From: Vipul Ved Prakash <vipul@pobox.com>
Date: Wed, 21 Aug 1996 14:48:27 +0800
To: jimbell@pacifier.com (jim bell)
Subject: Re: Phoneco vs X-Phone
In-Reply-To: <199608192246.PAA08982@mail.pacifier.com>
Message-ID: <199608210402.EAA00558@fountainhead.net>
MIME-Version: 1.0
Content-Type: text


> What do you mean, "doesn't really fit the facts"?!?  What part of it was 
> incorrect?  Fiber-optic _is_ commonly used in inter-office trunks, right?  
> It doesn't wear out, right?  Higher usage doesn't entail greater costs, 
> right?  The capacity, while not strictly infinite, is high enough so 
> expanded usage doesn't strain most links, right?  Finally, modern phone 
> switches have sufficient connect capacity so that they can handle usage 
> which would have been considered "unusual" by yesteryear's standards.  All 
> of this points to an obvious conclusion:  Telephone companies do not, in 
> general, have increased costs as a consequence of increased telephone usage.
> 
> Here's what I think is _really_ going on:  You have decided that you think 
> the costs of the telephone system should be apportioned by usage EVEN IF 
> higher usage is no more costly to provide.  That's why you don't want to  
> disprove my claims.  You're afraid that you'll have to say, "Yes, you're 
> right Jim, but I _still_ think billing should be porportional to use."

No ulterior motives, Jim. Cool Down :)
Now lets see, you say we have enough capacity out there, alright, but then
why is everyone raving about "a slow internet". We all know in IT 640K
is never enough, niether is 640Mb. At some point in time, new cables
_have_ to be laid. Moreover you seem to be considering a static growth rate,
but we all know the Internet is nothing short of a big-bang. 

I am trying to debate a model rather than numbers and in which case its
important to to consider a long-term scenario.

This reminds me of a survey on a "proposed Rural Telecom Network" back in 
India, which finally decided that ROI will not justify the project
even in 20 years time. 

> Some of whom are probably unnecessary.  Interestingly enough, the rumor is 
> that half the costs for LD are in billing and customer service.  Most of 
> these costs would disappear if LD was unmetered.  
> 
> >
> >> >But you miss my point, if a phoneco is not getting a penny for its long 
> >> distanceservices (which subsidise the flat rate local calls) then the 
> choice would be to close down. Which would be a severe attack to the 
> local internet usage.
> >> 
> >> That's an entirely unsupported claim.  Nobody claims that telephone usage 
> >> (term used generically) is on the way out.  "Closing down" is only going to 
> >> happen if local phonecos cease to be able to provide a service that people 
> >> are willing to pay for.
> >
> >Exactly! Once "X-Phone" has its servers in US Cities, and its charging 10 
> cents 
> >a minute for long distance calls, I don't see if the phonecos would be able 
> to provide any service that people are willing to pay for, I mean they won't
> >be able to provide matching lucrative rates. 
> 
> I am confident that local phonecos can remain competitive even against 
> "free" Internet telephone service.  What they need to do is simple:  
> Entirely remove the LD/local subsidy, remove metering on LD (as well as 
> local), bill yearly for far lower costs, etc.  Once this is done, LD will be 
> "free", at least on a marginal basis, so no customer will have any 
> motivation to move to "Internet telephone" service.
> 
> 
> >You mean to say that, X-Phone will take advantage of the phoneco and mint 
> >money for a minimal investment, whereas the phoneco who spent billions on the
> >infrastructure will be just whistle down the road, and let the X-Phone 
> >indulge in its own cyberdo.
> 
> In the US, the current telephone company infrastructure is ALREADY PAID FOR. 
>  It was paid for by over-inflated rates during a monopolized era.   If 
> anything, the locals have an "unfair advantage" over the rest of the 
> companies:  Only they have a copper pair into every home.  

Alright, once again I try to show what exactly I am pointing at. Alice uses
the phone 23 hrs a day, Bob uses 10 mins, both get their connections
from ABCTel. The bandwidth with ABCTel saturates and it has to buy more 
bandwidth (if ABCTel is a babybel, it will be buying it from a BigBell,
and whether or not bandwidth exists is quite besides the point here)
Its because of subscribers like Alice ABCTel is buying more bandwidth,
and the flat rate revenues generated by addition of a couple of members won't 
justify the new bandwidth. 

Flat rates are based on the assumption that a subscriber will use the service
for X amount of time. Since the phoneco has no control over user behaviour,
more that reasonable number of Alice-type clients will screw up the phonecos 
economics.

With explosion of Internet, people have found a new way of using their phone
line, and all these companies are already in trouble. To top all that we
are loudly professing the Internet (ultra-low-cost) solutions to LD Calls
with phoneco. 


- Vipul
vipul@pobox.com