ohio where I know he sold gas for aslittle as a quarter a gallon.
The basic precept of supply and demand in a free economy is an axiom. Itstates that if supply meets demand, the price for a given commodity will remain stable. It states that if the supply ofthe commodity increases relative to the deman, the price of that commodity drops, and if the demand for that commodityincreases relative to the supply--well, then the price goes up.
The basic problem with gasoline--and withnetwork bandwidth--is that the supply of the commodity is in the hands of a select group of people who controlproduction. By slowing the production and delivery of commodities like oil and bandwidth, the price is forced upward.In the case of oil, the cartel which controls the lion's share of global oil production is OPEC, a group ofoil-producing nations which are run mostly by dictators. Iran is one such member, and it is run by a known anti-semiteand radical anti-American. Another member is Venezuela, whose communist dictor Hugo Chavez (who owns a controllingintrerest in Citgo) also holds down a seat in the cartel.
The parallels to the bandwidth market are veryclear. In the case of global Internet bandwidth, whose corporate roots are here in the United States, the cartel whichcontrols bandwidth "production" are the telecommunications and television delivery companies, folks likeAT&T, Comcast, Cablevision, Adelphia, and Verizon. All very powerful organizations with controlling interests inthe domination of core Internet bandwidth as well as last-mile delivery of digital services.
And thereexists among this group of companies, at the boardroom level, a desire to see the Internet more or less divided intotwo classes of service--one for "fast" applications like paid television programming (controlled by the Bellsof course) and another for "slow" applications like the public Web and marginal services offered by competingcompanies like Vonage and Lingo. By placing these competitors in the "slow lane", as some telecom executiveshave suggested, they incent them to pay bigger bucks for premium bandwidth, thus driving up the cost of the bandwidthto everybody but its producers--the big players like AT&T and Verizon.
Here's where the parallels getreally ugly: the producers of both commodities--global bandwidth and oil--have discovered a way in which to drive upthe price of a something that is essentially in unlimited supply, negating the precept of supply and demand. The earthisn't running out of oil, and it will never run out of global Internet bandwidth. If I, as a regional Bell, can createartificial value in my commodity by charging more for bigger chunks of it at a time (that's the Internet "fastlane") I can force the price of competing with me up.
This is exactly what has happened with OPEC. Theoil producers ramp down production, forcing the global markets to bid higher on oil, giving rise to an increase inprices across all oil producers' sales channels, even if they aren't OPEC members. Why? Because those guys can get morefor the same thing. Remember, you only have to be a penny cheaper than your competition to sell a commoditysuccessfully. If the Bells ramp down production of quality bandwidth, the cost of competing with them will skyrocket,content producers will pay more for bandwidth, the cost of content will increase, and the consumer will pay more forsomething that is, underneath all the bureaucratic cover, still basically a commodity in unlimited supply.
It's all about who controls that commodity. How much did you spend for gasoline today? Are you willing toundergo a similar increase in the cost of bandwidth?
http://voip.weblogsinc.com/