The telecom industry’s old strategy of barely keeping up with the public’s demand for faster, cheaper Internet speeds (while simultaneously trying to suppress that demand) is dead. And good riddance.
Now it’s all they can do to keep their biggest customers — Google, Facebook, Microsoft, Amazon and others — from taking control of their business.
Comcast executive vice president David L. Cohen wrote an op/ed piece for the Philadelphia Inquirer in May, which asserted that the US is a “world leader” in broadband speeds. In that article, Cohen made the case that the United States is so far ahead on broadband speeds that consumers don’t really want faster speeds.
Cohen wrote that “By nearly every measure, we are a world leader” in fast Internet connectivity.
He then laid out a tortured and transparently misleading case, comparing the number of Americans with access to fast broadband to “Europe.”
Some countries in Europe, such as the Netherlands, Sweden and Denmark, offer average connectivity speeds exceeding 2.8 Mbps (with the Netherlands averaging 3.16Mbps), according to a recent report by Netflix. But Cohen’s “Europe” includes broadband laggards like Italy and Greece. (Netflix pegged the United States in the bottom three with Ireland and Mexico.)
The idea that the United States — the original creator of the Internet and home to Silicon Valley — should be happy with Internet speeds not as fast as Europe’s fast countries, but as fast as an average of Europe’s fastest and slowest countries — is condescending and delusional.
Half of US bandwidth is consumed by rapidly growing YouTube, and one third by Netflix. Does anyone believe video is fast enough? Gimme a break.
There’s a difference between not wanting faster speeds and not wanting to pay $200 per month for faster speeds.
Cohen even had the gall to take credit for Silicon Valley, saying that “Global leaders like Google, Facebook, Apple, Twitter, Pandora, and hundreds of others got their start thanks to the trillion-plus-dollar investment by broadband providers that has crisscrossed this nation with robust and truly ubiquitous broadband connectivity.”
That’s just a positive spin on the fact that during the dot-com bubble of the late 90s, telecoms expressed their irrational exuberance by over-investing in fiber capacity — the source of the plentiful dark fiber available today. (Dark fiber is fiber optic cable that has already been laid, but isn’t being used. It’s called “dark fiber” because fiber that’s actively used is called “lit cable.”)
Google has been so stymied by the Comcasts of the world that nine years ago they had to gain control of thousands of miles of fiber cables in order to route around the “broadband providers.”
The Rise of Google’s Fiber Internet
Way back in January 2005, a columnist for a publication called Light Reading discovered a Google job listing for a “Strategic Negotiator for Global Infrastructure.” The job description involved the “identification, selection, and negotiation of dark fiber contracts both in metropolitan areas and over long distances as part of development of a global backbone network; contracts and negotiation for managed metropolitan services and long haul wavelength services to fulfill capacity and redundancy requirements in North America, Latin America, Asia, and Europe.”
Rumors spread about a coming parallel Internet infrastructure, that for a while pundits called the “GoogleNet.”
In fact, Google was just looking for someone to go shopping for dark fiber.
Fast forward to today, and Google controls more than 100,000 miles of fiber globally. By comparison, Sprint controls less than 40,000 miles.
Facebook has been investing heavily to light up some dark fiber of its own, and both Google and Facebook are even laying undersea cables in Asia and elsewhere. Microsoft and Amazon are also investing massively.
There are many reasons for these investments. In some cases, they want to boost performance by connecting their data centers to Internet backbones. In others, they want to drive down costs and overcome bottlenecks in the system.
Together, Google, Facebook and other major customers of the telecoms are increasingly viewed by the industry as competitors, according to a recent article in The Wall Street Journal.
Google has gained so much power since 2005 in the negotiations to control dark fiber, for example, that it pushes aside the telecoms’ normal contracts and hands them their own Google contract with a no-negotiation, take-it-or-leave-it proposal, according to the article.
Telecoms feel like they’re losing control. And that’s a good thing.
If you compare companies like Google and Facebook — call them advertising-supported content movers — with telecom companies, you can see how their incentives and priorities are opposites.
The advertising-supported content movers profit more when Internet bandwidth is super fast and ultra cheap. The telecom companies profit more when Internet bandwidth is slow and expensive.
In the past, telecoms had to build capacity as a way to keep up with consumer demand, which they tried to limit (for example with Cohen’s op/ed piece). Don’t get me wrong — in the past 15 years, the telecoms have invested massively. Suddenly, however, they have to compete with their own biggest customers.
It’s not easy. Companies like Google and Amazon are investing literally billions of dollars per quarter on infrastructure to speed up and lower the cost of Internet bandwidth.
And, of course, Google is shaming telecoms with its high-visibility Google Fiber projects, not only in the United States but now even in Africa.
It’s a battle not only over higher speeds, but also for the loyalty of customers.
For example, Austin, Texas, is one of the anointed cities selected by Google to get Google Fiber, which provides an incredible 1 Gbps upload and download speed for $70 per month.
AT&T already offers fast Internet in Austin — a package called U-verse GigaPower offers 300 Mbps for $99 per month. Apparently in response to Google’s Fiber announcement, AT&T is increasing capacity there to match Google’s 1 Gbps by mid-2014.
Just as Google’s price may be subsidized by advertising — Google’s main source of revenue — AT&T will offer a discount of $30 to customers who agree to allow their web histories to be scanned by AT&T to provide contextual advertising.
AT&T is matching Google’s speed, price and monetization model.
The Austin example is the best one I know of where the aggressive investment in fast fiber by the Google’s of the world is not only increasing speeds and lowering costs directly, but forcing telecoms to step up and compete as AT&T is doing.
It’s not that Silicon Valley (and Seattle-area) giants like Google, Facebook, Microsoft and Amazon are “good” and that telecoms are “bad.” It’s just that the tech companies happen to make more money by investing in the very thing users want most: the fastest possible Internet speeds at the lowest possible price.
Photo courtesy of Shutterstock.