Network Operators and the Profiteering Games They Play

net-neutrality

[This is my personal commentary on a situation in the Caribbean where Digicel Group, a mobile operator, is blocking VOIP services such as Viber, Nimbuzz, etc. and asking these companies to basically pay for Digicel’s network upgrades]

The Internet, as with any other disruptive technology, has necessitated a change in the business models of service providers. However, in many cases, there is serious resistance from network operators to adapt to this new reality. These companies make millions (and in many cases billions) of dollars in profits a year, but are insisting that content providers and OTT services providers foot the bill for network upgrades.

Based on CAPEX trends in the telecoms industry from 1996 through 2012, capital expenditures have pretty much remained the same from year to year. So why all of the sudden have ISPs and mobile broadband operators put so much time and energy into ‘forcing’ content providers to pay in addition to their own increased costs of supplying more robust Internet content, any increase in network upgrade costs of the ISPs as well?

The reason is because the usage-based model of service billing is no longer relevant or sustainable. The Internet has killed it… DEAD!!! Service providers cannot bill a customer $0.45 a minute for ILD when VOIP providers are charging $0.02. They cannot charge for the usage of mobile broadband in megabyte increments; market forces and hyper-competition have pushed service providers toward unlimited data packages. They cannot milk consumers with outlandish roaming charges when individuals can jump on the free Wi-Fi in airports or at Starbucks and make those calls for free via Viber or Skype (or even better, simply use 4G networks to make those calls for free).

The Digicel Group posted $2.78 billion in revenues for the year ended March 31, 2013 with core profits of $1.2 billion (http://tinyurl.com/pa4fy6l). Is all this money supposed to go to shareholders and the likes of CEO O’Brien who cashed in a dividend of $650 million (http://tinyurl.com/q84cajd)? Why isn’t a percentage of this profit reinvested into network upgrades to meet market demands? To now ask OTT service providers to fund upgrades is not only unreasonable at face value, but also entirely inconsistent with published financial reports indicating that returns on investments are excellent, and are expected to improve even further, driving additional growth in bottom line profits.

And to expect regulators to be complicit in their forcing of costs on companies like Viber, Nimbuzz, etc. or in raising prices on consumers is to present a false choice. Increasing demands for bandwidth is a fact of the industry. Innovating to meet those demands are what network operators are in business to do.

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