ON TELCOS MAKING THEIR NEXT MOVES IN THE "BYPASS BATTLES"

HOW LONG TO CHECKMATE? 

UPDATED:  Another development on how regulators continue to lean towards the Telcos is a case in point)

"Telecoms want their products to travel on a faster Internet", announces an article in the Boston Globe (registration required, via memeorandum).  It should read "...want their products to travel ONLY on a faster Internet".

ATT (the telecom previously known as the telco Prince SBC/Cingular), is making their move in the wired and wireless broadband "Bypass Battles" I discussed last month.  As the article explains:

"AT&T Inc. and BellSouth Corp. are lobbying Capitol Hill for the right to create a two-tiered Internet, where the telecom carriers' own Internet services would be transmitted faster and more efficiently than those of their competitors.

The proposal is certain to provoke a major fight with  Google Inc., Yahoo Inc., Time Warner Inc., and Microsoft Corp., the powerful owners of popular Internet sites. The companies fear such a move would give telecommunications companies too much control over a fast-growing part of the Internet.

The battle is largely over video services. Several major telecom companies are working on ways to deliver broadcast-quality television over the Internet. Currently, online video can be slow to download and choppy to watch, even with higher-speed Internet services.

The proposal supported by AT&T and BellSouth would allow telecommunications carriers to offer their own advanced Internet video services to their customers, while rival firms' online video offerings would be transmitted at lower speed and with poorer image quality.

AT&T and other telecoms want to charge consumers a premium fee to connect to the higher-speed Internet. The companies could also charge websites a premium to offer their video to consumers on the higher-speed Internet. That could mean that a company like Yahoo might have to pay AT&T to send high-quality video to AT&T subscribers.

The prospect of a tiered Internet with ''regular" and ''premium" broadband services is spawning fierce debate as Congress takes up a major overhaul of telecom regulations. The House of Representatives last month held hearings on a preliminary draft by two GOP congressmen, Joe Barton of Texas and Fred Upton of Michigan, that would give the telecom companies the freedom to establish premium broadband services. The telecom bill is due for action early next year."

It was only a month ago that SBC/Cingular aka ATT CEO Edward Whitacre was quoted in BusinessWeek answered as follows to the question:

"How concerned are you about Internet upstarts like Google (GOOG), MSN, Vonage, and others?

How do you think they're going to get to customers? Through a broadband pipe.

Cable companies have them. We have them.

Now what they would like to do is use my pipes free, but I ain't going to let them do that because we have spent this capital and we have to have a return on it.

So there's going to have to be some mechanism for these people who use these pipes to pay for the portion they're using. Why should they be allowed to use my pipes?

The Internet can't be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo! (YAHOO ) or Vonage or anybody to expect to use these pipes [for] free is nuts!"

You gotta admire the chutzpah.  The chief technology officer of Bellsouth is quoted in the article saying:

'When costs are being driven into an equation, they have to be recovered somewhere...

Why do fundamental business economics not apply to the Internet?"

He conveniently ignores the point that NO ONE ASKED the telcos to invest in fibre networks.  They're doing it after years of procastination ONLY because the cable companies are beating their brains in, in the broadband market share wars, not to mention internet telephony.  And now the cable companies are poised to enter their lucrative wireless markets as well.

As Mitch Shapiro of IP&Democracy notes:

"Trusting unregulated monopolists (especially those with relatively high fixed costs and low variable costs) to serve the public interest has never struck me as a policy grounded in basic economics or common sense."

In a post last month, I discussed how these "Infrastructure Bottleneck" companies in these...

"Big Bypass Battles" are both  oligopolistic  AND verticalized.  Which generally means higher prices, less choice and selection and more inefficient markets for the end consumers. 

And NO inter-operation amongst the networks, other than of course for high-cost "roaming charges"."

They're calling them "premium" tier pricing this time.  And Washington is going to at least listen to them not because their proposals make business and economic sense for their constituents (THEY DON'T), but because they make POLITICAL SENSE.  Telecoms still employ hundreds of thousands of folks who represent current economic power in the constituent states and of course, VOTES.

The GYMAAAE companies are going to have really fast this time.  The advent of a video-driven Internet is going to require substantial upgrades in the technology infrastructure that until now had not been necessary in a text-dominated internet.

And this time, unlike the Web 1.0 days, there aren't hundreds of VC-backed infrastructure companies provided cheap, outsourced infrastructure on demand for the Googles of the world, as I discussed in detail back in November.

The GYMAAE companies, and their smaller peers have to aggressively pursue the following courses of action, either in part or whole:

1. Expand the infrastructure investment tactically and strategically.
2. Partner with the cable companies who are also threatened by the telecom lobbying in Washington.
3. Forge extensive partnerships with the hardware and consumer electronics companies worldwide to roll out relatively open devices (PCs, PDAs, cellphones, Tablets, Handtop PCs, etc.), that support common APIs that all of the horizontal players can leverage.
4. Build up their own lobbying efforts to counter the telecom industry's moves.
5. And continue to accelerate the experience of video by their mainstream users on their own networks, as fast as possible.

These steps are just for starters.

Consumers are going to have to do their part too.  Somehow they'll need to mobilize, or help get mobilized to first be aware of the implications of these actions, and second, do something about them.  In the long-term, the outcomes here will determine the competitiveness of the US economy on a global stage.  And the fight for an "open, next-generation broadband Internet, both wired AND wireless is just beginning.   

The Bypass Battles are likely to be a matter of life and death for all the industries involved.