[I have not run out of material about SID Display Week 2011, but it’s time to get back to some of the other news in the HDTV Almanac world of large screens and home entertainment.]
One of my favorite hobbyhorses is the concept that content as a service will eventually become separated from the data pipes [...]
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HDTV Almanac - The End of Unlimited?
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alfredpoor
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darby427
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alfredpoor
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It cuts both ways...
I don't entirely understand why broadband costs are so much lower in some other countries; maybe there are greater government subsidies at work there. On the other hand, be sure to compare the price of gasoline while you're pricing broadband. Due to much higher taxes, Europeans can pay four or five times as much as we do.
There's no such thing as a free lunch. If we're going to get something valuable, whether it is technology or entertainment or energy, somebody is going to pay for it. And if it isn't the consumer, then the entity picking up the tab will come to the consumer (or taxpayer) sooner or later to collect.
Alfred
There's no such thing as a free lunch. If we're going to get something valuable, whether it is technology or entertainment or energy, somebody is going to pay for it. And if it isn't the consumer, then the entity picking up the tab will come to the consumer (or taxpayer) sooner or later to collect.
Alfred
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rml
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The end of unlimited?
From an abstract economic view, the production function for these communications services is extremely simple: 2 inputs (data at source + transmission) = 1 output (data at point of consumption, whatever its content: telephone, websites, music, tv, movies, etc., ...). In fact, from a purely economic viewpoint it is no different than natural gas or electric utility service (gas or electricity at source + transmission = energy at point of consumption). With the advent of packet switching and terabit fiber transmission rates coming into production, the idea of expensive, limited bandwidth (read transmission capacity) as a justification for high transmission costs is ridiculous. The reason we have expensive service and low bandwidth relative to Europe and Asia is because the transmission industry across all segments lobbied and succeeded in obtaining virtually total rate deregulation. What this means from a pricing standpoint is that as consumers, we get priced using a "value of service" model (charge what you can get from the consumer) rather than a "cost of service" model (charge based on the actual cost to produce the service, including reasonable returns on the invested capital). If there were actual competition in the industry, the two models would tend to the same result. But this is not happening and is not likely to occur because there are too few entrants in the market to escape oligopolistic pricing behavior (i.e., a few telephone, cable and satellite providers in a market simply do not provide the market participant numbers anywhere necessary to force meaningful competitive behavior in pricing).
You might object that there is competition in the cellphone industry, given that there as many as seven players (but shrinking fast) in some markets. But wireless telephony provides a perfect recent example to demonstrate my point. A year ago or so all providers simultaneously (how did that happen?) doubled their SMS message (text messages) rate from 10 cents per text message to 20 cents per text message. Was this increase cost based? What do you think? I think they did it because they determined that text message demand was price inelastic (i.e., relatively insensitive to price) so doubling the price would effectively double their revenue without affecting their costs or relative market shares in any way.
The ineffectiveness of competition to regulate transmission in the US can also be seen in the movement by various transmission companies to block or hinder transmission of content they do not source or own. What is going on in this situation is easy to see: content not owned by the transmission owner is being discriminated against by the transmission owner simply because it controls transmission necessary for content delivery to its transmission customers. This kind of behavior is basically leveraging monopoly power in one market, transmission, to capture market share in another market, content. If the transmission markets were competitive, this kind of behavior would be impossible. The calls for "net neutrality" are calls to eliminate this kind of monopoly behavior by transmission companies. In other words, they are calls to keep transmission companies from trying to extend their transmission monopolies to the content markets, which content markets are typically competitive but becoming more and more dependent on transmission for product distribution. Enforcement of net neutrality is a form of regulation to maintain competition.
Could regulation be extended with the goal to create more competition in transmission and if it were, would it? That's the big question because more regulation could make the situation worse. I would suggest, however, that by focusing on incremental regulation aimed at enforcing the structural preconditions necessary for a competitive transmission market to actually exist, an example of which is the net neutrality idea, we would have better shot at a competitive transmission market with attendant consumer transmission costs closer to actual productions costs and that we would get bandwidth at least comparable to that in Asia and Europe.
