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Pay to Play

Week of April 10, 2002
Some miracles don't stand a chance.

The US is the only country in the world with flat rate Internet access. US providers have tried metered access a few times in the last two years, but have had to retreat back to flat rate every time.

But no more.

Backbone providers already charge per megabyte for downstreams, and they have had to deal with competitors who charged flat rates to customers. But now with XO, Williams, Teligent, WinStar, and all of the other providers either gone or almost gone (and with their own financial problems demanding increased revenue), the RBOCs and everyone else still standing will go to metered access.

Voice traffic continues to diminish as a proportion of carrier business. Data traffic last year was more than voice traffic. Data traffic traditionally was flat rate, while voice was metered. Since voice calls are now incredibly cheap, and since voice traffic continues to diminish, carriers are forced to find revenue somewhere else.

Which is why AT&T spent $100M buying cable companies, wireless companies, and upgrading its own wireless network - voice is now a money-loser. Of course those cable purchases turned out to be turkeys, but AT&T saw the future, and it isn't in voice.

Which is also why Sprint bet the bank on Sprint PCS and Sprint ION. PCS is the best built wireless network in North America, but it cost Sprint dearly. ION was the data network of the future, five years ahead of its time. Sprint killed it a few months ago at a cost of $6G (USD six billion), but Sprint saw the future too, and it isn't in voice.

Too bad neither AT&T nor Sprint (nor anyone else it seems) paid attention to history.

The problem with the AT&T/Sprint vision is that in terms of pricing, wireless is already 'the next voice'. Cellular is dirt cheap and wireless providers are in deep trouble because of it. All of the brutal price wars have put Verizon in deep trouble; Sprint has caused Bell South and SBC to almost abandon the cellular market while damaging Sprint's own bottom line.

Since wireless is costing a fortune, since it is not about to make money any time soon, since voice is losing money, and since there are no pots of gold at the end of the rainbow, the providers are left with only one way to make up the difference - charge for usage of the data network.

Cable companies were the first to meter data traffic and actually stick with that pricing after users complained. Cable companies have had tremendous expenses (another case of somebody not paying attention). In many instances, they had to replace old coax with new fiber AND replace the head-end equipment - a VERY expensive proposition indeed. They also didn't expect the DSL market to fall apart the way it did, so they have had to build extra capacity into their networks. Witness the disasters AT&T has had with its cable purchases: they have been non-stop money drains as 20 year old infrastructures have had to be completely rebuilt. Add in the mass exodus of customers as cities opened up the markets to competition (AT&T lost big in the major US markets), and AT&T has taken a beating. This is one major reason AT&T had to quickly reverse course and spin off all of those divisions it had just spent two years acquiring.

Unless some miracle occurs, all Internet access will be 'pay to play'. Guaranteed.

With today's greedy CEOs running the media companies and the carriers, that miracle doesn't stand a chance.

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