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It would be great if there was a major telco that was excited about being dumb pipe and just crushing the others. That seems to be what Google Fiber is an atte

It would be great if there was a major telco that was excited about being dumb pipe and just crushing the others. That seems to be what Google Fiber is an attempt at creating but the capital required is so great that only a hundred year old company like Verizon or AT&T is really in a position to execute on that well.

Someone1234 10y ago
Not to mention that existing companies get tons of "free money." Every time the government talks about rolling out broadband to poorer neighborhoods they just shove more cash at AT&T/Verizon/CenturyLink/etc, who are then meant to run the wires and profit off of the new customers. This is likely partly the result of strong lobbying at both state and national levels. But regardless of the reason, all this money could have been used for "dumb pipes" which are non-profit, or only profit enough to expand further. That's what bugs me, not that the government uses money for broadband expansion, but that they just give it to for-profit companies to use as they please, and to make a profit.
- deleted 10y ago
  [deleted]
distances 10y ago
Hope for mandatory and price controlled telco line sharing. I don't really see other way realistically achieving this.
zeveb 10y ago
I think the problem is that the return on investment isn't there: one ends up laying out a tremendous amount of capital, but not making much profit in return. That's not a fun game to be in. You gotta be subsidised by something else (ads in the case of Google, violence in the case of municipal broadband).
- Retric 10y ago
  Leverage can boost returns, with current interest rates Broadband is risky but very profitable.
  - rayiner 10y ago
    > Broadband is risky but very profitable. All the reliable data I have seen shows the opposite.
    - Retric 10y ago
      The numbers I have seen look like this: Return on invested capital is ~7-12% across successful internet companies. Borrowing costs are in the range of 3.5-4%. That's an invitation to print money which some small company's are doing though masked by growth. Note, returns very a lot by company the industry average is ~6%, but that includes a lot of poorly run lemons. Also, there was a huge bubble that put in a lot of dark fiber, but that glut has passed. PS: Yes, those returns look low compared to say MS. But, software company's have larger issues borrowing money at very low rates.
      - rayiner 10y ago
        The top number is more like 6-7%: http://www.techpolicydaily.com/internet/whos-making-money-internet-comparing-roic-across-internet-sectors http://www.techpolicydaily.com/internet/whos-making-money-in.... That's including wireless. Weighted average cost of capital for VZN is about 5%; for companies like Frontier is about 6%. The Chattanooga network is illustrative: http://www.nyls.edu/advanced-communications-law-and-policy-institute/wp-content/uploads/sites/169/2013/08/ACLP-Chattanooga-Case-Study-updated-October-2015.pdf http://www.nyls.edu/advanced-communications-law-and-policy-i.... Revenues are about $100 million, with operating expenses being $85 million. That's about $15 million profit, on about $400 million invested, or under 4% ROIC. The system was funded with bonds issued at 4.5%, meaning it would never break even without being subsidized by electric ratepayers.
        10y ago
mosburger 10y ago
I worked in mobile telecom in the 2000s when MVNOs (Mobile Virtual Network Operators - basically resellers) were the next big thing. Companies like Amp'd or Boost or Virgin Mobile would resell another carrier's network with their own branding and personality. One of the reasons there was a disappointing uptake in MVNOs were that the carriers were stubbornly refusing to become wholesale dumb pipes. The only one that seemed consistently cool with it (perhaps out of desperation) was Sprint, which is why most MVNOs that you've heard of use Sprint's network. So if any of the carriers took this route of differentiation, it seems like they would be the one.
- stanleydrew 10y ago
  Having worked closely with Sprint while building our MVNO at Charge (https://charge.co https://charge.co) I can tell you that there are enough systemic issues within their billing and activation systems that they won't be able to become a dumb pipe, even if they wanted to. At this point I'd bet on a GSM carrier like T-Mobile to get there first.
  - shanacarp 10y ago
    what are said systemic issues? I'm actually curious
    - stanleydrew 10y ago
      If you're in SF and buy me a beer I'll tell you all about it.
  - mosburger 10y ago
    I actually designed and built a decent chunk of Amp'd Mobile's backend integration with Verizon Wireless. I'd be pretty shocked if anyone were more difficult to integrate with.
roymurdock 10y ago
The author's entire argument is that you cannot possibly be excited about being purely a "dumb pipe" company that just sells commodity internet/telecom access (unless you are a government-granted monopoly - then you are no longer a commodity and you have pricing power!). Google is so successful at the OTT/services level that it could easily build out the fiber infrastructure underneath its internet empire if it wanted to. But it doesn't want to because there's no profit in that! And it's a messy, government-regulation-filled industry that is becoming less and less profitable YoY. It boils down to: Dumb pipes are a cost center. OTT/services are a revenues center. Why build your own roads when you can use others? As long as the government keeps those roads in good repair. And Google has a lot of friends in Washington D.C. ;)
- PaulHoule 10y ago
  I disagree. Verizon makes $10 a gigabyte from mobile data. Multiple news articles lately have pointed out that Verizon makes orders of magnitude more money from running "dumb pipes" than does EVERYBODY else in the mobile advertising ecosystem put together, including the content companies. In fact, if Verizon rebated 5% or so of the data charges back to mobile web sites, mobile web sites would have a much more lucrative business than they have with advertising today. (And if Verizon did that, they'd have the media in their pocket, just as Google does today -- between the ad revenue Google brings in and the fact they can make your traffic go away, even the New York Times is afraid to confront Google) The mobile phone and internet business is also highly profitable. If you believe the advertising you see you might think it is competitive, but it is not. Just try using satellite internet and paying the high cost per GB. Google does not want to get into VZ's business because it is a capital intensive business. The great thing about Google, Facebook and such is that they have tiny workforces and a small amount of hardware -- if you can get your users to make content for free you don't have to pay writers, actors, directors, makeup artists, etc. Telecoms buy spectrum in auctions for the same reason why Google hires so many engineers -- to keep them away from competitors. Wireless as it is is the perfect rent-seeking industry as it has government barriers to entry. Overbuilding any kind of wired internet infrastructure is a brutal business today because of the latent competition; where I live Frontier charges $95 a month for something that makes cable look like the Jetsons. They are paying huge dividends to the stockholders because they can do that with 0 investment. They could afford to offer the same for $45 or less a month and they would if you brought in anything better. The other issue is that companies do not enter into mergers rationally. Time and time again you see that mergers destroy value.
