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interconnected PBXs, and such. They had copies of the telco Product Handbooks and sent in their requests for service in perfect Telco-ese, down to the product codes and prices. Not surprising then that these same companies have seized the potential offered by the Internet, and Internet Protocol over private networks, to gain further economies and enhanced communication capabilities. While difficult to win back their traffic, it is not impossible. How would this happen? Enterprises move through a fairly predictable cycle of:
- Focus on Core Business,
- Expand to Control Internal Support Services,
- Return to 1: Focus on Core Business.
Given a collaborative attitude and fair pricing models, many Enterprise customers will entertain proposals from Service Providers at the right point in their cycle of Focus versus Expansion.
Access Life-Cycle
We all know that traditionally service providers charge for connecting both ends of a service. That's another example of what is wrong with the Network as Cloud diagram. Egress exists too, hopefully in pretty much identical volumes as Access! Whether it was a long distance call between you and a friend, or an email to that friend, it was a connection between two points. Sometimes, you called a store and bought something. That was still clearly a connection between two points. Today's notion of the two-sided revenue model is driven by an (often unstated) belief that Internet transactions are three way: you, Google, and the store. Of course decomposed in this manner, there were always three parties in an old-fashioned phone call too: you, the dial tone provider, and the store. No one tried to listen in on your call to determine if you, or the store, should be paying a premium. The same rates applied for a call to buy an order of groceries or a diamond ring. Similarly you pay the same rate per unit of electricity consumed. It doesn't matter whether it is used to power your hi-fi or video game or whether it's mundane stuff like running your refrigerator.
So why this insistence that companies who earn money from their internet presence are not paying their fair share? Partly because the need for new service provider revenues is high. Partly because being a Tier 1 ISP costs a lot of money and there should be some way to be compensated directly for that investment. Partly because those Internet connected (Web 2.0) companies are making a whole lot of money and they should share.
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This peering means private, negotiated cost arrangements or free exchange of traffic, with many different peers – and it means more lost access revenues for the Tier 1 telcos. |
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But providers are in part to blame for these lost revenues via irrational market practices. By charging access costs in excess of perceived value, the service providers drove the bigger customers into building networks. Now these companies are getting into the Peering game. They are building out their networks to the major Internet peering points. This is the resulting life-cycle evolution of big OTT service providers:
- Go to traditional SP for access.
- Get bigger. Get much bigger bills for communications services.
- Cost increases finally reach a tipping point when economies of scale lead to buying network and leasing fiber (which cost less than the escalating cost of SP bandwidth).
- Build own network out to peering point.
- Become a Tier 2 provider and thereafter peer for free, or at least far less.
- Cancel most services from SP and "ride for free," or at least for far less.
Brute force economics (not strategy) forces OTTS providers to become Tier 2 providers.
These lost customers include huge companies like Google and Microsoft. These companies now operate some of the most powerful transit stations at the peering points. Google ensures its independence by building even more huge peering points that now contain supercomputer-sized server clusters and BMF routers with sufficient capacity to transit much of the world's traffic.
Once lost, these companies are unlikely to come back to the service providers. Changes in peering rules may reverse the trend, as would a more collaborative attitude. (Sort of like that old cliché: you catch more flies with honey than vinegar.)
Google appears to be particularly galling to some service providers. They own and operate a massive network (perhaps the ultimate definition of a multi-national we described previously). They have peering agreements to keep their costs in line, and while offering free service to consumers,
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