Not so fast, Henry, because Microsoft’s entry sets up a fascinating natural experiment in business models, as varying approaches compete with each other, and pre-judging the outcome is rash.

A mobile smartphone system has four parts: hardware; operating system; carrier; add-on applications. These can be furnished as a complete or partial package — Apple, for example, provides the hardware and the operating system, maintains tight control over the applications store, and integrates its offerings with the carrier, AT&T. Or they can be furnished as stand-alone items, as Google furnishes only the Android OS. Or something in between is possible, as handset makers load Android, but are then integrated with carriers which provide subsidies while they duel over who will control the applications.

Competitive advantage can be sought from any element of the system. Apple profits greatly from the elegance of its hardware and the devotion of its fans to its OS. RIM (Blackberry) has long been a favorite of corporate America because of its security and integration with corporate systems. Android gets an edge by being both free and open, two different attributes. Free appeals to the handset makers, who like the idea of paying nothing for an OS and at the same time having no responsibility for developing or maintaining it, and open appeals to everyone (makers; carriers; programmers) who might want to tweak it for their own particular purposes.

But competitive advantage is a tricky thing, and the characteristic for which the tech world most loves Android, which is that it creates a great playground for geeks, and encourages the development of thousands of applications, is probably the least important concern for the vast mob of consumers, who can barely program a video recording machine. For the mass market, the most important considerations are ease of use and transparency, lack of hassle in use, reliability, security, enough of the right apps. Above all, the time of the user is the most important resource.

Windows won in the PC not because anyone loves Microsoft or because it lacks many annoying idiosyncracies (for example, its help functions were written by brains that do not work like mine) but because Microsoft invested heavily to ensure that anything that is plugged in, works. Anyone who remembers the early days of the personal computer, when adding a printer was a day-long project, understands how important this is. And how quickly lost time wipes out any money savings – for any sensible person, the $15 that Microsoft plans to charge for Windows 7 will be a bargain if it saves him a single hour over the life of the phone, and this is without consideration of any possible ancillary costs, such as security breakdowns.

So what approach to a smartphone system will win in the market? The only thing we know for sure is TANSTAAFL – there ain’t no such thing as a free lunch. Every element of the system must be paid for in some fashion, at the outset and most probably by continuing investment in maintenance. Microsoft, and all other software companies know this, as is shown by the stream of updates, many security-related, that appear regularly on my PC. As Apple has grown more popular, it too has become more of a target for malicious hackers, and it too must be devoting more resources to countermeasures.

So, who is going to maintain Android? Will Google? But how, since a chief characteristic of Android is openness, which means people can tweak it in private ways? And how does this fit with Google’s business model, which is to collect money for advertising that is connected to Android, and to use its software to collect information that improves the effectiveness of that advertising; there is no logical or necessary relationship between this model and the costs of maintaining an OS on a continuing basis.

Will each handset maker that installs Android undertake the responsibility for maintenance, and is this economical? It appears quite duplicative on the surface; indeed, it would not be long before the handset makers got the idea that they should all contribute to a third party that would maintain Android for all of them, but oops! Wasn’t that that $15 per instrument savings that just went out the window (pun intended)?

Blodgett followed up his original post with one quoting an unnamed “person familiar with Microsoft’s mobile strategy” who contended that “Android comes with all sort of hidden costs that drive up the per-unit expenses such that Microsoft’s $15 per unit actually seemed like a better deal.” Said person notes the plug and play point, for example:

Android’s laissez faire hardware landscape is a fragmented mess for device drivers. (For background, just like PCs, mobile devices need drivers for their various components—screen, GPS, WiFi, Bluetooth, 3G radio, accelerometer, etc.)  Android OEMs have to put engineering resources into developing these drivers to get their devices working.  The Windows Phone 7 “chassis strategy” allows devices to be created faster, saving significant engineering cost.  It’s essentially plug and play, with device drivers authored by Microsoft.

Blodgett asks for continuing input on the issue, and Amen to that. In theory, my guess is that the the $15 per instrument charge for the OS will win out, but maybe not, or maybe Google or the handset makers will find that continuing services are not necessary or that the economies of scale are such that they can be provided at a cheaper price. The scale is certainly there, as hundreds of thousands of Android phones are being activated every week.

So let the games begin, and may the best business model prevail!

Wall of cell phones from Jason Dunn.

