6 ms·

OECD: Telcos Overcharging By Five Orders Of Magnitude

61 points by vectorbunny 14y ago

binarymax 14y ago
Yes, but maybe the the internet rate is that low, because it is effectively being subsidized by the telephone revenue (with a hefty profit on the side of course). If telcos all of a sudden started making 10 cents instead of 500 euros then they wouldn't be in business for very long, and then who would manage the network?
- crusso 14y ago
  You're probably correct about the subsidization, but the solution is to remove the monopolistic protections created by government regulations and infrastructure lock-in then let the telcos compete to see where that real price is.
  - eli 14y ago
    Isn't loose regulation of the wireless industry the reason the US has completely incompatible CDMA and GSM networks competing with each other? IMHO the consumer would be much better off today if the government had stepped in and pushed everyone to one or the other.
    - crusso 14y ago
      Nobody really cared about CDMA vs GSM. The market decided that issue with dollars of GSM vs CDMA with a resounding "meh". I mean, look what they did with Healthcare. So many things they could have addressed, but instead foisted a huge behemoth of a law unto consumers and businesses. For all you know, they might have selected TDMA because some congress critter writing the bill had a cousin who had a factory spitting out TDMA chips. Then we all would have been stuck long-term on inferior technology because some congressperson made a political decision. Give consumers choices. Let them decide what's important to them. While it sounds nice to have some benevolent Government helping to organize us and make important decisions, that's just not the way that history has shown it works.
      - eli 14y ago
        That's my point: nobody cared about CDMA vs GSM and now we're all worse off because of it. If we had all agreed on TDMA early on that would have been a bad call, but IMHO it would still be better. All those TDMA towers simply became GSM and UMTS towers. No one makes purchasing decisions based on compatibility, but if compatibility were enforced (just as AT&T is forced to allow you to dial a Verizon number), the market would be more competitive and the service would be better.
- jeremiep 14y ago
  I don't know for you, but here in Canada companies like Bell, Telus, Cogeco and Videotron have very, very expensive services. Indeed telcos wouldn't be in business with lowered revenues if they keep their current business model. The thing is this model is based on deception and manipulation rather than creating great products that speaks for themselves. As for myself, I would much rather have a Telus booth that doesn't look like it's made of marble but rather sell cheap phones that just works. No salesmen with a sales quota trying to pressure me, no overpriced booth, no bullshit. Telcos only win because most people can't live without their services so they'll buy into them even knowing they get ripped off, keeping the whole thing alive.
  - randomdata 14y ago
    I don't know for you, but here in Canada companies like Bell, Telus, Cogeco and Videotron have very, very expensive services. I don't know a whole lot about the big telcos, but I use a small customer-owned telco in Canada and while the prices are basically the same as the big players, the profits aren't extraordinary. In fact, just as the parent suggests, in their case, internet service is operated at a loss and is subsidized by the other services the telco provides. Perhaps the bigger operations can run their networks for less due to their larger scale and only gouge us because they can, or maybe it is just really expensive to operate telecommunication networks in Canada?
    - jeremiep 14y ago
      The thing is, in Canada all small Telcos are using the networks of the big Telcos. In Quebec City for instance, there are only two internet providers: Videotron and Bell for cable and phone line internet respectively, all the small players are just resellers for their network. Of course their profit margins are small: the big Telcos still gets most of it. Their support, however, is often incredibly better than what any big Telco could ever hope to achieve.
      - randomdata 14y ago
        That is certainly true in some places, but the telco I speak of owns the last mile copper and are working on rolling out their own fibre to the customers. There are more telcos in Canada than you might think. Ontario alone has around 20 telephone companies that are not the big players and are not just resellers of the big players infrastructure.
- wmf 14y ago
  The Internet used to run over telco networks, but now there are non-telco backbones (Cogent comes to mind). It's hard to understand their costs because they keep going bankrupt and then somebody buys the infrastructure for cents on the dollar. Odlyzko has written about this, although I can't find a good reference offhand.
crusso 14y ago
describes how vastly more efficient the bottom-up Internet is compared to the old telco industry’s top-down model Pricing disparities like that between telco services vs Internet services create pressure like differentials in air pressure on opposite sides of a membrane. The membrane represents forces that prevent efficiencies in that market from being realized and enjoyed by consumers in that market. When that membrane is able to prevent the equalization of a pressure differential that is five orders of magnitude, you know that membrane is extraordinarily strong. Unfortunately, membranes like that exist everywhere you turn in society. They do an enormous amount of damage, and the only reason why we see it so starkly in this case is that the Internet grew faster than membrane-supporting-forces could get their boots on its neck.
- jacquesm 14y ago
  This analogy makes me wish for a pin. There has to be some way to breach that membrane.
  - a-priori 14y ago
    I wonder if Google Fibre is one such breach.
jond3k 14y ago
Looks like a good article but the url violates the same origin policy and as a result it render images. Readers will get a better looking page if they knock the 's' out of https until the owner can fix it
- vectorbunny 14y ago
