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Telco Money Grab Numbers Revealed

David A. Utter
Staff Writer
Published: 2006-03-09

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All those billions of dollars the telecom companies want to snatch from content providers gain a bit of context thanks to BellSouth chief architect Henry Kafka.

The Metamorphosis very possibly was written by Kafka as an outlet for his feelings of isolation and helplessness. In it, the protagonist, Gregor Samsa, awakens one morning to find himself spontaneously "transformed in his bed into a monstrous vermin."
-- obligatory Franz Kafka/cockroach reference, Kafka.org; it isn't known which telco Gregor Samsa used for his broadband connectivity

Telephony Online reported on comments made by Henry Kafka to an audience in attendance at the Optical Fiber Communication/National Fiber Optics Engineers Conference:

"Over time, the migration from multicasting to video-on-demand and unicasting has a huge impact on what happens in the core of the network," Kafka said. "That changes the way we need to look at broadband."

Today's average residential broadband user consumes about 2 gigbytes of data per month, Kafka estimated, which costs the service provider about $1. As downloading feature films becomes more popular, they might consume an average of 9 gigabytes per month, costing carriers $4.50.

Essentially, today's user in a location where the choice for broadband is between a single cable provider and a single telecom DSL provider pays about $40 per month for a dollar's worth of service. 'Excessive' could be an understatement regarding that price.

Should the model for delivering television over the Internet become popular, the price goes up, according to Kafka:

The average IPTV user will likely consume about 224 gigabytes per month, he added, at a monthly cost to carriers of $112, a giant leap from the less than $5 attributed to Internet use. If that content were high-definition video, the average user would be consuming more than 1 terabyte per month at a cost to carriers of $560 per month.

"Clearly that's not what the average user is going to pay per month for their video service," Kafka said. "That's why we need help."

Kafka then noted how the telcos need "massive amounts of cheaper bandwidth." Some like telecom analyst Bruce Kushnick think we should be there already, in the wake of the 1996 Telecommunications Act.

Though we recounted some of Kushnick's points on what we were supposed to have in 2006, namely 45MB to the home, rural or urban, the outcome of the telecoms frittering away a low estimate of $206 billion in profits and tax deductions as noted by Kushnick bears notation here:

•  Costs to Customers - We estimate that $206 billion dollars in excess profits and tax deductions were collected - over $2000 per household. (This is the low estimate.)
•  Cost to the Country - About $5 trillion dollars to the economy. America lost a decade of technological innovation and economic growth, about $500 billion annually.
•  Cost to the Country - America is now 16th in the world in broadband. While Korea and Japan have 40-100 Mbps at cheap prices, America is still at kilobyte speeds.
•  The New Digital Divide - The phone companies current plans are to pick and choose where and when they want to deploy fiber services, if at all.
•  Competitor Close Out - SBC, BellSouth and Verizon now claim that they can control who uses the networks and at what price, impacting everything from VOIP and municipality roll outs to new services from Ebay and Google.

Maybe Google will solve the massive bandwidth issue with its dark fiber purchases and a bunch of mobile data centers to move high-bandwidth content without the telcos' help. If that happens, let's hope Henry Kafka put some of his cut of BellSouth's profits over the past ten years away for a rainy day.

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About the Author:
David Utter is a staff writer for WebProNews covering technology and business.

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