sliverstorm 10y ago
Has any entrepreneur or business ever been excited about becoming a commodity? It's a vicious market type with razor thin profit margins, high risk, and short lived success. See airlines and DRAM manufacturing. As consumers we like it, but I don't think there's anything redeeming about it from the business's point of view. Heck, step #1 in the business playbook is "differentiate".
- vinceguidry 10y ago
  Market players in real commodity markets have a raft of financial instruments that squeeze out the risk. It's probably one of the least risky ways to make money there is. The telcos already have the commodity aspect of their business handled. AT&T and Verizon aren't going anywhere. They just want to line their pockets. Demand is fixed in a commodity market. The world only needs so much wheat and there's not much you can do to make it need more. So you sell your wheat in a fancy new package. That's essentially what a cable network is. The label on your can of green beans.
  - eru 10y ago
    > The world only needs so much wheat and there's not much you can do to make it need more. People can eat wheat or meat. You can make meat from wheat. Lots of poor people are happy to eat more meat (or any meat at all), if the price comes down. Demand for wheat is elastic.
    - vinceguidry 10y ago
      > Lots of poor people are happy to eat more meat (or any meat at all), if the price comes down. Sure, but what makes the price come down? Industrial production is absolutely aimed at ensuring a solid, steady supply. Sharp fluctuations are rare, and are usually due to political upheaval. Prices might spike, but they rarely drop dramatically, because technological advances that lead to increased supply are usually already priced into the market. It's like that with any commodity market. There are so many people's lives and pocketbooks relying on stability in production and pricing that checks are built right into the market at every level, from production to end-consumer purchasing. Speculators lose their shirts in commodity markets because they aren't established players, they're gamblers. That gives the segment the illusion of being way more volatility than there really is. Everybody else is insulated very well from random shocks.
DigitalJack 10y ago
What google is doing is reducing the cost of a complementary good (quality high speed internet access) to their products. I'm lucky and have solid internet access even if it's not the fasted. It's very reliable and low latency. But I'd still love some google fiber. However, I don't think it's fair to attribute altruism or happiness to be a dumb pipe to google.
- alberth 10y ago
  Re: "reducing the cost of complementary good" Ding ding ding! Joel Spoksky wrote s great article on exactly this 14 years ago. http://www.joelonsoftware.com/articles/StrategyLetterV.html http://www.joelonsoftware.com/articles/StrategyLetterV.html
cortesoft 10y ago
I think Google Fiber is a good demonstration of why no company is excited about being a dumb pipe; Google is NOT trying to become a nationwide fiber network, and their strategy with GF makes that clear. They are only doing it in a few cities, and their real goal is to pressure the existing providers to improve their offerings. They WANT everyone to have fast and reliable internet so they can utilize Google services, but they know they can't make money by being an ISP.
- neolefty 10y ago
  And on the mobile front, consider Google's Project Fi: bundling Sprint, T-Mobile, US Cellular to sell voice and data for $20 per month + $10 per GB. Similar mission to Google Fiber?
  - ihsw 10y ago
    I think that's similar to Google Ride Finder[1][2] -- probably a blockbuster but ahead of its time by a decade. [1] https://en.wikipedia.org/wiki/Google_Maps#Google_Ride_Finder https://en.wikipedia.org/wiki/Google_Maps#Google_Ride_Finder [2] https://googleblog.blogspot.ca/2005/03/need-ride.html https://googleblog.blogspot.ca/2005/03/need-ride.html
    - alexburton 10y ago
      Are you using blockbuster in its' original sense (e.g. home run) or in reference to the video rental store that failed?
      - ihsw 10y ago
        A home-run. Honestly I think Project Fi is amazing and it's the perfect counter to the issues mentioned in the article -- value-added bundling -- because it puts Google between you and your mobile internet provider.
      - MaysonL 10y ago
        Original sense was a bomb big enough to blow up a city block. See http://www.wordorigins.org/index.php/more/173/ http://www.wordorigins.org/index.php/more/173/
forrestthewoods 10y ago
Meh. Nevermind.
- sgt101 10y ago
  It takes 4-6 years to break even after what part of the investment? A USA size national network will take +20 years to implement - to say 95%, more like 30 years for 100% When does the money start rolling in (7 years for 50%, 10 years for 75%, 15 years for 90% - numbers just for fun, but you get my point). All the sum's I've ever seen (or done) end with 20 year+ paybacks, followed by lots and lots of money. This breeds real shareholder fear - everyone who ever built this kind of network (rail, phones...) was either the government or went bust and then watched someone else (banks) cash in on the distressed asset at 0 risk. So - agree, the red tape is a big issue. But while modern organisations and investment structures can do 50 years of work for you, the capital is an issue. It can, and will, be done, but it will be quite some doing.
  - deleted 10y ago
    [deleted]
- oldmanjay 10y ago
  Why limit yourself to spending 140 billion of other people's money? Go a little nuts, spend it all. You won't know the difference!
rayiner 10y ago
> That seems to be what Google Fiber is an attempt at creating but the capital required is so great that only a hundred year old company like Verizon or AT&T is really in a position to execute on that well. If Google wanted to become AT&T or Verizon, nothing is stopping it. It has the capital, and even on the regulatory lobbying front--Google is winning. While Verizon is getting pilloried for not meeting buildout requirements in New York, Google won't even agree to buildout requirements in Fiber cities. But Google doesn't want to build dumb pipes either: http://www.techpolicydaily.com/internet/whos-making-money-internet-comparing-roic-across-internet-sectors http://www.techpolicydaily.com/internet/whos-making-money-in....
erikpukinskis 10y ago
T-mobile offers data-only plans starting at $20/month. I pay cash, and generally only make calls over Wi-fi. But it's nice to be able to receive text messages and access Google Maps etc while on the go.
Animats 10y ago