  Sorry about the url. The falkvinge.net address in my feed is a product of the HTTPSEverywhere plugin. @Falkvinge tweeted me to find out how I got the url. He is still testing: 'I thought I'd have time to check and roll it out slowly - now, a lot of stuff is still hard-http-linked even on https.'
jond3k 14y ago
What's stopping an entrepreneur from building a new network now, in a single town?
- PaulHoule 14y ago
  The cost. Google is building out a network in Kansas City because (i) they've got more money than they know what to do with and (ii) they want to intimidate the ISP industry and influence the government. Any entrepreneur who wants to offer internet service will find they have the same economic interests as the phone company and the economic logic will lead them to behave the same way. It may be true that you can offer somebody a service at $50 that offers 10^5 more bandwidth than a $50 phone line, but without paying for some physical plant that costs at least as much as a phone line, you can't offer phone service for 0.005 cent a month.
  - nine_k 14y ago
    This differs very much between cities and suburbia. In a city, you can run a fiber line to a 6-story building and service 30 households by just running some Cat5 cable from a fiber terminator box. And the house probably have enough underground pipes to get into, e.g. electric cable or water pipes. The next house to run your fiber to is probably physically next. A city-based ISP can run profitably at very moderate prices. Such an ISP can serve hundreds of thousands subscribers over a few dozen square miles. I've user services of several such small ISPs in Russia and Ukraine, with rates about $20 for a 20-30 Mbit line, and even cheaper slower plans. In a suburban setting you have to run much more cable, install more transcievers, and every house you run your cable to is one household. Then you have to connect to a backbone cable, which may be many miles away (in a city it's usually much closer). This must be much more expensive.
- eli 14y ago
  You can. People do. It's very capital intensive and most people are going to still want their phone to work once they leave town. http://en.wikipedia.org/wiki/List_of_United_States_wireless_communications_service_providers http://en.wikipedia.org/wiki/List_of_United_States_wireless_...
PaulHoule 14y ago
This is bogus. New Yorkers got a tough lesson about the reliability of "modern" communications infrastructure in the last flood. I remember a circa-1990's ad where an old lady using a pay phone said "This never happened with AT&T" and the answer was "You're not dealing with AT&T." I live in a cell phone dead spot and I depend on a landline because it will work when the the power is out and I really need to call 911. Cell phones, cordless phones, skype, dsl, cable and "magic jack" all disappear when the power goes out. Also with all kinds of communication infrastructure there's the economic problem of paying for it. I got a close look at a proposal to wire a rural area with optic fiber to offer multichannel television and DOCSIS 3 internet. Most of the cost is in getting the fiber to your door. This cost is huge ($1000-$2000 per household) and is necessary to offer the simplest and cheapest services. Triple play bundles are one way of getting more money out of the average customer and then there's the very tricky problem of offering better services to people who value them more, so you get usage caps and overusage fees that are 10-20 or more times than the bulk price (no, i wouldn't complain about spending $20 for an additional 200GB of usage) The outside physical plant that these people were proposing to build could be easily upgraded to support service similar to Google Fiber, but that would be an empty promise unless they upgraded their "middle mile" which again would mean a considerable amount of capex. Regulated telcos are greedy, that's true, but I've looked at the economics of a number of smaller broadband providers and it's definitely a challenging business to be in.
- antidoh 14y ago
  "I live in a cell phone dead spot and I depend on a landline because it will work when the the power is out and I really need to call 911. Cell phones, cordless phones, skype, dsl, cable and "magic jack" all disappear when the power goes out." Yes, mostly, WRT cell vs land line. But a cell handset will work as long as it's charged, unless the towers in your area have themselves lost power, which is fairly likely in a disaster like Sandy. Land lines work in power outages because the lines are powered from the central office, so they are subject to the same natural disasters as cell towers. The central offices likely have diesel backups. I suppose towers have battery backups? Not disagreeing with you, I've always had landline comms during my power outages, but it's not black and white, especially as you rise up the disaster scale.
bjhoops1 14y ago
This sort of thing is happening on a massive scale in the US as well. David Cay Johnston's book, The Fine Print: How Big Companies Use "Plain English" to Rob you Blind exposes how "regulated" monopolies bereft of competition squeeze money out of their essentially unrepresented customers.
eli 14y ago
I'm not a huge defender of telco companies, but isn't this like arguing that Adobe Photoshop has a 1,000,000% markup because the DVD they sell for $700 only costs $0.07 to produce?
- crusso 14y ago
  No, it would like paying a 1,000,000% markup for Adobe Elements when (hypothetically)Photoshop can do everything it can plus a lot more.
deleted 14y ago
[deleted]
josh2600 14y ago
Am I the only one who realizes that while voice is approaching commoditization, you still have a lot of specialty equipment required for moving calls? It's not the same as IP, where, for instance, the time to reorder the packets on arrival is inconsequential, whereas in VoIP it's death if those packets aren't sorted in under 200ms. Is Voice WAY more expensive than it has to be? Yes. Is it 5 factors overpriced? Probably not. The $ figures cited in the article treat voice like another packet and it just isn't. Source: I work at a company that's trying to open-source core telecom infrastructure.
KaoruAoiShiho 14y ago
Too bad telcos have a 60% profit margin not 100,000%. How is this plausible? The article doesn't explain.

