My Conversation with Larry Boucher about Net Neutrality

This post is rather long for a blog post, but putting all the information in one place seemed like the best way to go. This is an email conversation between me and Larry Boucher that occurred over a few day period.
It started when I sent this link to Larry. He replied with some fascinating ideas on the subject and, as you will see below, he agreed that I could post the conversation here on my blog.

David-While I don’t like this proposal, I don’t know what the solution to the problem is.  It’s nice that I get free service for all my communications between here and London, but last I checked the Atlantic Cable wasn’t free.  Now that the long-lines guys have no way to charge for their value (fixed charges for connection, even adding QOS doesn’t come close) they are bleeding all over themselves and will not be able to continue to service their expensive capital investment.  While the concept of charging for higher real-time bandwidth (effectively QOS) is a start, without being able to really charge based on value received, I don’t believe the billing system will work.  This is why the billing system that we have used for the last 100 years was put in place, and now that we are trashing it, we haven’t come up with an alternative.  I personally think that we should reinstall it, and I even put together a simple solution, but it’s going to take congress to make it happen, and that won’t happen until the companies are going out of business and service is falling apart.
My solution was to build a box that connected the router in the central office to the switch.  A customer could surf as long as he wanted in real time going from display page to display page, but if he went for any form of download, the router would access the box, which would compute the cost based on connection cost (distance and size of file) and send a note to the requester stating the cost of the download.  If the requester said go, then the box would allow the connection and send a conventional billing entry to the switch.
As I’m sure you are aware, the billing half of our present system is very sophisticated, and using it for this function would be a natural.  While I don’t like having to pay for my downloads, I can’t exactly understand why I should get them for free when I’m using expensive resources.  Right now I can log onto the Louvre’s website and download a high resolution picture of the Mona Lisa—I suppose I should have to pay for that.
Larry

Hi Larry,
It sounds like you have intimate knowledge of this issue. I would appreciate any reading or research materials you can suggest to me. I would like to understand the economic issues you describe in more detail. I have the feeling there are some important details that I’m not aware of yet.Regards,David

David—
Actually I have read almost nothing on this subject except things like XXXX saying bandwidth is free.  That’s great coming from XXXXX of one of the companies that is bleeding all over themselves.  I have really only gotten solid corroboration for this view once, at a financial conference a year or so ago.  The past CEO of one of the major long-line companies talked, and he said all the things that I’ve been saying.
The problem seems so straightforward to me—if you don’t charge for real utilization, those being overcharged will find other communication mechanisms, and slowly but surely there will be no one left to pay for the service.  If you charge me and IBM the same amount for a one gig of bandwidth connection to the internet, and that’s supposed to pay for everything, I won’t be able to afford to pay my share.  Until it’s state based and you are paying for the equipment you use, there isn’t a mechanism that I can think of that will work.  If you charge for bandwidth actually used over distance actually traveled you get a system that works (and funny—it’s what we’ve been doing for the last hundred years). 
Perhaps if the whole system gets inexpensive enough it would be possible to allow the small players to subsidize the big guys, but I don’t think we are close at this point.  The thing that got me thinking about all of this was the loss of fax data over the Atlantic cable.  Ten years ago 50% of the Atlantic cable bandwidth was taken by (and paid for) by fax data.  Over the period of just a few years this dried up as emailing Word documents became the norm.  The long-line companies were unable to double their voice charges, so profits began to vaporize.  Now voice over IP is forcing the same companies to drastically reduce their charges for long distance calls in order to slow the onslaught. 
As the companies slowly move toward bankruptcy the federal government, stimulated by the armed forces, will start wringing their hands and deciding that they have to do something.  Unfortunately it will probably not be the right thing, because too many agendas will conflict.  It would be nice if my proposal was at least on the table, so that it was understood as an alternative, because most of the non-technical (political) solutions are not pretty.  This will probably take a long time, because as AT&T re-integrates itself it has the ability to use profitable areas to cover/subsidize the unprofitable ones.  The last mile is still quite profitable (the RBOCs) and for some length of time may cover the significant expenses of the long-lines.  This may eventually be true for the wireless stuff as well. 
There are probably some good investment opportunities if you can guess right on the outcomes, but timing is going to be difficult.
Larry

Hi Larry,
Have any of the VC’s you know listened to your views on this and taken it seriously in terms of how it could impact investment strategy?
David

Hi David—
While I’ve discussed this with anyone that would listen, I don’t remember ever discussing it with a VC.  In general I’ve used it with potential entrepreneurs as a suggestion for a business that might be interesting.  The problem, of course, is that it has to be adopted by the RBOCs/long-line companies and has to be legislated by the federal government.  [Snipped by David.] I suspect that the risks are high enough that it isn’t worth considering until the problem becomes unmanageable.  I’ve occasionally considered patenting the concept, but have never gotten around to it, and I’ve talked about it for long enough that it may no longer be patentable.  [Snip by Dave]
Larry

Larry,
Can I post some or all of your ideas and comments on this subject on my blog? If I do, can I mention your name?
David

Hi David—
No trouble—the more people that understand the problem and are at least thinking about rational solutions, the better.
Larry