There is - Sonic. Sonic is a dumb pipe company. No middle boxes, just bits. Sonic fiber is deployed in Santa Rosa and is slowly moving into San Francisco, but their management doesn't want to go into heavy debt, so it's slow. You can also get Sonic in many areas of California, but it's over leased AT&T lines. The CEO of Sonic says that being a fiber provider is profitable without any additional services, and that their wholesale cost for upstream bandwidth keeps dropping.
- jcoffland 10y ago
  Sonic is awesome. They have excellent customer support and actually care about and actively protect your privacy. http://www.dailydot.com/layer8/sonic-isp-privacy/ http://www.dailydot.com/layer8/sonic-isp-privacy/
- tw04 10y ago
  *until Comcast is allowed to acquire Level3. When you can't buy backbone traffic from anyone but competitors, you'll see just how hard monopolies can punish smaller competitors. I expect Cogent will be the next company to be acquired by one of the last-mile providers after Level3.
- equalarrow 10y ago
  I have Sonic FTTN 50Mbps service. I've used Sonic over the years and have always enjoyed their service and their mission as a business. I've lapsed a few times because their DSL in some places in SF is just crap, but that's because of AT&T and distance to the closest CO. Where I'm at now (prob less than a mile from their fiber service, sigh..), when we first moved in, we got Comcast. Of course, the Comcast service was all over the place. Some days 1Mb, some 100Mb (which I never signed up for, but just received), some 45Mb (what I signed up for). As usual, I had man techs come out to try to fix things and of course, none did and all of them had a different excuse as to why things didn't work. So many support people promised me good service but I never got it. Fed up, I saw I could get Sonic FTTN and it's been rock solid for over a year. It's never gone down and just works - as I would expect. It's too bad we don't have more ISPs like them because if we did, access would be a totally different experience.
throwanem 10y ago
> It would be great if there was a major telco that was excited about being dumb pipe and just crushing the others. The return of Ma Bell?
- breischl 10y ago
  Not really. Ma Bell used to own everything connected to the phone system, right down to the phone on your wall. They actually tried to keep early modems off their system, IIRC with some success. The modern version of Ma Bell would be if Verizon owned or licensed every iPhone, computer, and server connected to their network.
- 1_2__3 10y ago
  I think you mean"The exact opposite of Ma Bell."
rsync 10y ago
While there is no such thing, what immediately comes to mind is Hurricane Electric (he.net). They're a big, big network and getting bigger all the time and they run their business just like I like to run mine: provide simple, boring services that just work.[1] They are the best dumb pipes around. [1] rsync.net uses he.net in Fremont, Denver and Hong Kong and Oh By (0x.co) uses he.net in Fremont.
- rashkov 10y ago
  Off topic, but rsync.net won't let me scroll down without jumping me to the top of the page on iOS Safari
sharpercoder 10y ago
In Europe, there is Tele2 doing exactly this. For instance, in The Netherlands, there was a Triopoly of Vodafone, KPN and T-Mobile. It started as a MVO (Mobile Virtual Operator) but later obtained a 4G license and is now building out it's national 4G network. Subscribers are now moved to 4G netowkr as much as possible. Tele2 advertises to business users as a "flat data pipe". To consumers, it profiles itself as a cheap provider offering a lot more data in it's packages. It slowly looks like it started a data-war among the providers. The past year, there has been a lot of movement in the dat package offerings, while in the era of 2005-2015 about the only movement was "Unmetered access for €10" to data-packages. I'm very curious to see Dutch subscriber numbers over the first half of 2016. I expect them to go up slowly but steadily.
samfisher83 10y ago
The two Big Telco (ATT, Verizon) companies are essentially the original ATT. The Telco companies are essentially monopolies and duopolies (Comcast, Time Warner, etc.). They have no incentive to compete. It doesn't make any economic sense to become dump pipes because they have no competition. 100 years from now which company is likely to be there Verizon, ATT, or Google? I would bet on ATT and Verizon since just building out a network going through all the legislation etc. would take 20-30 years to built out. Google doesn't have much competition right now, but with Tech incumbents get taken out pretty quickly.
- Cshelton 10y ago
  I don't have a lot of time, but I'll say this. The future of Telco is not in the ground, but through the air. This is the entire reason Google Fiber acquired WebPass. It is relatively simple to transmit extremely high connection speeds through radio waves. I have a receiver on the top of my house that is a point to point signal, pumping 1 gig +, and soon to be much higher, speeds. Google's strategy to expand GF will not longer include a massive ground infrastructure move, but use point to point to get to the neighborhoods. An entire zip code can be offered GF services at a fraction of the cost and a few months, as opposed to the old way...TOS of capital and years. It will happen fast, and I imagine the giant Telcoms will have to follow suite to keep up.
  - samfisher83 10y ago
    Radio waves are shared with everyone. High frequency waves don't travel that far. That is physics. There is only so much bandwidth available in the Air. You can high frequency point to point communication, but you might have interference when some one blocks points. Fiber and copper are much better for signal transmission. They just transmit and receive much better than air.
    - DanielDent 10y ago
      60ghz, 80ghz, and higher frequencies (i.e. free space optics operating at or near the visible light spectrum) change the story considerably. As frequency goes up and wavelengths get pencil thin, issues like "do I have clear line of sight" and "is there fog today" are more of a challenge than interference from others using the same frequencies/wavelengths. There's plenty of bandwidth available in RF, but every option has it's tradeoffs. There's a limited amount of spectrum available at frequencies with convenient propagation properties for certain use cases.
DannyB2 10y ago
Very much like what I was going to say. Hey Verizon! Try being the bestest dumb pipe that anyone ever saw! Best value for the price. Best service. See what happens. It seems like a lot of successful business have been built that way instead of trying to be the most hated companies.
Spooky23 10y ago
I think that "dumb pipe" is the right answer, with regional monopolies for certain classes of service or public/private partnerships. We achieve a lot of advancement with the death of AT&T, but the modern regulatory regime allowed for the rebirth of something that looks a lot like the old AT&T. The issue with this sort of infrastructure is that it is very capital intensive to build and maintain, and require that the companies invest in real estate rights (telephone poles, utility trenches) that are powerful bargaining chips.
jalami 10y ago