Will the Larry Lessig/Tim Wu/Free Press crowd react with horrorified cries of how information should be free, and urge the BitTorrent users of America to capture and re-stream the session and pirate the materials? Why should people be allowed to pay to get information from an expert when they can get the blatherings of know-nothings for free?

Mashup from Decision Stats.

Network engineers versus lawyers and non engineers

It is notable that none of the actual engineers and architects of the Internet and World Wide Web argue for a dumb Internet.  Even the ones who actively lobby for Net Neutrality regulation or legislation like TCP/IP co-inventer Vint Cerf or inventor of the HTTP web browsing protocol Tim Berners Lee won’t make the argument against traffic prioritization or out-of-order packet delivery.  Vint Cerf stated during a debate with David Farber (YouTube archive here at 50:10) that he had no problem with jitter management which requires out-of-order packet delivery.  Tim Berners-Lee even stated that there was nothing wrong with paying more money for higher priority.

David D. Clark who was one of the authors of “End-to-end arguments in system design” even debunked the notion that end-to-end arguments called for a dumb Internet.  In a paper titled “Rethinking the Design of the Internet: End to End Arguements vs. the Brave New World“, Clark stated:

“from the beginning, the end to end arguments revolved around requirements that could be implemented correctly at the end-points; if implementation inside the network is the only way to accomplish the requirement, then an end to end argument isn’t appropriate in the first place.”

So who argues for a dumb Internet?  It turns out to be lawyers like Larry Lessig, Tim Wu, and Susan Crawford.  Crawford in particular believes that a neutral Internet must forward packets on a “first-come, first served basis, without regards for quality-of-service considerations”.  Some lawyers like David Post who was a self described end-to-end principle “religious zealot” actually turned out to be quite reasonable when he eased off on the zealotry when I presented him with some facts.  I’ve also spent considerable time debunking the anti “application bias” paper from two non network engineers at Free Press.  I used data to debunk the notion that prioritization is harmful and I argued the importance of prioritizing real-time applications and managing things like jitter to promote true fairness and true application neutrality.

Where did the references to FIFO come from?

So where exactly did the precise reference to the FIFO (or first-come first-serve) Internet come from?  It turns out that FIFO was discussed in the same “End-to-end arguments” paper that is misused to justify the dumb pipe architecture of the Internet.  However, the proponents of a dumb Internet didn’t understand the engineering context and usage of the term “FIFO” in the end-to-end arguments.  In fact, the end-to-end arguments made the *opposite* argument that the network shouldn’t be in the business of providing FIFO in the first place much less require that the Internet operate in a FIFO manner.

The end-to-end arguments argued for a network architecture that erred (not required) on the side of less intelligence in the network and more on the edges out of pure pragmatism and it defended this philosophy with concise and practical examples.  One of the first case studies raised by the end-to-end arguments is how impractical it would be for the network to attempt error correction whereas the end point device could handle this so much more holistically and result in less overhead “cost” and higher performance on the network.  It then goes on to make the case about how impractical it is for the network to provide security in the form of encryption.

When it gets to the section on FIFO, it follows the same theme and argues that it is impractical for the network to provide FIFO message delivery by citing the example of distributed applications.

Note: This forward thinking paper in 1981 anticipated applications like peer-to-peer (P2P) and BitTorrent which use a distributed file transfer architecture.  One of the main limitations of a pure P2P architecture is that it distributes content in an out-of-order fashion that prevents its use in streaming video.  A P2P user could view their content only *after* they have downloaded the entire movie but they could not view it *during* the download because the content was delivered in out-of-order segments.

The distributed application presents an example in which the network would not be able to assure message reassembly and that only the application would be able to do this properly.  Therefore, FIFO message delivery was yet another example of something that would be better handled by the end points and not the network.

Furthermore, FIFO in the end-to-end arguments was used in the context of a virtual circuit.  FIFO referred to in-order delivery of data within an application and not among different applications or even different instances of the same application.  In laymen terms, you wouldn’t want to make an Internet-based phone call to someone and have your word “professor” rearranged to be “prosorfes”.  However, there’s no reason that the packet of a Voice over IP (VoIP) phone call shouldn’t be able to get rearranged before some BitTorrent packets especially when BitTorrent causes massive jitter problems by shoving hundreds of its own packets into the network queue before the VoIP application even gets to transmit a single packet.