61 points by vectorbunny 14y ago

Yes, but maybe the the internet rate is that low, because it is effectively being subsidized by the telephone revenue (with a hefty profit on the side of course). If telcos all of a sudden started making 10 cents instead of 500 euros then they wouldn't be in business for very long, and then who would manage the network?

crusso 14y ago
You're probably correct about the subsidization, but the solution is to remove the monopolistic protections created by government regulations and infrastructure lock-in then let the telcos compete to see where that real price is.
- eli 14y ago
  Isn't loose regulation of the wireless industry the reason the US has completely incompatible CDMA and GSM networks competing with each other? IMHO the consumer would be much better off today if the government had stepped in and pushed everyone to one or the other.
  - crusso 14y ago
    Nobody really cared about CDMA vs GSM. The market decided that issue with dollars of GSM vs CDMA with a resounding "meh". I mean, look what they did with Healthcare. So many things they could have addressed, but instead foisted a huge behemoth of a law unto consumers and businesses. For all you know, they might have selected TDMA because some congress critter writing the bill had a cousin who had a factory spitting out TDMA chips. Then we all would have been stuck long-term on inferior technology because some congressperson made a political decision. Give consumers choices. Let them decide what's important to them. While it sounds nice to have some benevolent Government helping to organize us and make important decisions, that's just not the way that history has shown it works.
    - eli 14y ago
      That's my point: nobody cared about CDMA vs GSM and now we're all worse off because of it. If we had all agreed on TDMA early on that would have been a bad call, but IMHO it would still be better. All those TDMA towers simply became GSM and UMTS towers. No one makes purchasing decisions based on compatibility, but if compatibility were enforced (just as AT&T is forced to allow you to dial a Verizon number), the market would be more competitive and the service would be better.
jeremiep 14y ago
I don't know for you, but here in Canada companies like Bell, Telus, Cogeco and Videotron have very, very expensive services. Indeed telcos wouldn't be in business with lowered revenues if they keep their current business model. The thing is this model is based on deception and manipulation rather than creating great products that speaks for themselves. As for myself, I would much rather have a Telus booth that doesn't look like it's made of marble but rather sell cheap phones that just works. No salesmen with a sales quota trying to pressure me, no overpriced booth, no bullshit. Telcos only win because most people can't live without their services so they'll buy into them even knowing they get ripped off, keeping the whole thing alive.
- randomdata 14y ago
  I don't know for you, but here in Canada companies like Bell, Telus, Cogeco and Videotron have very, very expensive services. I don't know a whole lot about the big telcos, but I use a small customer-owned telco in Canada and while the prices are basically the same as the big players, the profits aren't extraordinary. In fact, just as the parent suggests, in their case, internet service is operated at a loss and is subsidized by the other services the telco provides. Perhaps the bigger operations can run their networks for less due to their larger scale and only gouge us because they can, or maybe it is just really expensive to operate telecommunication networks in Canada?
  - jeremiep 14y ago
    The thing is, in Canada all small Telcos are using the networks of the big Telcos. In Quebec City for instance, there are only two internet providers: Videotron and Bell for cable and phone line internet respectively, all the small players are just resellers for their network. Of course their profit margins are small: the big Telcos still gets most of it. Their support, however, is often incredibly better than what any big Telco could ever hope to achieve.
    - randomdata 14y ago