Fiber will be a dumb pipe company until it serves Alphabet's interests that it not be. Right now market adoption and growth is more important than trying to capitalize on their users in creative ways. Look at Chrome for example, adoption was the name of the game for years and then suddenly your browser now has an, arguably opt-in, superpower where it can send analytics back itself on sites you visit. It's not crazy to think that could happen to fiber sometime down the line. I feel the municipal internet infrastructure should be publicly owned, like streets, but service on those pipes is carried by competing companies. These turf wars are getting old.
- walterbell 10y ago
  It's already happened: look at Alphabet's LinkNYC fiber-to-wifi advertising-supported IoT kiosks in NYC, where terms of service permit analytics of data and pedestrian traffic.
  - JakeAl 10y ago
    You mean these kiosks? 10K Google Wi-Fi kiosks are collecting millions of faces and MAC addresses http://massprivatei.blogspot.com/2016/07/10k-google-wi-fi-kiosks-are-collecting.html http://massprivatei.blogspot.com/2016/07/10k-google-wi-fi-ki...
bogomipz 10y ago
It need not be a major telco though. This awesome dumb pipe could and should come from municipal internet services. Chatanooga, TN was able to provide affordable gigabit internet to it citizens and make a small profit. In Los Angeles the Department of Water and Power has an extensive network - LADWP Fiber and L.A has floated the idea. The reason it doesn't succeed? Because AT&T and Verizon will sue and and get an injunction against it because they would be put at an unfair disadvantage they say. It's criminal but it's true: http://arstechnica.com/tech-policy/2016/03/tennessee-kills-muni-broadband-expansion-bill-after-att-opposition/ http://arstechnica.com/tech-policy/2016/03/tennessee-kills-m... https://www.fcc.gov/document/fcc-releases-order-preempting-tn-nc-municipal-broadband-restrictions https://www.fcc.gov/document/fcc-releases-order-preempting-t... Those duopolies business models are contingent upon have access to public right-aways. The resources are owned by the general public/tax payers in the municipalities the operate in. There is technical reason we can't have near universal and affordable dumb pipes, just political. I personally see this as going to be a success for either Verizon or its share holders, quite the opposite. It will be paid for by end users in the form of increased fees.
- rayiner 10y ago
  Chatanooga makes a small operating profit, but not enough to pay the interest on the bonds used to build the network: http://www.nyls.edu/advanced-communications-law-and-policy-institute/wp-content/uploads/sites/169/2013/08/ACLP-Chattanooga-Case-Study-updated-October-2015.pdf http://www.nyls.edu/advanced-communications-law-and-policy-i.... The system is only possible because the EPB is using its electricity monopoly to subsidize internet.
  - bogomipz 10y ago
    "Notwithstanding questions about its accounting practices and the extent to which the utility might be leveraging its monopoly electric service to support its telecom division, EPB continues to report relatively strong financial health of its fiber system. In 2014, the GON increased its revenues from $80.7 million to $99.9 million.53 Revenue from Internet access sales in particular saw a net increase of about $17 million,54 much of which was due to residential customer growth.55 Overall, residential services accounted for two-thirds of EPB Fiber’s revenues in 2014.56 Expenses and transfers to the city of Chattanooga totaled $84.7 million.57" This sounds OK to me, what am I missing? Why is it important that their electricity monopoly subsidized anything? How is that any different than any other new enterprise that has gotten funding from a VC? You don't hear anybody criticize that some star up is only possible because they got money from an investor. How is the source of funding relevant?
snowwrestler 10y ago
Another option here is municipal fiber. The city or county installs the lines, then offers "dumb pipe" service or leases access to an ISP to offer consumer services. Roads, potable water, sewers, and electricity are offered to many communities through a managed monopoly structure, and are generally affordable. Why not bandwidth? I have been worried about line-owning ISPs trying to become content providers, because it was obvious that they would try to find ways to privilege their content over non-wire companies like Netflix, Google, Apple, Hulu, Amazon, etc. But with the net neutrality ruling, it might actually be a good thing. If Verizon doesn't want to be a dumb pipe, then the logical extension is: why own pipes at all?? I could see companies like Comcast or Verizon eventually leasing access on dumb cheap fiber like muni or Google, as a cost-saving measure vs. maintaining their own infrastructure. Comcast already outsources most of their installation and network maintenance to contractors.
- amazon_not 10y ago
  Comcast and Verizon aren't into using other people's infrastructure. They want to own the customer by owning the infrastructure to the customer. Comcast won't even take government subsidies to build out to unserved areas.
  - MaysonL 10y ago
    And they are spending big lobbying dollars on state legislatures to try to get them (sometimes successfully) to outlaw municipal broadban.
colordrops 10y ago
Maybe Google Fiber is attempting to be a dumb pipe in a tactical play, but their overall strategy trends in the opposite direction. For instance Google's Project Fi is anything but dumb when it comes to your mobile data, needing more access to your data than a normal phone setup.
supernintendo 10y ago
Not a telco company, but municipal Internet as is implemented in Chattanooga, TN [1] might be a model to consider. [1] http://money.cnn.com/2014/05/20/technology/innovation/chattanooga-internet/ http://money.cnn.com/2014/05/20/technology/innovation/chatta...
shanacarp 10y ago
Google is doing the reverse. They want to create the best dumb pipe because they create the least dumb products, and are horrified by the way their customers experience them. Outside of that, I think google cares less
ISL 10y ago
Ting (a cellular MVNO) is doing that successfully (so far). As a customer and an investor, I'm a fan.
- HelloImDumb 10y ago
  I subscribe to Ting and I'm happy with it. But, while very good, it's far from unique. I came in from another Sprint MVNO that was very good but slipping in value proposition. An MVNO is almost by nature a precarious thing. Major telecom? It's a subsidiary of Tucows, which will to me be forever be linked to '90s shareware downloads, its listing is basically an accident of the dotcom bubble, and it has a market cap of < $300 million. I'm guessing their domain name line easily rivals Ting in value. Healthy in its niche, but no major force. By comparison, Frontier, a smaller RBOC, is worth $5.6B, frigging T-Mobile is worth $9.5B.
  - rayiner 10y ago
    Sprint is losing $2 billion a year. No Sprint MVNO is sustainable.
dade_ 10y ago
Yeah, Zayo. Big dumb pipes ordered with a smart API. I worked for a company that was bought by them, not the type of work I am interested in, but they get the future. I suppose the electric companies were horrified by their future as a utility a hundred years ago, but I think it is just the ego of executives. There is no shame in being a utility, it is critical , albeit unexciting infrastructure.
collyw 10y ago
Its like companies using Windows or Andorid plus installing their own "added value" software, which usually does anything but add value.

