There are many business implications of the connectivity provider decision to rely on connectionless internet protocols for data communications rather than the connection-oriented platforms telcos traditionally have preferred.
In some ways, cloud computing also has evolved charging mechanisms that are based on combinations of flat fee and usage mechanisms. “Distance” doesn't really matter. Usage does matter, as a rule, and most features are charged on a “volume used” basis.
Consider pricing mechanisms in the connectivity business. Flat rate, usage-based and “quality” remain key charging methods. But “distance” has generally receded from cost principles. As virtual connections replace physical connections, and as packet networks are not deterministic in terms of routing, the distance any packets travel cannot be determined, much less the distance they travel.
Other mechanisms including flat-rate, usage-based and in some cases quality mechanisms are used differently on mobile and fixed networks. With the caveat that there are lots of nuances and lots of service providers will use different mixes of principles, distance, actual consumption and quality are the main areas of difference.
Public internet communications are “best effort,” without granular quality of service mechanisms, as a rule. Private IP networks can be engineered to provide QoS mechanisms. Also, customers pay for the ability to use a resource, not the intensity of usage, as a rule, using flat-rate mechanisms, often supplemented by heavy user charging based on actual consumption.
But distance essentially ceases to be a defining driver of customer pricing. In fact, generally is no longer relevant to the cost of the service. “Tele,” recall, means “at a distance.” In the internet era that is not a defining issue when it comes to the value or cost of connectivity.
That is reflected in a shift of pricing to interconnection mechanisms. Value is driven by “who” is connected, at what capacities, and less by actual metered or measured consumption.
“Where” resources are located is not crucial. “What” gets connected, at what capacity, drives pricing.
Further, though usage often is a driver of customer cost, that also is not deterministic. The ability to connect is the basic principle, whether data is transferred or not. Mobile and home broadband subscriptions have a basic cost per month, irrespective of whether any voice calls are made, text messages sent or received or data consumed.
Also, since distance does not matter, charging mechanisms shift to “what and who” are connected, not “where” they are connected.
Does it matter whether a connection between domains, people or companies happens thousands of miles, a few hundred feet or a couple of meters away? When two people in the same room send text messages to each other, the messages might well travel hundreds to thousands of miles before hairpinning back to someone located a few feet away.
Likewise, two internet domains can connect over a few hundred feet inside a data center or across thousands of miles to other data centers. With the exception of some instances where latency is an issue, distance does not matter.
Increasingly, what matters is the ability to connect, not whether such a connection is physical or virtual. And the trend clearly is towards virtual connections. Virtual private networks, cloud routers, leased wavelengths or leased bandwidth of any type are essentially forms of “virtual networking.
The important observation is that when communications functions are virtualized, “where” things are located means less than it used to. And if the core “connectivity” business model remains “connecting people, places and things,” value sources and charging principles have changed.
