Not necessarily -- if a net-neutral infrastructure as a whole is profitable to operate, then it can be constructed and operated by profit-making businesses without subsidies. But in that case, you need regulation if you want to keep net neutrality -- which is what YC is asking the FCC for.
Merely being profitable is good enough if you're happy to maintain the status quo. If you want companies to invest billions of dollars of new capital to upgrade the infrastructure, you have to make that investment not just profitable, but an attractive one relative to other opportunities.
Simple question: Silicon Valley talks a lot about the problems with the telecom industry, but why does nobody want to actually invest money building telecom infrastructure? Google is the only one doing it, and they're only doing it on the condition of not abiding by any build-out requirements. See: https://news.ycombinator.com/item?id=7889163.
> Silicon Valley talks a lot about the problems with the telecom industry, but why does nobody want to actually invest money building telecom infrastructure?
The incumbent--descendants of local/regional/national monopoly telephone or cable--providers have little competitive pressure to do so, and other people face intrinsic (largely non-regulatory, except to the extent that real property rights are "regulatory", though there are some regulatory burdens as well) barriers to entering the market, which make it enormously expensive with very little chance of any positive return for most players.
But don't telcos face the same issue: enormous capital costs with limited prospects for attractive returns? E.g. FiOS is profitable, but the margins have been quite disappointing to shareholders. Indeed, observers have been skeptical about the value proposition of FiOS since the beginning: http://bits.blogs.nytimes.com/2008/08/19/a-bear-speaks-why-v.... Note that this article was written in 2008. As of 2014, Verizon is still below the 40% penetration rate assumed in the article: http://www.dslreports.com/shownews/Verizons-FiOS-Growth-Slow....
At the end of the day, the math has to work out. Everyone assumes, arguendo, that the value proposition of building out fiber is there, but if telcos continue to be required to offer universal service, and if they are forced to operate in a regulatory regime where they can't capture some of the money generated by services running on top of their infrastructure, it's not at all clear that the enormous investment into fiber is going to be justifiable for the shareholders of telecom companies.
Nobody's asking them to build this stuff out for free. I'm cutting a check north of $100 to Verizon every month, last I checked. And that IS them capturing some of the money generated by services running on their infrastructure.
If they're not getting enough money to continue building, first off, I find that hard to believe, second off, they should just charge more to consumers, either additional $/month or an additional fee per GB.
Orrrrrr we could have a crazy system where they manage 50,000 unpublicized relationships with different websites, charge them, pay the people to manage those relationships, and the websites charge more to consumers, hiding the pricing information about network connectivity in the process. That sounds way more 'free market', not to mention more efficient.
What's so anti-competitive and backward thinking about "I pay you $ for bytes, cough up the bytes"?
Please see the NYT article I linked. The per-subscriber capital investment into FiOS is almost $4,000, assuming that 40% of potential subscribers actually sign-up (Verizon is almost there, but still below that benchmark). Now, you're cutting a $100 check to Verizon every month, but how much of that goes to: advertising,[1] maintenance, paying for video content, etc? FiOS is about 70% of Verizon's wireline business, and Verizon's operating margin in that segment is about 22%, so let's assume the margin in FiOS alone is 25%. What's the value of a $25 payment discounted by 5% over 15 years? About $3,200.
As the author of the article above concluded, Verizon might not even come out ahead on each customer with FiOS.
[1] You can ask "why spend so much on advertising?" and the reason is that you want to maximize uptake, otherwise you spend a lot of money running fiber past houses that don't actually subscribe.
First off, most of the things you're taking out of the monthly were already factored into the fronted cost in the linked article. Second off, if Verizon does that shitty of a job of cost control compared to foreign government bureaucracies, maybe we should consider nationalizing them.
But back to my actual point -- It costs money to deliver the service? Charge more for the service if you can't deliver it profitably. That's fine, I even suggested that in my comment, charitably allowing for 2 different ways they can do it.
I'm going to pay anyways, whether it's a check to verizon or additional costs on my amazon streaming -- I'd rather pay up front for the service I'm consuming than f-up the marketplace with a bunch of submerged hidden transactions. That's why libertarians are on board with liberals on this, they believe in market transparency.