Someone1234 10y ago

Not to mention that existing companies get tons of "free money." Every time the government talks about rolling out broadband to poorer neighborhoods they just shove more cash at AT&T/Verizon/CenturyLink/etc, who are then meant to run the wires and profit off of the new customers. This is likely partly the result of strong lobbying at both state and national levels. But regardless of the reason, all this money could have been used for "dumb pipes" which are non-profit, or only profit enough to expand further. That's what bugs me, not that the government uses money for broadband expansion, but that they just give it to for-profit companies to use as they please, and to make a profit.

deleted 10y ago
[deleted]

distances 10y ago

Hope for mandatory and price controlled telco line sharing. I don't really see other way realistically achieving this.

zeveb 10y ago

I think the problem is that the return on investment isn't there: one ends up laying out a tremendous amount of capital, but not making much profit in return. That's not a fun game to be in. You gotta be subsidised by something else (ads in the case of Google, violence in the case of municipal broadband).

Retric 10y ago
Leverage can boost returns, with current interest rates Broadband is risky but very profitable.
- rayiner 10y ago
  > Broadband is risky but very profitable. All the reliable data I have seen shows the opposite.
  - Retric 10y ago
    The numbers I have seen look like this: Return on invested capital is ~7-12% across successful internet companies. Borrowing costs are in the range of 3.5-4%. That's an invitation to print money which some small company's are doing though masked by growth. Note, returns very a lot by company the industry average is ~6%, but that includes a lot of poorly run lemons. Also, there was a huge bubble that put in a lot of dark fiber, but that glut has passed. PS: Yes, those returns look low compared to say MS. But, software company's have larger issues borrowing money at very low rates.
    - rayiner 10y ago
      The top number is more like 6-7%: http://www.techpolicydaily.com/internet/whos-making-money-internet-comparing-roic-across-internet-sectors http://www.techpolicydaily.com/internet/whos-making-money-in.... That's including wireless. Weighted average cost of capital for VZN is about 5%; for companies like Frontier is about 6%. The Chattanooga network is illustrative: http://www.nyls.edu/advanced-communications-law-and-policy-institute/wp-content/uploads/sites/169/2013/08/ACLP-Chattanooga-Case-Study-updated-October-2015.pdf http://www.nyls.edu/advanced-communications-law-and-policy-i.... Revenues are about $100 million, with operating expenses being $85 million. That's about $15 million profit, on about $400 million invested, or under 4% ROIC. The system was funded with bonds issued at 4.5%, meaning it would never break even without being subsidized by electric ratepayers.
      - 10y ago

mosburger 10y ago

I worked in mobile telecom in the 2000s when MVNOs (Mobile Virtual Network Operators - basically resellers) were the next big thing. Companies like Amp'd or Boost or Virgin Mobile would resell another carrier's network with their own branding and personality. One of the reasons there was a disappointing uptake in MVNOs were that the carriers were stubbornly refusing to become wholesale dumb pipes. The only one that seemed consistently cool with it (perhaps out of desperation) was Sprint, which is why most MVNOs that you've heard of use Sprint's network. So if any of the carriers took this route of differentiation, it seems like they would be the one.

stanleydrew 10y ago
Having worked closely with Sprint while building our MVNO at Charge (https://charge.co https://charge.co) I can tell you that there are enough systemic issues within their billing and activation systems that they won't be able to become a dumb pipe, even if they wanted to. At this point I'd bet on a GSM carrier like T-Mobile to get there first.
- shanacarp 10y ago
  what are said systemic issues? I'm actually curious
  - stanleydrew 10y ago
    If you're in SF and buy me a beer I'll tell you all about it.
- mosburger 10y ago
  I actually designed and built a decent chunk of Amp'd Mobile's backend integration with Verizon Wireless. I'd be pretty shocked if anyone were more difficult to integrate with.

roymurdock 10y ago

The author's entire argument is that you cannot possibly be excited about being purely a "dumb pipe" company that just sells commodity internet/telecom access (unless you are a government-granted monopoly - then you are no longer a commodity and you have pricing power!). Google is so successful at the OTT/services level that it could easily build out the fiber infrastructure underneath its internet empire if it wanted to. But it doesn't want to because there's no profit in that! And it's a messy, government-regulation-filled industry that is becoming less and less profitable YoY. It boils down to: Dumb pipes are a cost center. OTT/services are a revenues center. Why build your own roads when you can use others? As long as the government keeps those roads in good repair. And Google has a lot of friends in Washington D.C. ;)

PaulHoule 10y ago
I disagree. Verizon makes $10 a gigabyte from mobile data. Multiple news articles lately have pointed out that Verizon makes orders of magnitude more money from running "dumb pipes" than does EVERYBODY else in the mobile advertising ecosystem put together, including the content companies. In fact, if Verizon rebated 5% or so of the data charges back to mobile web sites, mobile web sites would have a much more lucrative business than they have with advertising today. (And if Verizon did that, they'd have the media in their pocket, just as Google does today -- between the ad revenue Google brings in and the fact they can make your traffic go away, even the New York Times is afraid to confront Google) The mobile phone and internet business is also highly profitable. If you believe the advertising you see you might think it is competitive, but it is not. Just try using satellite internet and paying the high cost per GB. Google does not want to get into VZ's business because it is a capital intensive business. The great thing about Google, Facebook and such is that they have tiny workforces and a small amount of hardware -- if you can get your users to make content for free you don't have to pay writers, actors, directors, makeup artists, etc. Telecoms buy spectrum in auctions for the same reason why Google hires so many engineers -- to keep them away from competitors. Wireless as it is is the perfect rent-seeking industry as it has government barriers to entry. Overbuilding any kind of wired internet infrastructure is a brutal business today because of the latent competition; where I live Frontier charges $95 a month for something that makes cable look like the Jetsons. They are paying huge dividends to the stockholders because they can do that with 0 investment. They could afford to offer the same for $45 or less a month and they would if you brought in anything better. The other issue is that companies do not enter into mergers rationally. Time and time again you see that mergers destroy value.