The reality is that the Internet was never meant to be a big dumb pipe with First In First Out packet delivery.  How such a myth got so much traction in academia and policy circles is beyond me and it is the antithesis of data-driven policy.

Some additional discussions on the architecture of the Internet and prioritized networks can be found here, here, and here.

Factories and roads are the infrastructure of the industrial economy. Broadband and Wireless are the infrastructure of the information economy. There is an important role for regulation and government, but government cannot keep pace with the pace of technological evolution. We believe in the moral and economic power of markets – genuine crowdsourcing – with government cautiously providing protection from harm and fraud.

And this position can additionally be surmised in posts like, The Era of Geek Pork Has Arrived.  Those of us at DS definitely understand that there is a proper role for government, but that investment and the development of networks is an area suited best for the private sector.

That being said, we also have to realize that we operate in the real world, and the application of our beliefs of the proper role of government is not always going to play itself out like we would prefer.  So the U.S. has a broadband expansion plan.  One that I don’t like, as I indicated for multiple reasons in a white paper I wrote on the subject last year.  But something that I have never understood is that if you are going to go ahead and have a broadband plan why do we continually hear about modeling that plan after Europe or South Korea when the geography of the United States and the demographic profile of the country is so vastly different.

If we as a country are looking at any model that is closest in proximity to what the U.S. is dealing with geographically and demographically it is Australia.  The Australian National Broadband Network will cost upwards of $43 billion AUS and take around 8 years to complete.  There are some negatives to the plan, but much of the logistical side of the planning is very smart and very common sense.

A few positives and negatives before moving on to the logistics:

Positives

90% of Australians will have Fiber-To-The-Home (FTTH) and have 100Mb downstream and 50Mb upstream connections.  (The other 10% will be covered by wireless and satellite; more on that later.)

The NBN will only operate as a wholesaler.  It will dig the trenches, run the lines, operate the backbone, etc, but traditional ISP’s will stay in place to deal with direct consumer sales.  Theoretically this implies an increase in competition because prices could potentially drop since ISP’s would no longer be forced to invest high dollars in certain areas of infrastructure.

Pushing FTTH theoretically “future proofs” Australian networks and would allow for easier improvement in the future.

Logistically the plan makes sense for the geography of Australia.

Negatives

One of the negatives I see with the National Broadband Network is that to achieve the plans goals, the NBN was essentially forced to purchase all of the Telstra network infrastructure.  Telstra, who is the largest Internet provider in Australia was originally a government owned entity that was privatized in the late ’90′s and early millennium.  Telstra believes that the future is in wireless and they have agreed to sell their entire network to the NBN for $11 billion and the rights to bid on precious LTE spectrum.  Some of the reason for the NBN plan and the purchase of the Telstra network according to the plan is that there is no competition.  Ironically instead of developing the NBN as a competitor, the newly created “government owned enterprise” simply bought out Telstra and the NBN will be the only major backbone.  Realistically there is just a trade of ownership of the major Australian backbone network being made and no additional competition being created.

Another negative to the plan is that Internet Service Providers in Australia will be forced to compete with each other via the “Competition and Consumer Commission”.  The problem with this is that a supposedly ubiquitous commission deciding what is and what isn’t competition and fair pricing stands a fair chance of not actually playing out in any other fashion than simply being a price fixing commission.

The cost is fairly high.  As of the 2010 Australian Census, the country claims roughly 22.4 million residents.  If we assume that all these residents are tax payers, that means that each resident is responsible for $1,919 AUS for the broadband build out.  And I believe we can also assume that many Australians that could care less about Internet access would probably select to keep their $1,919 if that had a choice.  This is money that they would not have to pay if private investment was solely backing broadband expansion and they never chose to use the service.

Another factor in the plan that bares some concern is that the NBN is a “government owned enterprise”.  What this means is that the NBN receives private investment, and at some point down the line it is assumed that it will bring in revenue.  If it did not bring it revenue it would obviously be difficult to get private investment.  The government will maintain a majority with a 51% ownership share with the notion that it will slowly sell off its shares after the NBN is established.  The downside to this is that a new administration years down the line may decide to change previous government decision making.  They could decide to re-invest or use more tax money to improve things.  The plan that currently calls for 100Mb connections may not be so impressive in 8 years time.  Therefore even the hint of the government being able to alter this semi-private enterprise does bring about risk to investors and tax payers.

