Trixter aka Bret McDanel wrote: > On Sun, 2009-01-04 at 18:09 -0500, Kristian Kielhofner wrote: >> On 1/4/09, Alex Balashov <abalas...@evaristesys.com> wrote: >>> I think if this gets traction you will see a lot of providers doing >>> ultra-low bait-and-switch rates. Most cannot afford to be in a price >>> race to the bottom. >>> >> Agreed. >> >> This current race to the bottom, while somewhat inevitable, is not >> necessarily a good thing for customers. >> > > to a point this is where the ISP market was just over 10 years ago in > the US. Race to the bottom, then they discovered things like churn rate > costs, and all that. They started charging set up fees, many providers > went under or were so strapped for cash they sold to the competition > that had the resources to float at/near cost and all that. > > When the dust settled there were far fewer providers, and any provider > with fewer than 3000 customers basically was gone.
Speaking as someone whose professional background prior to getting into VoIP was in the small, independent ISP industry (US), I will observe that this is a very controversial subject. The history of that industry is heavily tied up in the regulatory and legal climate, within which even relatively small shifts had tectonic effects in their creation and destruction of business models. The most immediate cause of the all-but-death of the independent ISP industry in the US is widely seen to be the FCC's reclassification of DSL as an information service that the ILECs have no obligation to lease wholesale components of at regulated rates to competing ISPs. There were others, of course. There are two basic prevailing moods within that discourse, and it's worth taking a look at them to see what lessons can be taken away for the small VoIP world--the one most of us are participating in here on this list. Fundamentally, there were two structural "waves" on which the independent ISPs capitalised: 1) Early to mid 1990s - The first was the appearance of dial-up Internet access: order PRIs, get a RAS box (Portmaster, TNT, TotalControl, etc.), set up a mail and web server, provide tech support, and pocket cash. Then the ILECs - the folks who owned the physical copper plant and transport network from which all this value was being extracted in such a lucrative way - decided to get into that game themselves, on a much lower cost basis since they own the stuff. The price of monthly unlimited dialup crashed to under $10 as a result, and so simply offering it no longer amounted to any kind of value proposition in itself. Of course, the emergence of mass-market broadband was the other key reason why dialup was moribund and why the window of opportunity there was only a few years (the so-called modem boom). By 2000 (that's an optimistic stretch), if you hadn't sold your formerly prosperous dial-up ISP and walked away, you were screwed. 2) Late 1990s to middle postmillenial 00s -- The Telecommunications Act of 1996 opened the local exchange loop to competition. Most people in the VoIP world know TA96 for having essentially created the legal phenomenon of the interconnected CLEC. What somewhat fewer people know is that TA96 also required that the ILECs lease certain parts of the ADSL broadband delivery infrastructure stack (DSLAM ports, ATM/Layer 2 backhaul and handoff, line sharing, provisioning, etc.) to competing ISPs at rates that were, until about 2005 (+/-), regulated and fixed to a certain extent. So, big bad telco could provide DSL, but it also had to allow other ISPs to use their plant to provide DSL with room for a semi-decent margin in a relatively turn-key. (No such obligation was levied upon cable companies. See: http://en.wikipedia.org/wiki/National_Cable_&_Telecommunications_Association_v._Brand_X_Internet_Services) While the ILECs dragged their heels on actually getting a lot of the infrastructure and B2B backoffice / provisioning stuff to make this work rolled out in the wake of the ruling, in the end it fundamentally opened up an arbitrage opportunity for small ISPs. They could use ILEC facilities to provision DSL while delivering as little or as much value-added service differentiation as they wanted and still remain at least rudimentarily price-competitive, although of course the relatively thin margins scale better at the level of a multibillion dollar corporation than a local/regional ISP with a few hundred or a few thousand customers and cost basis was always a problem. This game ended with a 2005 FCC ruling that reclassified DSL and effectively ended tariff controls, allowing the ILECs to float the pricing for wholesale access to private commercial agreements and effectively price the independents out. The ILECs weren't so uncouth as to simply deny access; mostly, they just raised prices so that a lot of ISPs' wholesale loop costs were close to the price at which they retailed the product. The margins were pretty shabby to begin with, there was plenty of ILEC "slamming" of wholesalers' customers going on, and support costs and overhead were high. So, among those ISPs that were left by 