sliverstorm 10y ago

Has any entrepreneur or business ever been excited about becoming a commodity? It's a vicious market type with razor thin profit margins, high risk, and short lived success. See airlines and DRAM manufacturing. As consumers we like it, but I don't think there's anything redeeming about it from the business's point of view. Heck, step #1 in the business playbook is "differentiate".

vinceguidry 10y ago
Market players in real commodity markets have a raft of financial instruments that squeeze out the risk. It's probably one of the least risky ways to make money there is. The telcos already have the commodity aspect of their business handled. AT&T and Verizon aren't going anywhere. They just want to line their pockets. Demand is fixed in a commodity market. The world only needs so much wheat and there's not much you can do to make it need more. So you sell your wheat in a fancy new package. That's essentially what a cable network is. The label on your can of green beans.
- eru 10y ago
  > The world only needs so much wheat and there's not much you can do to make it need more. People can eat wheat or meat. You can make meat from wheat. Lots of poor people are happy to eat more meat (or any meat at all), if the price comes down. Demand for wheat is elastic.
  - vinceguidry 10y ago
    > Lots of poor people are happy to eat more meat (or any meat at all), if the price comes down. Sure, but what makes the price come down? Industrial production is absolutely aimed at ensuring a solid, steady supply. Sharp fluctuations are rare, and are usually due to political upheaval. Prices might spike, but they rarely drop dramatically, because technological advances that lead to increased supply are usually already priced into the market. It's like that with any commodity market. There are so many people's lives and pocketbooks relying on stability in production and pricing that checks are built right into the market at every level, from production to end-consumer purchasing. Speculators lose their shirts in commodity markets because they aren't established players, they're gamblers. That gives the segment the illusion of being way more volatility than there really is. Everybody else is insulated very well from random shocks.

DigitalJack 10y ago

What google is doing is reducing the cost of a complementary good (quality high speed internet access) to their products. I'm lucky and have solid internet access even if it's not the fasted. It's very reliable and low latency. But I'd still love some google fiber. However, I don't think it's fair to attribute altruism or happiness to be a dumb pipe to google.

alberth 10y ago
Re: "reducing the cost of complementary good" Ding ding ding! Joel Spoksky wrote s great article on exactly this 14 years ago. http://www.joelonsoftware.com/articles/StrategyLetterV.html http://www.joelonsoftware.com/articles/StrategyLetterV.html

cortesoft 10y ago

I think Google Fiber is a good demonstration of why no company is excited about being a dumb pipe; Google is NOT trying to become a nationwide fiber network, and their strategy with GF makes that clear. They are only doing it in a few cities, and their real goal is to pressure the existing providers to improve their offerings. They WANT everyone to have fast and reliable internet so they can utilize Google services, but they know they can't make money by being an ISP.

neolefty 10y ago
And on the mobile front, consider Google's Project Fi: bundling Sprint, T-Mobile, US Cellular to sell voice and data for $20 per month + $10 per GB. Similar mission to Google Fiber?
- ihsw 10y ago
  I think that's similar to Google Ride Finder[1][2] -- probably a blockbuster but ahead of its time by a decade. [1] https://en.wikipedia.org/wiki/Google_Maps#Google_Ride_Finder https://en.wikipedia.org/wiki/Google_Maps#Google_Ride_Finder [2] https://googleblog.blogspot.ca/2005/03/need-ride.html https://googleblog.blogspot.ca/2005/03/need-ride.html
  - alexburton 10y ago
    Are you using blockbuster in its' original sense (e.g. home run) or in reference to the video rental store that failed?
    - ihsw 10y ago
      A home-run. Honestly I think Project Fi is amazing and it's the perfect counter to the issues mentioned in the article -- value-added bundling -- because it puts Google between you and your mobile internet provider.
    - MaysonL 10y ago
      Original sense was a bomb big enough to blow up a city block. See http://www.wordorigins.org/index.php/more/173/ http://www.wordorigins.org/index.php/more/173/

forrestthewoods 10y ago

Meh. Nevermind.

sgt101 10y ago
It takes 4-6 years to break even after what part of the investment? A USA size national network will take +20 years to implement - to say 95%, more like 30 years for 100% When does the money start rolling in (7 years for 50%, 10 years for 75%, 15 years for 90% - numbers just for fun, but you get my point). All the sum's I've ever seen (or done) end with 20 year+ paybacks, followed by lots and lots of money. This breeds real shareholder fear - everyone who ever built this kind of network (rail, phones...) was either the government or went bust and then watched someone else (banks) cash in on the distressed asset at 0 risk. So - agree, the red tape is a big issue. But while modern organisations and investment structures can do 50 years of work for you, the capital is an issue. It can, and will, be done, but it will be quite some doing.
- deleted 10y ago
  [deleted]
oldmanjay 10y ago
Why limit yourself to spending 140 billion of other people's money? Go a little nuts, spend it all. You won't know the difference!

rayiner 10y ago

> That seems to be what Google Fiber is an attempt at creating but the capital required is so great that only a hundred year old company like Verizon or AT&T is really in a position to execute on that well. If Google wanted to become AT&T or Verizon, nothing is stopping it. It has the capital, and even on the regulatory lobbying front--Google is winning. While Verizon is getting pilloried for not meeting buildout requirements in New York, Google won't even agree to buildout requirements in Fiber cities. But Google doesn't want to build dumb pipes either: http://www.techpolicydaily.com/internet/whos-making-money-internet-comparing-roic-across-internet-sectors http://www.techpolicydaily.com/internet/whos-making-money-in....

erikpukinskis 10y ago

T-mobile offers data-only plans starting at $20/month. I pay cash, and generally only make calls over Wi-fi. But it's nice to be able to receive text messages and access Google Maps etc while on the go.

