Too Cheap To Charge For

Remember when nuclear power was going to be too cheap to charge for? Environmental and security issues aside, I wonder if anyone then thought to ask what the economics of "Too Cheap to Charge For" would actually look like.

With the Internet we are getting a real-world view of that and big corporations are having a cow.

Competition in the phone business, intensifying this year as Internet-based calling has taken root, has reached the point where many industry experts are anticipating an era of remarkably cheap and even free calls.

That era would be built on a vast migration of phone service from traditional networks to the Internet, where the calls become just another way to use Internet connections that consumers are paying for anyway.

"People are going to look at voice communications as something they expect to get for free," said Henry Gomez, general manager of Skype, which eBay bought last year for $2.6 billion. The company usually charges a few cents a minute for calls from computers to regular phones, but in May it eliminated those fees through the end of the year for users in the United States and Canada.

New competitors, including the major cable companies and start-ups like Vonage and SunRocket, are putting intense pressure on traditional phone companies like AT&T and Verizon that have built multibillion-dollar empires by selling phone service over copper wires. On the defensive, AT&T and Verizon are discounting heavily and pushing customers toward packages of more advanced services. [The new competitors have nothing to sell except routing and the day we all get fixed IP addresses, that goes out the window as well]

Online services like Skype that offer free calls from computer to computer for users with headsets have attracted the tech-savvy and are trying to push into the mainstream. In the process, they are dragging down everyone else's prices and pointing the way toward a time when it will be harder and harder for companies to charge anything for a basic home phone line on its own.

There are signs that changes in the business of calling are also altering the way people use these voice services. Mr. Gomez said some Skype users take language classes over the phone, unconcerned about the length of their calls. He has also heard of parents going out and leaving their child with a babysitter, but using the free voice link as a baby monitor to listen in on their child's room. [Not over the phone, across the network, the fact that it happens to be audio or video or any particular mode is irrelevant]

The reality is that capitalist economies are built on control of scarce resources. Scarce because they are rare or limited or because they are very expensive to create. Newspapers, TV and phone systems are perfect examples of the third type and, until the Internet, there were only two ways to create that infrastructure, either private capital built it in exchange for monopolies on the business, or the public purse paid. There is no capitalist model for a service whose cost falls below the point where charging for it is not possible or profitable.

That, however, is what is happening to the telco business which is why they are lobbying the US Congress to enact legislation that will give them back the ability to control how the network is used and to charge for something that they don't produce, ie, your content traveling over their wires, and doing soup-mix deals like this shambles.

And when they have simpletons like this in charge of the legislation, they have a very good chance of getting it through.

Senator Ted Stevens (R-Alaska) explained why he voted against the amendment and gave an amazing primer on how the internet works.

There's one company now you can sign up and you can get a movie delivered to your house daily by delivery service. Okay. And currently it comes to your house, it gets put in the mail box when you get home and you change your order but you pay for that, right.

But this service isn't going to go through the interent and what you do is you just go to a place on the internet and you order your movie and guess what you can order ten of them delivered to you and the delivery charge is free.

Ten of them streaming across that internet and what happens to your own personal internet?

I just the other day got, an internet was sent by my staff at 10 o'clock in the morning on Friday and I just got it yesterday. Why? Because it got tangled up with all these things going on the internet commercially.

So you want to talk about the consumer? Let's talk about you and me. We use this internet to communicate and we aren't using it for commercial purposes. We aren't earning anything by going on that internet. Now I'm not saying you have to or you want to discrimnate against those people [...]

The regulatory approach is wrong. Your approach is regulatory in the sense that it says "No one can charge anyone for massively invading this world of the internet".

The term useful idiot is too good for some people, but they still qualify to vote on the laws and, god help us, ALL the laws that get passed. You have to wonder if he is any better informed on health, justice, education or environmental issues.

Which leads to close calls like this.

The vote on the Network Neutrality amendment to the Stevens telecom bill was 11-11 in the Senate Commerce Committee yesterday. Even though this tie means that the NN amendment was not adopted, it is a show of strength that will not be ignored by the full Senate. USAToday has a good article on the increased resistance to the Stevens Bill. The WSJ says, " . . . disagreement over [net neutrality] now threatens to scuttle Congress's effort to rewrite the nation's telecommunications laws this year." Senator Ron Wyden, who introduced the first NN amendment in the Senate, has promised to hold the bill -- a privilege that any Senator can exercise single-handedly. And Stevens said yesterday that he does not have the 60 votes needed to force a Senate floor vote. So it looks good.

And as Australia staggers along the same rickety path, New Zealand looks like it is finally surfacing 15 years after privatising its publicly financed telco, putting the physical network, the services, the numbering and the directory all into the pot and selling it off for bottom dollar, get get a glimpse of what a genuine modern communications network is.

Taylor Reynolds, an International Telecommunications Union analyst who recently completed a survey of Internet and mobile services in South Korea. "Most of the growth is tied to effective competition, which you don't see in a lot of places in the United States."

The Seoul government's clearly articulated vision for modernizing the country's infrastructure stands in stark contrast to the regulatory morass that has stunted development in U.S. telecommunications for several decades. South Korea's policy--the cornerstone of a national technology initiative to help revive a devastated economy--has created true broadband competition, which in turn has helped prices fall and speeds rise.

Notice please the role of the government in creating the infrastructure over which the competition thrives. There is no network model that gains the benefit of competition while reserving control to private capital; none.

Korean regulators set out a clear path for the network industry with well-publicized national goals. All big office and apartment buildings would be given a fiber connection by 1997. By 2000, 30 percent of households would have broadband access through DSL or cable lines. By 2005, more than 80 percent of households would have access to fast connections of 20mbps or more--about the rate needed for high-definition television.

The government also spent $24 billion building a national high-speed backbone network linking government facilities and public institutions.

Even skeptics in the United States say that the South Korean government's advocacy role and intense focus can serve as a model for other countries looking to modernize their infrastructure.

Which is also why the US, Australia, NZ and the UK will resolutely lag behind for the next generation as well.