Because the NBN will only act as a wholesaler and treat all ISP retailers equally, ISP’s no longer have the ability to develop their own unique contracts that would reduce costs to consumers.  All backhaul would be priced to all ISP’s at the same rate.  So realistically no company has a significant advantage over the other.  That does potentially create a good deal of choice, but that does not necessarily ensure competition.  This would be akin to going to the grocery store and on the shelf were 5 different brands of soft drink, but every single brand tasted exactly like Coca-Cola.  You would have a lot of choice in that situation, but there would be no real competition between those 5 brands, because taste is the competitive factor.  For the Australian, this means that ISP’s will likely be forced to start bundling services to gain advantages over one another.  Something that is not always considered attractive here stateside.

Deployment

The deployment of Internet infrastructure and connections to Australian homes is what I find to be the most common sense.  When you compare it to the thought process of the Federal Communications Commissions desire to force FTTH to every American farmer in the U.S. that may live hundreds of miles from a medium to large city it begins to sound ingenious.  But realistically it is in its essence simply rational.

The NBN plan does indeed call for 90% of residents to receive FTTH.  And this is most likely a good solution for the majority of Australians.  Roughly two-thirds of the population of 22 million residents live within the city limits of Sydney, Melbourne, Brisbane, Adelaide, Perth, Darwin, and Hobart Tasmania.  The other 8 million residents live in the suburbs of these cities, with fewer and fewer populating the country areas like the Bush and on into the Outback.

Most of those living in the suburbs will most likely fall into the 90% that will receive FTTH.  But unlike the U.S. Broadband Plan that calls for fiber to be deployed to areas that do not make sense for it to be deployed, the Australians will look to wireless and satellite technologies to fill the gaps.  Of the 10% of Australians not receiving FTTH, 7% will be provided access via wireless technology, most likely LTE.  The NBN calls for 20Mb down wireless connections with 100Mb bursts.  The final 3% of the population will have access to 12Mb satellite connections.

Things to Consider

• Australia understands that the last 10% of unconnected Australian residents will be very costly to reach.  It has been estimated that to reach the last 5% (96-100%) could be 4 times as expensive than reaching the previous 5% (90-95%).
• The U.S. claims to have reached 95% of residents and our government is trying to force wired access to the last 5% when Australia has found it entirely impractical to reach the final 10% with wired access.
• Australia is putting $43 billion AUS towards this plan.  When converted to U.S. dollars that comes out to about $1,700 per Australian tax payer assuming all residents are tax payers.  Attributing this same amount of cost per resident in the United States would mean that a similar plan would run the federal government $551 billion dollars.  And don’t forget that Congress was trying to balk at the $7.2 billion that they appropriated in the stimulus plan in 2009.
• Australia traditionally has had low bandwidth caps.  Even just five years ago while most Americans were enjoying unlimited bandwidth with their broadband connections, I was living in Melbourne, Australia and was limited to a 1GB cap per month via my Telstra connection.  The likelihood of seeing 100Mb uncapped connections is highly suspect.  Australians may enjoy these speeds, but they will likely be extremely expensive with low bandwidth caps or limited to high priced premium tiers.
• 100Mb downstream will likely be restricted to local areas or at most only within Australian borders in order to minimize transit costs.  This is similar to Broadband Utopia in Utah who offers 100Mb service but degrades the connection to 10Mb when the traffic leaves the Utopia network to reduce transit costs.  This type of network management makes the most financial sense for both the network operator and the customer, but is something that would be looked down on by Network Neutrality proponents.

I feel wholeheartedly that broadband infrastructure deployment is something for the private sector.  In my white paper on the subject I predicted that government backed broadband expansion will inevitably lead to mandatory Network Neutrality regulation, something that I termed “Gateway Neutrality”.  And that is exactly what is happening with the NBN in Australia.  However, if a country does force a broadband plan into play, it needs to be suited to that countries needs and not simply a boiler plate plan.

There is no “10 Step Guide To Broadband Deployment”.  But a government can take a common sense approach.  I believe that as far as determining what works best for the population of Australia based on the location demographics of where Australians live the government is making good decisions and logical decisions.  Because location demographics in the U.S. are very similar to Australia, it makes much more sense for the U.S. to be looking at this model of broadband delivery rather than methods being deployed in Western European countries, Scandinavia, and South Korea.

