March 27, 2014
Some of the biggest European telecoms companies are mounting an extraordinary and ferocious attack on the Internet industry.
It is extraordinary because two decades after the beginning of the Internet boom, this attack is based on a remarkably poor understanding of the operators’ own ecosystem. And it is attacking the very sector that drives demand for what is arguably their most promising revenue source for the future.
This week Piotr Muszyński from Orange appeared in a video, confidently explaining that traffic sent to Orange’s Polish customers by application and service providers “has an impact on [Orange’s] costs”. In that context, so his logic goes, it is only fair that these Internet companies participate in covering those costs. In other words, they should pay some kind of termination fee for the privilege of accessing Orange’s customers.
I don’t understand why Orange, which is a large and very sophisticated multinational technology company, doesn’t see that this logic is a two-way street.
Here’s how it goes, pointing in the opposite direction.
“We Internet companies are providing value to Internet users. They want the content, applications, and services (CAS) that we make available, in general at extremely low prices. Our prices can’t really go lower, because most of the time, these CAS are free. There are enormous costs associated with the creation and provision of such CAS. We Internet companies invest immense sums of money every year, with extremely high risks. Just look at the failure rate of Internet startups, or the steady decline in the journalistic media! Our investments include technology development, content creation, and gigantic physical infrastructure investments, including the data centers that create the capacity to serve ISPs’ residential customers. It costs money to build server capacity large enough to service the millions of connection requests sent by the ISPs’ customers’ devices every second. Every time an ISP increases the speed and capacity of its network, it has an impact on our costs, because of the extra traffic we get. ISPs are free-riding on our investments. They enjoy the benefit of owning legacy infrastructure (pipes) that they can easily convert into Internet access, and charge consumers money as an intermediary between them and the CAS they want. ISPs make vast revenues from Internet access – this is money that could usefully be spent supporting cultural content, technology development, and supporting e-commerce and other online services.”
It’s really time that ISPs stopped making silly statements of this kind and devoted their energies to giving its customers what they want – more content, applications, and services, at faster speeds, and lower prices. Yes, they can!
You can also read this post on the Allegro Group corporate blog.