Sunday, December 7, 2008

Is Google Paying its Fair Share?

The blog Internet Evolution published and article discussing comments by an analyst who says that Google is not paying its fair share of the Internet infrastructure.

This is an interesting issue. The core Internet network has a robust business model. As the ISPs and ASPs generate more traffic, for example, by providing more video and TV traffic, they need to increase the bandwidth that connects to them to the Internet backbone. They pay for every additional bit of bandwidth that they use. This means that the carriers revenues increase as the traffic increases, which is and has been a sustainable business model.

I think that the question that is raised in this article is if Google is using more bandwidth per dollar spent on backbone capacity than other companies. This may be assuming that Google distributes more videos than others.

The more interesting question is in the access network. The broadband access providers are stuck in the conundrum that customers expect more bandwidth over time but do not expect to pay more for it. This is most clearly demonstrated in countries in such as Japan and France where the price of a 100 Mbps FTTH connection is the same as a 10 Mbps DSL connection. Carriers in these countries are making huge investments to deploy fiber and are not getting significant revenue increases to support it.

I have wondered if Google and the other ASPs and ISPs should pay more for their backbone connections to support the deployment of FTTH. After all, these companies get tremendous benefit from the deployment of higher speed access networks. It only seems fair.

However, there are significant problems with this approach. One is that the combined profits of Google and the other ASPs and ISPs are not nearly enough to cover the cost of deploying fiber at a reasonable rate.

The second problem is that paying additional amounts to the backbone provider will not necessarily lead to a fair distribution of these funds to the access network providers. For example, if Google pays the premium to ATT, how does Verizon get support in its territory. Well, Google will probably by backbone services from Verizon also, so that there will probably be a reasonable allocation. But then, what about Surewest and the thousand or so small U.S. telcos that do not offer backbone services?

This could be handled by an extension of the Universal Services Fund, but then what about the broadband operators in other countries? Do we need to add in a UN Universal Fund charge as well?

None of this seems practical, which leaves the broadband providers without any way to monetize their investments in fiber. This will certainly discourage investment and delay the availability of fiber services That is too bad.

1 comment:

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