      That is certainly true in some places, but the telco I speak of owns the last mile copper and are working on rolling out their own fibre to the customers. There are more telcos in Canada than you might think. Ontario alone has around 20 telephone companies that are not the big players and are not just resellers of the big players infrastructure.
wmf 14y ago
The Internet used to run over telco networks, but now there are non-telco backbones (Cogent comes to mind). It's hard to understand their costs because they keep going bankrupt and then somebody buys the infrastructure for cents on the dollar. Odlyzko has written about this, although I can't find a good reference offhand.

crusso 14y ago

describes how vastly more efficient the bottom-up Internet is compared to the old telco industry’s top-down model Pricing disparities like that between telco services vs Internet services create pressure like differentials in air pressure on opposite sides of a membrane. The membrane represents forces that prevent efficiencies in that market from being realized and enjoyed by consumers in that market. When that membrane is able to prevent the equalization of a pressure differential that is five orders of magnitude, you know that membrane is extraordinarily strong. Unfortunately, membranes like that exist everywhere you turn in society. They do an enormous amount of damage, and the only reason why we see it so starkly in this case is that the Internet grew faster than membrane-supporting-forces could get their boots on its neck.

jacquesm 14y ago
This analogy makes me wish for a pin. There has to be some way to breach that membrane.
- a-priori 14y ago
  I wonder if Google Fibre is one such breach.

jond3k 14y ago

Looks like a good article but the url violates the same origin policy and as a result it render images. Readers will get a better looking page if they knock the 's' out of https until the owner can fix it

vectorbunny 14y ago
Sorry about the url. The falkvinge.net address in my feed is a product of the HTTPSEverywhere plugin. @Falkvinge tweeted me to find out how I got the url. He is still testing: 'I thought I'd have time to check and roll it out slowly - now, a lot of stuff is still hard-http-linked even on https.'

jond3k 14y ago

What's stopping an entrepreneur from building a new network now, in a single town?

PaulHoule 14y ago
The cost. Google is building out a network in Kansas City because (i) they've got more money than they know what to do with and (ii) they want to intimidate the ISP industry and influence the government. Any entrepreneur who wants to offer internet service will find they have the same economic interests as the phone company and the economic logic will lead them to behave the same way. It may be true that you can offer somebody a service at $50 that offers 10^5 more bandwidth than a $50 phone line, but without paying for some physical plant that costs at least as much as a phone line, you can't offer phone service for 0.005 cent a month.
- nine_k 14y ago
  This differs very much between cities and suburbia. In a city, you can run a fiber line to a 6-story building and service 30 households by just running some Cat5 cable from a fiber terminator box. And the house probably have enough underground pipes to get into, e.g. electric cable or water pipes. The next house to run your fiber to is probably physically next. A city-based ISP can run profitably at very moderate prices. Such an ISP can serve hundreds of thousands subscribers over a few dozen square miles. I've user services of several such small ISPs in Russia and Ukraine, with rates about $20 for a 20-30 Mbit line, and even cheaper slower plans. In a suburban setting you have to run much more cable, install more transcievers, and every house you run your cable to is one household. Then you have to connect to a backbone cable, which may be many miles away (in a city it's usually much closer). This must be much more expensive.
eli 14y ago
You can. People do. It's very capital intensive and most people are going to still want their phone to work once they leave town. http://en.wikipedia.org/wiki/List_of_United_States_wireless_communications_service_providers http://en.wikipedia.org/wiki/List_of_United_States_wireless_...