What's your objection to our actual point? Remember, raising the price for the service they deliver to their customers is ok, we're not arguing they should provide it at a loss. You'd rather the costs of the network were hidden in a bunch of backroom deals? You think that netflix paying comcast won't ultimately come out of consumer pockets anyways?
> First off, most of the things you're taking out of the monthly were already factored into the fronted cost in the linked article.
No they're not. They cover, e.g., marketing to get you to hook up in the first place, but not, e.g., marketing to keep you from switching to Comcast a year later. They account for the cost of hookup, but not, e.g., ongoing maintenance.
As to your other point, charging up front is not the same as charging services that operate on top. The former effectively creates a cross-subsidy: my parents who just want fast-loading web pages end up subsidizing Netflix junkies. Now you can charge per-GB, but Netflix really doesn't want to go in that direction. They're quite happy with this implicit cross-subsidy.
"Market transparency" is a red herring. You pay $10 per month to Netflix, because that's the value of that content to you. You don't care if some of that money goes to Verizon any more than you care that some of it goes to the studios that own the content. Indeed, the "backroom deals" ultimately have the effect of allowing Verizon to capture the costs from the people who derive the most value from the infrastructure, because the consumer value represented by one GB is not equal across services.
I must be doing a really bad job of writing, because you're not addressing the point I was trying to make at all.
I'm ok with paying $100 for internet access (well, not really, but still). If $100 cannot get me internet access at the advertised speeds, I'm ok with paying 120, or whatever additional cost per GB.
What I'm not ok with, is if $100 doesn't do it, Verizon goes out and shakes down the companies I do business with on the internet connection that I ostensibly paid for, who then raise their prices (gotta pay the bills) for reasons I don't understand. I'm still going to pay, there's no such thing as a free lunch. And not only does this obscure information about the real cost of my connection and the services I use (and that does matter), not only does it open the door to all kinds of anti-competitive practices around who gets the best deal with comcast/verizon, it's guaranteed to be less efficient than just upgrading the network and charging me for what it costs. Now I'm paying for all the hotel rooms and buffet spreads that went into that deal being struck? In addition to the cost of the fiber? Just build the fiber, and charge the customer (me) for it.
This is shared infrastructure. If it costs you $16,000 to build out to a neighborhood of 10 people, then you have to set the price at a point where you can amortize that cost over the maximum number of subscribers. The Netflix junkie may be willing to pay $130/month, but if he's the only one that signs up, your cost per subscriber explodes. Thus, if you're a provider, the amount of money you are willing to spend on telecom infrastructure is going to be dictated by how much that, say, 60th percentile customer is willing to pay, not how much the 90th percentile customer is willing to pay.
Now, you can ameliorate this somewhat based on per-GB charges, but people have an irrational hatred of that. The business deals on the backend are obscure, but at the end of the day, how much a customer spends on services on top of their internet connection is a decent proxy for how much utility they derive from that connection.
Why not just price it as $/month for X transfer, with $/GB above that rate? That'd be simple, transparent, no damage to the market structure of internet businesses, no future anti-trust cases, and we're straight-up paying for the infrastructure that we, as consumers, are using.
Is your case that more money would go to network improvements with the backroom deal routine? Have you considered that the backroom deal routine allows a lot more room for pocketing money and not really investing in the network?
I'm about as ok with paying $100 for internet as I am with paying $4/gallon for gas during the summer. Read: not very.
But that's what it costs. Make it clear to the consumer what things cost and they'll either curtail their usage or cough up the money. Maybe they should have a charge per GB of transfer over some monthly limit. I don't know. But obscuring it through a bunch of additional business deals on the back-end isn't going to make those costs go away, it's just a way to hide them and delay the day when ISPs compete with each other on actual cost per GB delivered.
> "Market transparency" is a red herring. You pay $10 per month to Netflix, because that's the value of that content to you. You don't care if some of that money goes to Verizon any more than you care that some of it goes to the studios that own the content.
If he's on $OTHER_ISP, I'm sure he's not thrilled that some of that money is going to Comcast and Verizon.
"If they're not getting enough money to continue building, first off, I find that hard to believe"
Entirely possible that they are getting enough money to continue but they want to take a break to inhale some excess profits not hindered by more expansion. Get something in the bank. (Kind of opposite of what Amazon is doing I guess.)
