Telcos and CableCos as CDNs?

Andrew Schmitt looks at the economics of transit and CDNs and opportunities for the telcos and cable companies.

Amidst all the deals in the content distribution network (CDN) sector, Andrew Schmitt at Nyquist Capital has an interesting post about bandwidth costs and the CDN marketplace. Andrew looks at Akamai and wonders whether it may face a challenge from competitors who aren't interested in being acquired. Andrew writes:

A big source of (Akamai's) advantage in the marketplace is the arbitrage gains of reselling transit bandwidth. If this is a source of competitive advantage then this is the critical question - who has the lowest transit bandwidth costs? It's the Telcos and Cablecos themselves. If Verizon wants to distribute content to subscribers their transit costs are zero. ... Theoretically, this means that the Telcos and Cablecos could all enter the CDN business with a structural cost advantage. I have little faith in the creative business strategy of these companies but I have full faith in their ability to extract a pound of flesh from others. And I think this day is coming.

Andrew's theory is that since the cablecos and telcos own so many eyeballs, as demand grows they may be able to charge more for *all* incoming access to their network, sidestepping the network neutrality issue. It's an interesting theory, but I think that if the telcos and cable companies had any confidence that they could succeed with such broad-based price hikes for access to their networks, we wouldn't be talking so much about network neutrality. Schmitt notes that the telcos ability to raise transit prices hinges on whether "they can keep legitimate content providers from using P2P to eliminate the need to pay transit altogether." Like Joost (The Venice Project) perhaps?