Contributed by Thomas G. Hagan
Data Hogs? What Data Hogs?
Whenever confusion runs rampant, and an otherwise smart company (in this case, Verizon Wireless) does things that seem contrary to its own interests, it's time to step back and look to see who benefits from the confusion, and just where the interest of that smart company actually lies.
Such is the case these days with "Net Neutrality" and the question of "all you can eat" pricing for cell phone subscriptions. And “data hogs” using up all available bandwidth.
It was Ivan Seidenberg himself, then and now CEO of Verizon Communications, who said years ago that one consequence of working in a highly regulated industry is that the normal rules of the free market don't apply. Instead of trying for market share by appealing to customers or decreasing costs, management talent is diverted to extracting the best possible deal from the regulators. He pointed out that this distorts the behavior of such companies, including those in his industry. Meaning that they are led to do things contrary to what one would normally expect — they sometimes behave in ways that seem against the interests of either themselves or their customers.
With that in mind, let's look at what's happening. Right now the phone and cable companies are engaged in a struggle to handle surging demand for bandwidth, particularly downloading of videos from the Web, both for wireless and wired connections. A recent statistic said that Netflix downloads alone now account for 20% of all Web traffic. Accommodating this demand will entail more capital expense for both wired and wireless connections to the Web, substantial for both, but much much larger for wireless. And, of course, that Capex must ultimately come out of carrier revenues, and they must meanwhile earn a reasonable return on any funds they use.
At the same time, companies such as Google, Netflix, Amazon, Facebook and others have arisen and taken a big share of the customers' wallet for the Web content they sell, directly and indirectly, all of which is delivered by the carriers.