As is always the case when someone bangs their gong so loudly, the noise drowns out the real story.

Yes, cable saw a net reduction.  As many have pointed out, part of the reason for this is the still-struggling economy.  A larger, and considerably more important factor, may have been the DTV transition.

But how, you ask, can that be?  The DTV transition took place a year ago.  How could its impact linger into cable sub numbers for Q2 2010?

Expiration of Cable Discounts Factor Heavily

As America prepared for the transition, the cable industry created deep discounts on cable packages to provide service to those concerned with losing their OTA broadcasts.  In some cases those discounts resulted in $10 a month for service.  In Q1 and Q2 of 2009, cable MSOs reported increases that were significantly higher than normal.  This represented people who signed onto low dollar packages to avoid any potential service interruptions.

If we take the increase from 2008, and use those numbers instead, we see the difference above.  The dashed line shows the increase based on the artificial demand spurred by the transition, while the solid line indicates what that number should have looked like absent the DTV pickups.

If you subtract out those who dropped cable when their discount expired, cable actually netted about 100,000 new subscribers in Q2 (which isn’t a huge number, but consistent with what you would normally see in the second quarter.)

The fact is Q2 is always the low point for MSOs.  There is a hit on subs people head to vacation homes and student customers disconnect for the fall.  On their quarterly earnings call, Comcast’s Steve Burke noted that the more successful they are in Q3, the more pronounced the difference is the following year.

In the case of Q2 2009, the numbers reflect not only that seasonal shift, but also the expiration of low cost packages that customers decided not to renew.  Keep in mind these were primarily customers that didn’t have cable before the transition. They may not be watching a lot of TV anyway.

What The Numbers Don’t Show

The one clear takeaway, when you realize that cable subs would have actually grown absent the external stimuli of government mandates, is that cord-cutting continues to be an urban legend promulgated by those who wish it to be so.

There are certainly people who don’t consume TV much.  Those people will add or drop cable all the time – and that was true before the Internet. In my early 20s, I added and dropped cable depending on whether it interfered with beer money that month.  There will always be reasons people tune out.

The Life Cycle Dynamic

Perhaps the most interesting thing to note is the growth of cable versus the growth of actual housing units.

In the third quarter of last year, cable subs actually began to outpace the construction of new housing units. In short, there were more subscriptions for new cable than homes built.  New subs were coming from existing homes.  The dashed line above still represents the DTV households.  Subtracting that out still shows a net add from existing homes.

The life cycle dynamic suggests that as older cable subs die, they are replaced by younger households.  There is obviously play in the middle, but the industry generally accepts that the interplay between customers at either end of the spectrum.  For the numbers above to hold true, absent the DTV subs, MSOs would be adding younger households at a rate higher than what that they’re losing.

In other words, far from losing young customers, at least in the short term, cable is signing more up – possibly as many as twice the number of elderly subs it is losing.  While that may not always hold true, it appears to be true for now.

Hank Hultquist of AT&T wrote this interesting post summarizing AT&T’s letter to the FCC defending the right of “end users” to buy premium networking services i.e., Paid Prioritization.  Hultquist made a number of key points:

• Free Press made the claim that paid prioritization has never been contemplated by the standards bodies, doesn’t exist on the Internet and that it is to be used for nefarious purposes, and will only be affordable to the larges companies.
• But the Internet’s standard body created the DiffServ standard that clearly contemplated and permitted fee based premium services.  These premium services are widely available and purchased by businesses and organizations of all sizes.
• Free Press makes the strange assertion that DiffServ prioritization is harmful to regular Internet traffic while “geographic prioritization” i.e., Content Distribution Network (CDN) prioritization isn’t.
• However, empirical evidence (based on research conducted by Digital Society) shows just the opposite is true and that CDNs are more harmful to regular Internet traffic than higher class DiffServ traffic.

Derek Turner and Free Press fired back against AT&T calling their letter misleading.  However, they only addressed some of the issues raised by AT&T with some questionable arguments.

• Free Press argues that AT&T is conflating the sale of enhanced QoS to business customers with “the anti-consumer practice of speeding up and slowing down Internet traffic according to which service provider pays more”.