Animats 10y ago

There is - Sonic. Sonic is a dumb pipe company. No middle boxes, just bits. Sonic fiber is deployed in Santa Rosa and is slowly moving into San Francisco, but their management doesn't want to go into heavy debt, so it's slow. You can also get Sonic in many areas of California, but it's over leased AT&T lines. The CEO of Sonic says that being a fiber provider is profitable without any additional services, and that their wholesale cost for upstream bandwidth keeps dropping.

jcoffland 10y ago
Sonic is awesome. They have excellent customer support and actually care about and actively protect your privacy. http://www.dailydot.com/layer8/sonic-isp-privacy/ http://www.dailydot.com/layer8/sonic-isp-privacy/
tw04 10y ago
*until Comcast is allowed to acquire Level3. When you can't buy backbone traffic from anyone but competitors, you'll see just how hard monopolies can punish smaller competitors. I expect Cogent will be the next company to be acquired by one of the last-mile providers after Level3.
equalarrow 10y ago
I have Sonic FTTN 50Mbps service. I've used Sonic over the years and have always enjoyed their service and their mission as a business. I've lapsed a few times because their DSL in some places in SF is just crap, but that's because of AT&T and distance to the closest CO. Where I'm at now (prob less than a mile from their fiber service, sigh..), when we first moved in, we got Comcast. Of course, the Comcast service was all over the place. Some days 1Mb, some 100Mb (which I never signed up for, but just received), some 45Mb (what I signed up for). As usual, I had man techs come out to try to fix things and of course, none did and all of them had a different excuse as to why things didn't work. So many support people promised me good service but I never got it. Fed up, I saw I could get Sonic FTTN and it's been rock solid for over a year. It's never gone down and just works - as I would expect. It's too bad we don't have more ISPs like them because if we did, access would be a totally different experience.

throwanem 10y ago

> It would be great if there was a major telco that was excited about being dumb pipe and just crushing the others. The return of Ma Bell?

breischl 10y ago
Not really. Ma Bell used to own everything connected to the phone system, right down to the phone on your wall. They actually tried to keep early modems off their system, IIRC with some success. The modern version of Ma Bell would be if Verizon owned or licensed every iPhone, computer, and server connected to their network.
1_2__3 10y ago
I think you mean"The exact opposite of Ma Bell."

rsync 10y ago

While there is no such thing, what immediately comes to mind is Hurricane Electric (he.net). They're a big, big network and getting bigger all the time and they run their business just like I like to run mine: provide simple, boring services that just work.[1] They are the best dumb pipes around. [1] rsync.net uses he.net in Fremont, Denver and Hong Kong and Oh By (0x.co) uses he.net in Fremont.

rashkov 10y ago
Off topic, but rsync.net won't let me scroll down without jumping me to the top of the page on iOS Safari

sharpercoder 10y ago

In Europe, there is Tele2 doing exactly this. For instance, in The Netherlands, there was a Triopoly of Vodafone, KPN and T-Mobile. It started as a MVO (Mobile Virtual Operator) but later obtained a 4G license and is now building out it's national 4G network. Subscribers are now moved to 4G netowkr as much as possible. Tele2 advertises to business users as a "flat data pipe". To consumers, it profiles itself as a cheap provider offering a lot more data in it's packages. It slowly looks like it started a data-war among the providers. The past year, there has been a lot of movement in the dat package offerings, while in the era of 2005-2015 about the only movement was "Unmetered access for €10" to data-packages. I'm very curious to see Dutch subscriber numbers over the first half of 2016. I expect them to go up slowly but steadily.

samfisher83 10y ago

The two Big Telco (ATT, Verizon) companies are essentially the original ATT. The Telco companies are essentially monopolies and duopolies (Comcast, Time Warner, etc.). They have no incentive to compete. It doesn't make any economic sense to become dump pipes because they have no competition. 100 years from now which company is likely to be there Verizon, ATT, or Google? I would bet on ATT and Verizon since just building out a network going through all the legislation etc. would take 20-30 years to built out. Google doesn't have much competition right now, but with Tech incumbents get taken out pretty quickly.

Cshelton 10y ago
I don't have a lot of time, but I'll say this. The future of Telco is not in the ground, but through the air. This is the entire reason Google Fiber acquired WebPass. It is relatively simple to transmit extremely high connection speeds through radio waves. I have a receiver on the top of my house that is a point to point signal, pumping 1 gig +, and soon to be much higher, speeds. Google's strategy to expand GF will not longer include a massive ground infrastructure move, but use point to point to get to the neighborhoods. An entire zip code can be offered GF services at a fraction of the cost and a few months, as opposed to the old way...TOS of capital and years. It will happen fast, and I imagine the giant Telcoms will have to follow suite to keep up.
- samfisher83 10y ago
  Radio waves are shared with everyone. High frequency waves don't travel that far. That is physics. There is only so much bandwidth available in the Air. You can high frequency point to point communication, but you might have interference when some one blocks points. Fiber and copper are much better for signal transmission. They just transmit and receive much better than air.
  - DanielDent 10y ago
    60ghz, 80ghz, and higher frequencies (i.e. free space optics operating at or near the visible light spectrum) change the story considerably. As frequency goes up and wavelengths get pencil thin, issues like "do I have clear line of sight" and "is there fog today" are more of a challenge than interference from others using the same frequencies/wavelengths. There's plenty of bandwidth available in RF, but every option has it's tradeoffs. There's a limited amount of spectrum available at frequencies with convenient propagation properties for certain use cases.

DannyB2 10y ago

Very much like what I was going to say. Hey Verizon! Try being the bestest dumb pipe that anyone ever saw! Best value for the price. Best service. See what happens. It seems like a lot of successful business have been built that way instead of trying to be the most hated companies.