2005, there is a broad consensus that that's the day of the industry's death, but some will say the end of profitable dialup was really the end. ... As mentioned above, there are two dominant reactions to this situation in the community. One is that the ILECs are corrupt, vicious predators whose collusion with the Bush FCC and the Administration's connections to megacorporate telecom lobbyists suffocated a valuable and important business model. A lot of the ISP owners sit around and gripe still about how the assholes at AT&T did this to them and Verizon that. There is the additional - and very justifiable - cause for resentment that has to do with the fact that the ILECs' buildout of their networks and physical plant over the last century has been anything but the purely private endeavour that they attempt to characterise it as when arguing that there is no reason they should be required to lease it to competitors on advantageous terms. On the contrary, they have been the beneficiaries of billions in grants, subsidies, funds (stuff like USF), state-sanctioned legal advantages (i.e. easements, rights-of-way, leases), revolving-door nepotism in government regulatory bodies, monopolism, and so on. The argument here is that in this respect, the last mile of the PSTN operated by the telcos is more of a public utility - like the road system - than a fixture of adventurous and innovative private investment; thus, the least they should do is be forced to open it up to competition on favourable terms. On the other side of the coin, it could be reasonably said that TA96 was conceived as a modernisation initiative to incentivise the build-out of competing *physical* *networks*, with the idea that increased competition will drive down prices and spur innovation in broadband and other telecommunications services. Instead, most of these small independent ISPs latched onto easy money in the form of legally supported arbitrage/resale opportunities without actually building anything of substance themselves, with a few notable exceptions (mostly from wireless-ISP-in-the-boonies land). POPs and RAS boxes and circuit orders out the yazoo, but no parallel fiber transport cores, FTTH, etc, etc, etc. In other words, the "meat" of the service. Instead, most of them put faith in the small business mystique (your small, friendly local company that knows you by name and gets you superior customer service as compared to scripted, outsourced/offshored call-center monkeys from the Bells and cable MSOs) as a marketing technique. Instead, they just resold Bell facility while they could. And in the end the market rationalised away this inefficiency (with a little help from some regulatory bodies) and gave them the finger. It turns out, according to this account of the situation, that the companies best equipped to provide pricing efficiency and value in consumer-grade broadband are the ones that literally own the network (or at least 90% of it) it's all framed over. There are survivors, of course; folks that hang on providing higher-margin business services (whatever the justification for $150/mo "business DSL" that is the exact same product as residential, some businesses are willing to buy into it), value-added service Anyway, it's obvious that the VoIP ITSP business is not like this in many ways. What keeps VoIP wholesale PSTN O/T providers going isn't so much that they are taking advantage of a legally mandated arbitrage lever as that most of the big carriers that offer this stuff wholesale don't want to deal with small amounts of traffic. But there's always pressure to "cut out the middle man," and as these carriers roll out newer and improved SIP trunking products, the pricing efficiency and dimensional flexibility of that offering (as it relates to volume commitments) will increase. In the end, what you are offering as a wholesale O/T provider is going to become commoditised and come down to price. More and more people are going to simply find a way to go around you and go to your suppliers. Domestic LD in the US has already collapsed to the point where I fail to see how anyone can make any margin off customers that have even a little bit of commercially viable volume (100,000+ minutes) to the table and actually know how to shop for deals. And no market opportunity that relies on people simply not knowing how to get what you're getting will last forever; you have to add real value. Some of that can be achieved through neat rating engines and nice OSS/BSS systems and other business process-related value propositions, but at the end of the day, when the gap in quality narrows, people are going to want to go straight to the farmer to buy their wheat. -- Alex -- Alex Balashov Evariste Systems Web : http://www.evaristesys.com/ Tel : (+1) (678) 954-0670 Direct : (+1) (678) 954-0671 Mobile : (+1) (678) 237-1775 _______________________________________________ --Bandwidth and Colocation Provided by http://www.api-digital.com-- asterisk-biz mailing list To UNSUBSCRIBE or update options visit: http://lists.digium.com/mailman/listinfo/asterisk-biz