You might object that there is competition in the cellphone industry, given that there as many as seven players (but shrinking fast) in some markets. But wireless telephony provides a perfect recent example to demonstrate my point. A year ago or so all providers simultaneously (how did that happen?) doubled their SMS message (text messages) rate from 10 cents per text message to 20 cents per text message. Was this increase cost based? What do you think? I think they did it because they determined that text message demand was price inelastic (i.e., relatively insensitive to price) so doubling the price would effectively double their revenue without affecting their costs or relative market shares in any way.
The ineffectiveness of competition to regulate transmission in the US can also be seen in the movement by various transmission companies to block or hinder transmission of content they do not source or own. What is going on in this situation is easy to see: content not owned by the transmission owner is being discriminated against by the transmission owner simply because it controls transmission necessary for content delivery to its transmission customers. This kind of behavior is basically leveraging monopoly power in one market, transmission, to capture market share in another market, content. If the transmission markets were competitive, this kind of behavior would be impossible. The calls for "net neutrality" are calls to eliminate this kind of monopoly behavior by transmission companies. In other words, they are calls to keep transmission companies from trying to extend their transmission monopolies to the content markets, which content markets are typically competitive but becoming more and more dependent on transmission for product distribution. Enforcement of net neutrality is a form of regulation to maintain competition.
Could regulation be extended with the goal to create more competition in transmission and if it were, would it? That's the big question because more regulation could make the situation worse. I would suggest, however, that by focusing on incremental regulation aimed at enforcing the structural preconditions necessary for a competitive transmission market to actually exist, an example of which is the net neutrality idea, we would have better shot at a competitive transmission market with attendant consumer transmission costs closer to actual productions costs and that we would get bandwidth at least comparable to that in Asia and Europe.
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Roger Halstead
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- Joined: Sun Feb 26, 2006 4:13 pm
The End of Unlimited?
First, I completely disagree with rlm as he/she ignores two very important differences between Europe and the US. Also I'd view the system more like a trucking or rail system where there is the provider, the transportation, and delivery system, or three independent systems. Plus is the high speed in Europe *that* much cheaper.
1. Europe has a very high average population density compared to the US which makes for much shorter distances between customers.
2. The European countries have socialist economies with over half the individual's income going into taxes. However when it comes to gas most of them pay well over double what we do as the system is based on the US dollar. Certain elements are trying to change that and if they do *THEN* we will see gas prices that are really high. The devaluation of the dollar is only giving us a taste of what would be.
Taking #1, the US companies have to put in far more hardware to deliver the same data to far fewer customers compared to Europe so they have to average that cost across all customers. These greater distances both increase price and reduce bandwidth. True some of these companies have large cities, but they also have areas where it may be 10 to 20 miles between customers. Extremes? Certainly but it all averages out. Price out all the equipment a small ISP would need, then staff the installation and pay for the connection to the Internet providers. There is a pile of paper work, and maintenance required as well as a "help desk". It's an expensive undertaking, but as the independent ISPs have grown their costs per customer have come down as well as they can purchase faster and more capable equipment for less. IOW they have more customers and faster equipment that costs less.
As I've had broadband for many years I consider what our meager 15 or 20 Mbs costs to be a bargain, particularly when compared to the "early days" when my Internet bill ran $280-$290 a month for a fraction of the speed we have now. I'm on a tiered service that is based on speed, but not total use. I purchase the speed I need, but unfortunately the delivery speed isn't always the bottleneck.
As for #2, In Europe they have some large subsidies, but at the cost of very high taxes. However as the work force ages they are going to see (already are seeing) the same problems with their whole infrastructure we are now seeing with SS and Medicare. Not enough people paying in enough to match the amount being paid out. Most every day items in Europe cost far more than they do here. Some may run close to double. I know of several people in the UK who used to form excursions to the US just to go shopping. They'd purchase extra clothes to sell when they got home and that was often enough to pay for the entire trip. That has changed in recent years, but in general they pay much higher prices for items than we do. Many European countries have a value added tax or VAT that may run as much as 25 to 50% on some items.
High subsidies, high population density, and short distances all equate to lower prices and higher speeds, but is the ultra high speed that much cheaper "over there"?
I did a comparison and find the systems delivering over 20 Mbs are running the equivalent of nearly $80 USD on average. Some were over a $100 USD. It may be cheaper, but I didn't see any large differences between countries and the US on average. I'm sure a diligent search could probably find a few areas, but it doesn't seem to be anywhere near what I keep hearing. The premium for the ultra high speed appears to run around 18% or so.
