THE ACTUAL ISSUE
The actual issue is quite simple; there simply isn't enough bandwidth to go around and what do we do about it?
Do we "allow" bandwidth-hungry corps to cap our bandwidth? To slow it down so that they may make more money?
In a word? Yes.
ALLOW US TO EXPLAIN
Let's ignore the fact that governments built backbones with our money and "gift-wrapped" them for corporations. Theft is theft but what's done is done. Let that be a lesson to you. So, let's move on. So, how do we fix this mess?
By allowing big corps to freely sell their bandwidth at any rate and with any exclusivity they may choose to do.
Now let's analyze what's going to happen.
As bandwidth-hungry corps pay for exclusive rights, our bandwidth will be capped. Sure. Point conceded. However, the actual question is this: by how much and for how long?
Will our e-mail systems keep working?
Low-bandwidth movies such as YouTube?
So what's the issue then if our life won't come down to a screeching halt?
The issue is that as low-bandwidth apps such as YouTube or Skype continue to push higher and higher resolutions, we will begin to run into problems and those applications, and only those applications will become choppy and less reliable.
Well, it so happens that for bandwidth-intensive applications to be profitable, they must reach… you guessed it… you! There is no point for a company to pump massive amounts of high resolution movies on the net if the bandwidth that reaches you is pitiful! Thus, if big corps decided to sell bandwidth in bulk to a few selected customers to the detriment to everybody else, those customers will be shooting themselves in the foot! It is everybody or nobody. Either we all have high bandwidth or nobody can. See how the whole issue of "Net Neutrality" is nonsense? But there is more.
THE NETWORK BUSINESS CYCLE
The owners of backbones (let's call them corps A) make money insofar people use their networks. However, should their networks become congested, people will tend to avoid them and use them less and less and avoid non-critical issues (such as entertainment).
Which means that business will begin to become less and less profitable (i.e. never forget, they have high maintenance costs). However, profitability won't decrease to a point at which it will force those corporations to update their networks. What will happen is that the drop in profitability will open the door for other corporations (let's call them B) to install their own networks and steal clients from A because there will be an under-serviced segment of the market which can generate profits.
Think of it this way. When people are dissatisfied with their ISPs they switch to better ones. For ISPs however switching providers it's not that easy because the only wholesaler of bandwidth are corps type A.
But what happens when a significant amount of people are pissed-off at corps A? Corps type B show up in the horizon and lay their own networks at a lower cost that A's had to do and at a significantly increased bandwidth (this is so because the cost of bandwidth has been dropping steadily towards zero as technology improves). Which means that they will be able to offer A's customers a faster bandwidth at a reduced price! How long do you think it will take ISPs to switch from A to B and drag their customer base with them thus denying corps type A succulent profits? Not too long.
No, not really. Keep reading.
THE ARTIFICIAL ENTRY BARRIER
All this is fine and nice and rosy but, why is this not happening today? Throughout the world there are only a few companies laying their network. Today. Very, very few and in very few places. So, what's going on?
In a word? Regulations.
Any employee or owner of an IT company, particularly ones involved in infrastructure understands full well that the technology is quite mature. It is simply a matter of getting the right components off-the-shelf, assemble them and voila! Of course, they would use the fancier word "integration", but "putting stuff together" is what it is all about.
Forget "custom" made techie stuff, such as Google's internal systems and hardware. Almost no company does that. The infrastructure of the entire world runs on off-the-shelf equipment. So, it is not a matter of innovation. Innovation is simply not required at this point.
Is it a matter of cost? No. Again, if you talk to people in charge of ISPs they will tell you that they would absolutely love to go into the networking business because there are so many opportunities to make money. Most cities around the world have one or at best two network infrastructure owners who charge a fortune for "last mile access" (yeah, those three words again). The economics of such business model is very, very viable. Yet, this is not happening because after all is said and done, the costs end up being astronomical!
Is it a matter of market share? No. Neither. Ask most people around the world what it is that they think about their network infrastructure providers (although many people will confuse them with ISP) and you would have a hard time trying to make them stop complaining! People would simply love to be able to switch to a better (and cheaper) service. Don't believe us? Think. When was the last time you heard somebody stating that their ISP is garbage, that they have outages all the time, the e-mail is broken, the fees are astronomical and they never, ever show up when something breaks down, but that they will stay with that ISP nevertheless. The people who say that is people that have that either have only bad options or people who truly do not have other options! Which happens to be the majority of the population!
The moral of the story is that neither technology, not the economic viability nor the lack of market share are entry barriers to the infrastructure business. So what is it then?
In a word?
Ask any infrastructure manager and they will tell you that:
- It takes between 5 to 10 years to go through the red tape necessary to get the permissions to lay networks.
- That "licensing" fees are ridiculously high.
- That regulations, once you are in business, are crippling.
- These regulations pollute the entirety of their business, whether they are related to labour, safety, security, privacy, legal, service, contractual and other subjects without forgetting the ad-hoc ones that were specifically developed by governments for the infrastructure industry!
Anything and everything is regulated; from where you may or may not lay networks, to the technology and standards that you must use to the maximum fees you may charge and the makeup of the packages you are allowed to offer. In many countries even the bandwidth is tiered and you are only allowed to offer certain tier. And don't get us started with the "security" regulations forcing you to store all data for decades (if not forever), to setup your systems in such a manner that can be tapped by the government at any moment, copyrights logistics, take downs, notices and so forth and many, many others.
This is the real entry barrier.
The answer next.
Note: please see the Glossary if you are unfamiliar with certain words.