Seth's Rant for July 30th, 2000

Bandwidth Suppliers are Idiots

The Problem

All I really want is my own high speed Internet connection. Granted, I'm not exactly the typical consumer: my home business requires that I run a server which means I need speed, a static address, and the right to do whatever I please with my link. Lucky me, my area now has both cable modems and DSL plus the traditional T1 and up dedicated lines. So you'd think I'd be all set, wouldn't you?

Unfortunately, both the local phone company (Southwestern Bell) and cable company (Cox nee Multimedia) are idiots. Sure, I've got a cable modem that delivers oodles of bandwidth for only about $45 per month... but they refuse to allow me to host a server on it at any price! So now I'm paying $200 per month for an ADSL line that let's me host my server... but at a fraction of the cable's bandwidth.

So, I'm paying over four times as much for a product that delivers less than one fourth the performance and the phone company is probably losing money on me. Let's not even think about a T1 line, which would deliver cable modem performance... for $1200 installation and $500 per month.

The Reasons

How can they all be so stupid? Why isn't the phone company offering more bandwidth for less money? Why doesn't the cable company offer business oriented services for more money? The answers are partly related to technology and partly to institutional incompetence.

First the technology: Cable is better than phone line.

The twisted pair of wires from the phone company are designed for low quality analog audio and that's it. The whole point of DSL is to be able to provide data services without upgrading this infrastructure, but the cost is that you have to live within two to three miles of your telephone switch, have good wiring, and your bandwidth has a hard limit.

The coaxial cable from the cable company is designed to carry hundreds of analog television signals, which translates into tons of digital bandwidth. Those that are installing fiber backbones bring the bandwidth to nearly obscene levels.

The bottom line on bandwidth technology is that the cable infrastructure is decades newer and designed to carry far heavier loads than the phone lines. The phone company cannot possibly compete on price-performance.

So why do I have a slow DSL line and why is the phone company losing money on it? That brings us to corporate structure.

Local telephone companies have traditionally been monopolies. They don't have to deliver service or performance because until now they have been the only game in town. They charge whatever the market (and regulators) will let them and the only challenge is convincing customers to pay still more for premium services (like T1 lines). Cable companies are also monopolies, but they are usually newer, smaller (recent mergers not withstanding), and their services far less essential than telephones. Plus, they have had competition from satellite TV for a few years and have gone into the bandwidth market knowing that they are going head-to-head with the established telephone companies.

When the local bell sets up a DSL line, they do it in their traditional monopolistic manner: it takes weeks to set it up, many hours of technician time to fix all the problems, and heaven help the customer if they have any problems. In my case, it took the phone company five weeks to get a technician to my house, then it took him four hours on the phone to half a dozen people spread across at least three companies to root out and correct all the mistakes that had been made in setting up the line. The phone company probably spent close to a thousand dollars in technician time on this installation and all because they couldn't set it up right in the first place. From talking to other DSL customers and technicians in this area and around the country, this seems to be fairly common.

The local cable company, being smaller, more flexible, and recognizing that they were entering a service area in which they had both competition and no experience, hired someone else (Road Runner in my case) to handle the bandwidth service. As a result installation consisted of me picking up an installation kit at a local store, plugging in three wires, and changing one control panel on my computer. No technician time and it worked right out of the box.

BUT, because the phone company has a tradition of providing bandwidth services, they get the marketing right. They know what residential and business customers want even if they are grossly inept at delivering it. So from them I get the needed service, however poorly. Meanwhile the cable company, having no experience or clue what to do with bandwidth, is offering the wrong service, but very well. Of course, if lived an hour north, I'd be in the more established Cox zone and subjected to Cox@Home/Cox@Work. There I would get the worst of both worlds: sure they'd let me have a server, but I'd have to pay as much as I am for the DSL line for even crappier performance. At least with DSL I get to choose a local ISP that I trust.

The Solution

The end game here will be governed by technology. The bottom line is that the telephone infrastructure cannot support the services that modern consumers and businesses are demanding. The telephone companies lack the managerial flexibility to adapt both their technology and their marketing to contemporary realities. The cable companies have the technology and will quickly learn how to market their superior services.

With many cable companies now rolling out telephone service, the baby bells are in serious jeopardy of losing their core market. Given their obsolete technology and monopolistic mindset, there is nothing the bells can do about it. Instead, they will shift their focus to the much more profitable wireless services where it is they who enjoy the technological edge.

My prediction is that the bells with be driven out of the land line business, particularly in the smaller markets where the cost of upgrading their infrastructure is simply prohibitive. Within the next three years the cable companies will begin to dominate telephone and bandwidth services. In so doing, they will take over the phone companies' traditional monopolistic stance and start charging much more for much less.

My hope is that we will someday see some competition in the cable industry. It would be really nice if the phone companies would lay fiber to every home and provide some real competition, but except for the most concentrated markets, I think their institutional inefficiences will make that prohibitively expensive. Instead, most areas may have to rely on large cable providers invading each-other's territories. For that to happen, government regulators need to let it happen. We all know how likely that is to occur any time soon.

This rant solely reflects the opinion of the author, probably while he was half asleep, drunk, or otherwise incapacitated. It does not necessarily reflect the actual opinion of DEI, it's associates, or possibly the author in a more conscious state. Hate mail will be prosecuted. Constructive criticism may be posted or ignored. Have a nice day.

Seth B. Noble - Rant - sbnoble - July 30, 2000