One of the major differences is the maturity of the market here Vs there. We do not have the penetration of broadband they have and theirs is already paid for im many instances. We have to install the hardware/delivery system with the costs right up front while much of Europe has a mature and well established system. OTOH "they" are working to switch to the more expensive fiber and in many cases are finding it difficult to get customers to switch over to the newer and faster systems. Much like me and 16 Mbs being adequate when 20 Mbs and faster is available. Why would I switch?
As to the separation of data and entertainment. As they use the same delivery and transportation system it doesn't make sense to me for the ISPs and backbone providers to go to the extra expense. OTOH as entertainment increases the bandwidth for data is going to be limited. What I see is not the "end of unlimited" but the end or mostly so of free, or cheap entertainment via the Internet. "I believer" that it will not be long and we will be paying on par for streaming video as we did for rental sans hardware cost.
1. Europe has a very high average population density compared to the US which makes for much shorter distances between customers.
2. The European countries have socialist economies with over half the individual's income going into taxes. However when it comes to gas most of them pay well over double what we do as the system is based on the US dollar. Certain elements are trying to change that and if they do *THEN* we will see gas prices that are really high. The devaluation of the dollar is only giving us a taste of what would be.
Taking #1, the US companies have to put in far more hardware to deliver the same data to far fewer customers compared to Europe so they have to average that cost across all customers. These greater distances both increase price and reduce bandwidth. True some of these companies have large cities, but they also have areas where it may be 10 to 20 miles between customers. Extremes? Certainly but it all averages out. Price out all the equipment a small ISP would need, then staff the installation and pay for the connection to the Internet providers. There is a pile of paper work, and maintenance required as well as a "help desk". It's an expensive undertaking, but as the independent ISPs have grown their costs per customer have come down as well as they can purchase faster and more capable equipment for less. IOW they have more customers and faster equipment that costs less.
As I've had broadband for many years I consider what our meager 15 or 20 Mbs costs to be a bargain, particularly when compared to the "early days" when my Internet bill ran $280-$290 a month for a fraction of the speed we have now. I'm on a tiered service that is based on speed, but not total use. I purchase the speed I need, but unfortunately the delivery speed isn't always the bottleneck.
As for #2, In Europe they have some large subsidies, but at the cost of very high taxes. However as the work force ages they are going to see (already are seeing) the same problems with their whole infrastructure we are now seeing with SS and Medicare. Not enough people paying in enough to match the amount being paid out. Most every day items in Europe cost far more than they do here. Some may run close to double. I know of several people in the UK who used to form excursions to the US just to go shopping. They'd purchase extra clothes to sell when they got home and that was often enough to pay for the entire trip. That has changed in recent years, but in general they pay much higher prices for items than we do. Many European countries have a value added tax or VAT that may run as much as 25 to 50% on some items.
High subsidies, high population density, and short distances all equate to lower prices and higher speeds, but is the ultra high speed that much cheaper "over there"?
I did a comparison and find the systems delivering over 20 Mbs are running the equivalent of nearly $80 USD on average. Some were over a $100 USD. It may be cheaper, but I didn't see any large differences between countries and the US on average. I'm sure a diligent search could probably find a few areas, but it doesn't seem to be anywhere near what I keep hearing. The premium for the ultra high speed appears to run around 18% or so.
One of the major differences is the maturity of the market here Vs there. We do not have the penetration of broadband they have and theirs is already paid for im many instances. We have to install the hardware/delivery system with the costs right up front while much of Europe has a mature and well established system. OTOH "they" are working to switch to the more expensive fiber and in many cases are finding it difficult to get customers to switch over to the newer and faster systems. Much like me and 16 Mbs being adequate when 20 Mbs and faster is available. Why would I switch?
As to the separation of data and entertainment. As they use the same delivery and transportation system it doesn't make sense to me for the ISPs and backbone providers to go to the extra expense. OTOH as entertainment increases the bandwidth for data is going to be limited. What I see is not the "end of unlimited" but the end or mostly so of free, or cheap entertainment via the Internet. "I believer" that it will not be long and we will be paying on par for streaming video as we did for rental sans hardware cost.