PaulHoule 14y ago

This is bogus. New Yorkers got a tough lesson about the reliability of "modern" communications infrastructure in the last flood. I remember a circa-1990's ad where an old lady using a pay phone said "This never happened with AT&T" and the answer was "You're not dealing with AT&T." I live in a cell phone dead spot and I depend on a landline because it will work when the the power is out and I really need to call 911. Cell phones, cordless phones, skype, dsl, cable and "magic jack" all disappear when the power goes out. Also with all kinds of communication infrastructure there's the economic problem of paying for it. I got a close look at a proposal to wire a rural area with optic fiber to offer multichannel television and DOCSIS 3 internet. Most of the cost is in getting the fiber to your door. This cost is huge ($1000-$2000 per household) and is necessary to offer the simplest and cheapest services. Triple play bundles are one way of getting more money out of the average customer and then there's the very tricky problem of offering better services to people who value them more, so you get usage caps and overusage fees that are 10-20 or more times than the bulk price (no, i wouldn't complain about spending $20 for an additional 200GB of usage) The outside physical plant that these people were proposing to build could be easily upgraded to support service similar to Google Fiber, but that would be an empty promise unless they upgraded their "middle mile" which again would mean a considerable amount of capex. Regulated telcos are greedy, that's true, but I've looked at the economics of a number of smaller broadband providers and it's definitely a challenging business to be in.

antidoh 14y ago
"I live in a cell phone dead spot and I depend on a landline because it will work when the the power is out and I really need to call 911. Cell phones, cordless phones, skype, dsl, cable and "magic jack" all disappear when the power goes out." Yes, mostly, WRT cell vs land line. But a cell handset will work as long as it's charged, unless the towers in your area have themselves lost power, which is fairly likely in a disaster like Sandy. Land lines work in power outages because the lines are powered from the central office, so they are subject to the same natural disasters as cell towers. The central offices likely have diesel backups. I suppose towers have battery backups? Not disagreeing with you, I've always had landline comms during my power outages, but it's not black and white, especially as you rise up the disaster scale.

bjhoops1 14y ago

This sort of thing is happening on a massive scale in the US as well. David Cay Johnston's book, The Fine Print: How Big Companies Use "Plain English" to Rob you Blind exposes how "regulated" monopolies bereft of competition squeeze money out of their essentially unrepresented customers.

eli 14y ago

I'm not a huge defender of telco companies, but isn't this like arguing that Adobe Photoshop has a 1,000,000% markup because the DVD they sell for $700 only costs $0.07 to produce?

crusso 14y ago
No, it would like paying a 1,000,000% markup for Adobe Elements when (hypothetically)Photoshop can do everything it can plus a lot more.

deleted 14y ago

[deleted]

josh2600 14y ago

Am I the only one who realizes that while voice is approaching commoditization, you still have a lot of specialty equipment required for moving calls? It's not the same as IP, where, for instance, the time to reorder the packets on arrival is inconsequential, whereas in VoIP it's death if those packets aren't sorted in under 200ms. Is Voice WAY more expensive than it has to be? Yes. Is it 5 factors overpriced? Probably not. The $ figures cited in the article treat voice like another packet and it just isn't. Source: I work at a company that's trying to open-source core telecom infrastructure.

KaoruAoiShiho 14y ago

Too bad telcos have a 60% profit margin not 100,000%. How is this plausible? The article doesn't explain.