I hate to break the bad news to Free Press and Derek Turner, but selling enhanced QoS (Quality of Service) to businesses is precisely the act of speeding up and slowing down Internet traffic according to who pays more.  It’s the concept of “getting what you pay for” or “pay more get more”.  It’s the concept of “equal service for equal pay” which Free Press distorts into “equal service regardless of how much one pays”.  If businesses didn’t get faster, more reliable, and less congested Internet services, why in the world would they pay 10 to 40 times more per Mbps of bandwidth than consumers?  Isn’t that the epitome of “priority service”?

• Derek Turner then makes the argument that AT&T increased its capital expenditures in 2006-2007 which was a time when AT&T was obligated to live under the terms of a merger condition with the FCC in which it refrained from selling paid prioritization to content/application/service providers.

There are serious problems with this line of reasoning which I’ve pointed out in the past.  Those merger conditions were nowhere near as extreme as the ones proposed by congressman Ed Markey, didn’t outlaw existing business models, and didn’t apply to wireless networks by pretending that wireless networks operated under the same technical and economic constraints as wired networks.

Furthermore, content/application/service providers are merely another type of business.  More specifically, these are businesses that offer products (applications or content) and services to consumers over the Internet and these businesses are commonly referred to as business to consumer (B2C) sites.  Why is it that a business selling to other businesses should be allowed to buy priority routing but business that deals with consumers shouldn’t?  And if they are prohibited from buying priority routing, why should they be allowed to buy priority by leasing or building more network infrastructure or buy CDN services?  Our research already showed that Free Press’ argument that router prioritization is harmful but CDNs are not is completely backwards.

The fact that companies like Linden Labs wants to outlaw their competitors like Blizzard from paying for priority because they don’t want to look inferior doesn’t make outlawing priority routing services good public policy.  Just because one economist at NYU believes that services which enable winners and losers should be banned doesn’t mean that this is the accepted legal and economic definition of what constitutes a bad form of discrimination.

This debate over paid prioritization has always been the essence of the fight over Net Neutrality.  To have a meaningful debate, we must ignore the bogus arguments that distort the meaning of free speech or the silly “all sites load equally” arguments.  We must debate whether we want to preserve an open bandwidth market or if we want to outlaw cheaper and faster paid peering services that may one day threaten the dominance of companies that built their own private priority Internet like Google.

1875
Over objections from Western Union, AP secures its first leased telegraph wire, a 226-mile circuit between New York, Philadelphia, Baltimore and Washington, enabling AP to move news unencumbered by delays and competition for the wire.

It is a good thing that the FCC did not exist then, or AP would probably be in its 50th round of hearings as to whether this proposal was in the public interest.

It is also amusing because a number of news organizations (members of the AP cooperative) have thundered about maintaining net neutrality on the Internet.

Photo from Drinks Machine Photostream.

Triton

The gist of the Complaint (and thanks to Eriq Gardner of The Hollywood Reporter for posting a PDF) is:

Defendant has owned, operated, provided advertising consulting and referrals for, and/or provided other material assistance to the websites www.freetv-video-online.info, supernovatube.corn, donogo.com , watch-movies.net, watchmovies-online.tv , watch-movies-links.net , thepiratecity.org, and havenvideo.com (collectively the “Websites”), whose purpose is to promote, facilitate, and profit from the infringement of Plaintiffs’ copyrighted works. The Websites are forprofit “one-stop-shops” for infringing copies of Plaintiffs’ copyrighted works. Specifically, the Websites, have posted, organized, searched for, identified, collected and indexed links to infringing material that is available on third-party websites, otherwise provided access to infringing material, and/or hosted infringing material. Plaintiffs are informed and believe, and based thereon allege, that Defendant profits from its misconduct by way of the advertisements displayed on the Websites or other websites accessed through the Websites. Defendant’s conduct constitutes copyright infringement.

Note that this is a double jump – the websites are accused of contributory infringement under long-standing copyright doctrines, especially as elaborated in 2005 in Grokster, and then Triton is accused of contributing to the contributory infringement. A repeated formula in the Complaint is that Triton “performed consulting and referral services regarding advertising for [a particular website],“ but, as Gardner notes, the Complaint “largely focuses on the misdeeds of the [web]sites” and is “rather thin on specific details of Triton’s services to these websites.”

The Complaint is replete with allegations that Triton had complete knowledge of the infringing activities of its clients, largely because the content companies had complained, and it emphasizes the extent to which the websites’ business model depends on enabling users to access copyrighted content and then selling advertising, but it is a bit elusive on the question whether Triton’s business model depended on accessing illegal content. That is, is Triton a general adviser on website advertising that happens to have some shady clients, or is it an integral and intentional part of a shady network?

