September 18, 2009 12:13 PM

When Irresistible Force Meets Immovable Object . . . In the Land of the Free

While the deep thinkers in government and in the general "world of the deep thinker" are thinking about lofty issues affecting broadband (remember, I said "lofty" issues), commerce proceeds apace, the domestication of the dog continues unabated, and . . . the "little", pragmatic issues surrounding broadband get bigger . . . but not "lofty."  In a time where lofty gets most of the focus from the broadband plan, "free" is not as insignificant as it sounds. 
"Free" is an afterthought, a cheesy giveaway, or, even worse, a gimmick.  Yet, it is "free" that will force the Commission's head out of the clouds, and force the FCC to deal with the little, pragmatic issues that drive the little, pragmatic services that cause the little, pragmatic people . . . to buy broadband.  Some would say it already is.

Everywhere you look, "free" is "in."  Recently, Wired! Magazine published an article by Chris Anderson, called "Free! Why $0.00 Is the Future of Business."  The article, which is essentially the thesis of a book by Mr. Anderson (available for free), notes that frequently what looks like "free" might just be a different cost-recovery system.  For example, the "buy one, get on free" is a staple of sales promotions, similarly, Gillette makes profits off of repeated blade sales and not from selling razors, and Google makes money from advertisers, and obtaining "free" information about the value that consumers' place on certain search terms helps Google sell a better product to its advertisers.  Most kinds of "free" aren't "free" at all (to consumers)--though they still may be good deals.  Other kinds of "free" services are, in fact, "free" to consumers, because they involve transferring costs to another company in the supply chain, i.e., Mr. Traffic Pumper Guy

Dow Jones today pointed out--in a very observant article--that at least part of the FCC cares a lot about the public's perception that it is standing up for consumers to have access to "free" applications. This, Dow Jones explains, may be one reason why the Commission cared enough to initiate an inquiry into why Apple didn't give "free" placement to Google Voice, a "free" call management/VoIP application, in its iPhone Apps Store.  In other words, preserving "free" might be a good way to ingratiate yourself to certain "public interest" advocates.  Dow Jones quoted a Senior Counselor to the FCC as saying, "We're moving to a broadband world and we want to maximize innovation and investment in the space."

Of course, a regulator can never be too careful in assessing how regulations affect innovative services.  In the Mother-of-all-Ironies, Google, a leading advocate for Net Neutrality (i.e., common carriage with no "reasonableness" standard), said "it would become 'a real challenge' to justify Google's investment in Google Voice if the FCC declared it was subject to common carrier rules. Imposing legacy common carriage requirements would be unfortunate not just for Google Voice, but also for lots of innovative companies, large and small, who are using the Web to revolutionize the way people communicate with each other."  The irony is that a lot of companies have a lot more at stake than the reported $50 million Google paid for GrandCentral, so if these "common carrier" rules could imperil a $50 million investment by a firm with $22 billion in reported revenue for 2008, one shudders to think of what these rules are doing to other firms' costs, and to consumer prices.

It was comforting to hear from an "FCC Senior Counselor" that the Commission would be "data-driven" and "consumer oriented" with respect to new services, I was afraid that given two particularly popular new, innovative services, that the Commission's silence on VoIP regulation would lead to one heck of a "free" train wreck.  After all, the data is in--"free" services are always in the consumer's interest, right?  But, what happens when you have to choose between types of "free" services?

While I was cognizant that this issue could arise when I read the Google Voice offer description, and terms of service, I didn't know how this issue had already come to a head with some customers of the most successful "free"-ish VoIP service--Magic Jack.  I wish I was clever enough to have spotted this, but this article from Tech Dirt says it, from a user's standpoint, as well as anyone could.

So, we have two free services--one that is an almost-free version of phone service, and another that is a "really-free" conference calling service--but only one of which will remain available to most consumers, depending on how the FCC chooses to regulate VoIP traffic.  If VoIP traffic is lightly regulated as an information service, then Magic Jack and Google Voice in their current forms will continue to be available.  If you really need conference calling services, you'll have to look for a cheap one, or perhaps one that finds a new way to be "free", because the old, traffic-pumper-based plan will no longer exist. 

I doubt the FCC wants to steal the "magic" of VoIP, but, if these companies are to grow, the Commission must go ahead and clearly define their right to offer service only to customers of networks with whom the VoIP company has established commercially fair terms of interconnection.  This way, the FCC promotes consumer welfare by allowing these services to continue to be offered, but allows companies the comfort of knowing they don't have to deliver all calls. But, if the Commission really wants to advance the development of "free", it needs to align the incremental price of the inputs to all telecom-type services (i.e., originating or terminating access) with the incremental cost of these inputs, i.e., "free."

It's the height of hypocrisy for Google to insist on rules to require that all Internet end points be equally accessible from all other Internet end points, while at the same time it reserves the right to wall off some PSTN end points from its customers. If Google objects to these scammers' high access charges, maybe it should put a little of its lobbying muscle into getting some new rules where they're really needed -- intercarrier compensation -- rather than wasting it on a concept as ill-defined as "net neutrality."

john dog | September 19, 2009 8:12 AM | Reply

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