Spooky23 10y ago

I think that "dumb pipe" is the right answer, with regional monopolies for certain classes of service or public/private partnerships. We achieve a lot of advancement with the death of AT&T, but the modern regulatory regime allowed for the rebirth of something that looks a lot like the old AT&T. The issue with this sort of infrastructure is that it is very capital intensive to build and maintain, and require that the companies invest in real estate rights (telephone poles, utility trenches) that are powerful bargaining chips.

jalami 10y ago

Fiber will be a dumb pipe company until it serves Alphabet's interests that it not be. Right now market adoption and growth is more important than trying to capitalize on their users in creative ways. Look at Chrome for example, adoption was the name of the game for years and then suddenly your browser now has an, arguably opt-in, superpower where it can send analytics back itself on sites you visit. It's not crazy to think that could happen to fiber sometime down the line. I feel the municipal internet infrastructure should be publicly owned, like streets, but service on those pipes is carried by competing companies. These turf wars are getting old.

walterbell 10y ago
It's already happened: look at Alphabet's LinkNYC fiber-to-wifi advertising-supported IoT kiosks in NYC, where terms of service permit analytics of data and pedestrian traffic.
- JakeAl 10y ago
  You mean these kiosks? 10K Google Wi-Fi kiosks are collecting millions of faces and MAC addresses http://massprivatei.blogspot.com/2016/07/10k-google-wi-fi-kiosks-are-collecting.html http://massprivatei.blogspot.com/2016/07/10k-google-wi-fi-ki...

bogomipz 10y ago

It need not be a major telco though. This awesome dumb pipe could and should come from municipal internet services. Chatanooga, TN was able to provide affordable gigabit internet to it citizens and make a small profit. In Los Angeles the Department of Water and Power has an extensive network - LADWP Fiber and L.A has floated the idea. The reason it doesn't succeed? Because AT&T and Verizon will sue and and get an injunction against it because they would be put at an unfair disadvantage they say. It's criminal but it's true: http://arstechnica.com/tech-policy/2016/03/tennessee-kills-muni-broadband-expansion-bill-after-att-opposition/ http://arstechnica.com/tech-policy/2016/03/tennessee-kills-m... https://www.fcc.gov/document/fcc-releases-order-preempting-tn-nc-municipal-broadband-restrictions https://www.fcc.gov/document/fcc-releases-order-preempting-t... Those duopolies business models are contingent upon have access to public right-aways. The resources are owned by the general public/tax payers in the municipalities the operate in. There is technical reason we can't have near universal and affordable dumb pipes, just political. I personally see this as going to be a success for either Verizon or its share holders, quite the opposite. It will be paid for by end users in the form of increased fees.

rayiner 10y ago
Chatanooga makes a small operating profit, but not enough to pay the interest on the bonds used to build the network: http://www.nyls.edu/advanced-communications-law-and-policy-institute/wp-content/uploads/sites/169/2013/08/ACLP-Chattanooga-Case-Study-updated-October-2015.pdf http://www.nyls.edu/advanced-communications-law-and-policy-i.... The system is only possible because the EPB is using its electricity monopoly to subsidize internet.
- bogomipz 10y ago
  "Notwithstanding questions about its accounting practices and the extent to which the utility might be leveraging its monopoly electric service to support its telecom division, EPB continues to report relatively strong financial health of its fiber system. In 2014, the GON increased its revenues from $80.7 million to $99.9 million.53 Revenue from Internet access sales in particular saw a net increase of about $17 million,54 much of which was due to residential customer growth.55 Overall, residential services accounted for two-thirds of EPB Fiber’s revenues in 2014.56 Expenses and transfers to the city of Chattanooga totaled $84.7 million.57" This sounds OK to me, what am I missing? Why is it important that their electricity monopoly subsidized anything? How is that any different than any other new enterprise that has gotten funding from a VC? You don't hear anybody criticize that some star up is only possible because they got money from an investor. How is the source of funding relevant?

snowwrestler 10y ago

Another option here is municipal fiber. The city or county installs the lines, then offers "dumb pipe" service or leases access to an ISP to offer consumer services. Roads, potable water, sewers, and electricity are offered to many communities through a managed monopoly structure, and are generally affordable. Why not bandwidth? I have been worried about line-owning ISPs trying to become content providers, because it was obvious that they would try to find ways to privilege their content over non-wire companies like Netflix, Google, Apple, Hulu, Amazon, etc. But with the net neutrality ruling, it might actually be a good thing. If Verizon doesn't want to be a dumb pipe, then the logical extension is: why own pipes at all?? I could see companies like Comcast or Verizon eventually leasing access on dumb cheap fiber like muni or Google, as a cost-saving measure vs. maintaining their own infrastructure. Comcast already outsources most of their installation and network maintenance to contractors.

amazon_not 10y ago
Comcast and Verizon aren't into using other people's infrastructure. They want to own the customer by owning the infrastructure to the customer. Comcast won't even take government subsidies to build out to unserved areas.
- MaysonL 10y ago
  And they are spending big lobbying dollars on state legislatures to try to get them (sometimes successfully) to outlaw municipal broadban.

colordrops 10y ago

Maybe Google Fiber is attempting to be a dumb pipe in a tactical play, but their overall strategy trends in the opposite direction. For instance Google's Project Fi is anything but dumb when it comes to your mobile data, needing more access to your data than a normal phone setup.

supernintendo 10y ago

Not a telco company, but municipal Internet as is implemented in Chattanooga, TN [1] might be a model to consider. [1] http://money.cnn.com/2014/05/20/technology/innovation/chattanooga-internet/ http://money.cnn.com/2014/05/20/technology/innovation/chatta...

shanacarp 10y ago

Google is doing the reverse. They want to create the best dumb pipe because they create the least dumb products, and are horrified by the way their customers experience them. Outside of that, I think google cares less

ISL 10y ago

Ting (a cellular MVNO) is doing that successfully (so far). As a customer and an investor, I'm a fan.

HelloImDumb 10y ago
I subscribe to Ting and I'm happy with it. But, while very good, it's far from unique. I came in from another Sprint MVNO that was very good but slipping in value proposition. An MVNO is almost by nature a precarious thing. Major telecom? It's a subsidiary of Tucows, which will to me be forever be linked to '90s shareware downloads, its listing is basically an accident of the dotcom bubble, and it has a market cap of < $300 million. I'm guessing their domain name line easily rivals Ting in value. Healthy in its niche, but no major force. By comparison, Frontier, a smaller RBOC, is worth $5.6B, frigging T-Mobile is worth $9.5B.
- rayiner 10y ago
  Sprint is losing $2 billion a year. No Sprint MVNO is sustainable.

dade_ 10y ago

Yeah, Zayo. Big dumb pipes ordered with a smart API. I worked for a company that was bought by them, not the type of work I am interested in, but they get the future. I suppose the electric companies were horrified by their future as a utility a hundred years ago, but I think it is just the ego of executives. There is no shame in being a utility, it is critical , albeit unexciting infrastructure.

collyw 10y ago

Its like companies using Windows or Andorid plus installing their own "added value" software, which usually does anything but add value.