It is an important distinction. Intellectual property rights must be protected for the sake of all of us. We cannot have a vibrant creative culture unless creators and their facilitators, including financiers, packagers, and distributors, can monetize the product. Furthermore, it is not feasible to enforce intellectual property rights by going after illicit users one-by-one. So the logical approach is to attack the middlemen who make a business out of facilitating infringement and make their money by siphoning off the eyeballs and advertising dollars that would otherwise go to legitimate providers.

On the other hand, it is important not to push too far back up the chain. It is not sensible to create an enforcement system, in any area, in which everyone in business becomes his brother’s policeman. This imposes excessive transaction costs on routine commercial operations, and is replete with the possibility of error and officiousness. Auto dealers should not have to probe the source of their customers’ funds, teachers should not be cross-examined on whether their purchase of children’s glue is to start a meth lab, banks and credit card companies should not be made responsible for the propriety of every payment they process.

So, while one’s basic sympathies should be with the content companies, it is axiomatic that they will try to press too far, making everyone in every value chain into protectors of their copyrights (unpaid, of course).

It could be that Triton is so intertwined with the pirate websites that these questions of proper restraint do not arise. Triton does not appear to have a website, a fact which in itself, in this Internet age, creates doubt that it is a legitimate operation. On the other hand, this case could shape up as the next big one on just how we police, or don’t police, the copyright system.

Clipart of Triton from Florida Educational Technology Clearing House.

“Cable is vulnerable because for far too long they’ve screwed us all with ridiculous prices for a crapload of content that we simply don’t want. Despite the ever-present promise of a-la-carte pricing, it has never come to fruition. And so our cable bills remain close to (or over) $100 a month. We’re paying for so much stuff we simply don’t want. But we have no choice.”

The statement itself is contradictory and misleading.  For one thing, if all that content was truly “crap”, why does the vast majority of the public pay for it?  I’m sure you can get the vast majority of people to say that they would rather pay less for cable (or any other goods and services), but that isn’t evidence that a product is “crap”.  On a related note, calling something “crap” is also one of the typical rationalizations for stealing content.

Speaking as someone who “cut the cable” nearly four years ago, I and many of my friends are living proof that we do have a choice.  If you don’t spend a lot of time in front of the TV like most heavy Internet users, you can easily get away with free over the Air HDTV along with some free and subscription based Internet streaming services.  The people who can’t cut the cable are those who clearly value the unique content of their MVPD service enough that they would pay $70 to $100 a month for the service.

The other problem with Siegler’s statement is the over estimation of cable bills.  Base MVPD packages range anywhere from $45 to $70 and it’s only when you add the premium channels like HBO (which costs around $16/month by itself) along with other things like equipment leasing e.g., DVRs and HD receivers that the price balloons to $100/month or more.  Do people honestly believe that if HBO was available for streaming over the Internet (legally), it would somehow cost less than the MVPD solutions?  As for the equipment lease, can that legitimately be counted in when the cost of owning a computer isn’t?  $15/month for two HD receivers and DVRs ($720 over 4 years) seems like a reasonable deal considering how much it would cost to build an equivalent computer or embedded device with similar capability.

The comparison you hear over and over again from tech media is that people can cut the wire and save money while retaining access to the same content.  They’ll cite Apple’s $0.99 a-la-carte pricing of program episodes as evidence on how they would save money, but that would quickly balloon to well over $100 for households with multiple TVs.  Furthermore, consumers have generally shown a disinterest for a-la-carte pricing because they don’t want to think about paying for every little thing they may or may not want to watch.

People tend not to explore new programming if they have to justify paying a dollar to watch something and this probably explains why the vast majority of consumers (even those who are thoroughly in tune with Internet alternatives) have not opted to cut the cable.  Internet alternatives will most likely involve some sort of bundled pricing but that pretty much brings us back to the same place we are with Cable, Telco, or Satellite MVPDs and the Internet solutions will simply be a fourth alternative with similar pricing structures.

For me personally, I’m almost leaning towards signing up for a relatively inexpensive basic MVPD package just to be able to view Pay Per View (PPV) content with my friends because I’ve had so much trouble with online alternatives.  The online streaming PPVs cost the same $45 per PPV while offering horrible quality and reliability.

“Let’s say you’ve settled into the couch in your living room to watch “One Flew Over the Cuckoo’s Nest,” streaming from Netflix. What if your Internet provider decides that Jack Nicholson is less important than your neighbor’s work e-mail attachment, and all of a sudden your movie stops playing for a minute? That’d be annoying.

Maybe you would be willing to pay just a bit more to make sure you could watch Netflix without interruption. Now, what if your provider were to charge you $50 a month for this privilege? Could you switch carriers in protest? Sure you could, unless your provider had an exclusive agreement to provide access to Netflix.”

This has absolutely nothing to do with the Net Neutrality debate and anyone familiar with any of the proposed regulation or proposed legislation on Net Neutrality knows this.  The nightmare scenario painted by Soleja is a non-issue in the policy debate because your broadband provider is contractually obligated by their peering agreements to carry Netflix traffic with best effort even without additional payment from Netflix or the end user to specifically access Netflix.

If your broadband provider blocks Netflix unless either you or Netflix pays the broadband provider, that is a violation of the broadband provider’s contractual obligations to its Internet peering partners and to its broadband customer.  The broadband provider would also get raked over the coal by the public, the media, the FCC and the Congress so it is a complete nonstarter.

However, your broadband provider is free to offer you or some website an enhancement at a fee, though the transactional cost and price sensitivity of consumers make consumer paid enhancements extremely unlikely to succeed in the market place.  The broadband provider can and is more likely to offer an enhanced service to Netflix or some other website at a price to performance ratio that is competitive in the marketplace to alternatives like generic IP transit service or Content Delivery Networks (CDNs).  So long as the offer doesn’t carry an implied or explicit threat to de-prioritize or block the site below best effort for rejecting the offer, it is legal practice in the Internet marketplace that will be adopted or rejected by the market place.

For example, reviews of Comcast’s paid peering service (likely taken offline due to the Non Disclosure nature of the information) suggested that it could at times perform twice as well as congested IP transit services while costing a third of traditional Internet transit rates.

Note: Most business to business (B2B) transactions are conducted under NDA because they are treated as trade secrets and Google for example forces all of its suppliers to sign NDAs.  An Intel executive once bragged about winning Google’s business and that didn’t go over well with Google.  This is why we rarely hear about the truly non-neutral and highly differentiated nature of the Internet.

Net Neutrality proponents want to outlaw these purely voluntary agreements and they’ve managed to get the current FCC majority to propose outlawing the sale of “enhanced or prioritized” services to Business to Customer (B2C) websites even if they are completely beneficial to the website, the broadband provider, and the consumer.  But to scare the public into supporting these restrictive regulations on voluntary agreements that are available at non-discriminatory prices to anyone, Net Neutrality proponents like Sameer Soleja wants the public to believe that they are stopping broadband providers from engaging in extortion.

Here are some more misleading arguments from Sameer Soleja about these supposedly exclusive agreements:

“Exclusive agreements are part of the long game, and one that net neutrality proponents worry about feverishly. Websites such as CNN might require Internet providers to pay them for access. Alternatively, Internet providers such as Verizon might charge individual websites to allow access for subscribers on their networks. (Neither of these scenarios, by the way, is far-fetched. ESPN360.com is only accessible to customers of certain telcos, and Verizon largely locks its subscribers into using Microsoft’s Bing search engine on their BlackBerrys.) At this point, the Internet starts looking like a giant cable television network. Consumers are definitely not on the winning end of that configuration.”

It’s very ironic that Soleja picked ESPN360 as an example of ISP extortion.  ESPN3 (formerly ESPN360) isn’t a case of ISPs holding up websites for money; it’s just the opposite.  I broke this story in 2006 that ESPN blocks entire ISP networks unless the ISP pays ESPN a per-subscriber fee.

The blackberry example has nothing to do with the wired broadband world and there are no such examples in wired broadband.  Soleja is conflating device and web browser settings with mobile broadband.  The mobile world operates very differently and the web browser search settings varies from device to device but can be changed by the end user.  It is no different than Google’s play on Clearwire and what Apple will be doing on their iPhone or iPad devices.

These misrepresentations about the Net Neutrality debate are widespread and even the Washington Post’s attempt at a thoughtful discussion had many serious factual errors about how the Internet works.  We cannot write good Internet policy based on emotions and myths.