Results tagged “regulatory classification of VoIP”

May 19, 2011 3:41 AM

Microsoft-Skype: The End of the "Free Lunch"?

When Microsoft's acquisition of Skype for $8.5 billion was announced last week, a lot of members of the financial press were quick to criticize the amount of money Microsoft paid for Skype.  But, I'm not a Microsoft shareholder, so I couldn't care less how they spend their money.

Still, there were a number of stories that intrigued me--all of which suggested that Microsoft's purchase of Skype may strain its relationship with the large phone companies, because Microsoft will further cut into the phone companies' revenues by expanding the Skype revenue base.  Here is a representative article, but there are lots more that say the same thing.

The "Conventional Wisdom"

All articles echoing this theme assume that Microsoft will be able to continue to offer the same Skype service at the same Skype rates (around 2.3/min for calls to the PSTN/mobile networks) from all of Microsoft's operating systems and devices?  The concern the writers express is whether Microsoft's inevitable erosion of phone company revenues will strain Microsoft's relationships with the telephone companies, insinuating that Microsoft may have a difficult time getting its Windows Mobile O/S placed with the major carriers, while "eating their lunches" with Skype's super cheap rates.

Based on a few facts, and some incorrect assumptions, this conclusion has some superficial appeal, and it's understandable that the financial press would mistake appearance for analysis.   On this one, though, I'm taking the opposite side of the financial writers.

Continue reading Microsoft-Skype: The End of the "Free Lunch"?
December 1, 2009 1:14 PM

The Alchemy of Net Neutrality: Does Double Discrimination Create Value?

`When I use a word,' Humpty Dumpty said, in rather a scornful tone, `it means just what I choose it to mean -- neither more nor less.'

`The question is,' said Alice, `whether you can make words mean so many different things.'

`The question is,' said Humpty Dumpty, `which is to be master -- that's all.'  Through the Looking Glass, Chapter 6.

`Can you do Addition?' the White Queen asked. `What's one and one and one and one and one and one and one and one and one and one?'

`I don't know,' said Alice. `I lost count.'  Through the Looking Glass, Chapter 9.

The question to be considered in the context of the Net Neutrality NPRM is not that the Commission is using a word--this time "neutrality"--to mean just what it chooses it to mean, but rather, how does it all add up, when layered on top of another equally "neutral" (but fundamentally discriminatory) regulatory regime such as intercarrier compensation where the same word "termination" has so many different meanings (prices)?  How do the sums add up?  Like Alice, I've lost count, but let me give you an example to see if you can keep better count. 

On November 19th, eBay closed on its sale of Skype, eBay's large, over-the-top, VoIP subsidiary, in a transaction that valued Skype at $2.75 billion (though eBay held on to 30% of the company).  This somewhat concludes eBay's rollercoaster ride into the world of telecommunications. Though the company itself valued Skype at $1.7 billion on its own books, eBay was unable to find anyone willing to pay even $1.4 billion--eBay's asking price--this spring, and even some Skype cheerleaders were speculating that, earlier this year when eBay made the decision to sell Skype, that eBay would likely get closer to $1 billion.  

In 2005, eBay bought Skype (or some part of it that, curiously, did not include the central intellectual property that made the service work) for a reported $2.6 billion, but the founders stayed on to manage the Skype subsidiary, and if all had worked out, could have earned an additional $1.5 billion over the next couple of years if certain targets were met.  Less than a year later, eBay ousted the founders and gave them an additional $500 million to leave early, for a real cost of acquisition of $3.1 billion.  At the time of the purchase, eBay was alternately lauded for its foresight, or criticized for paying way too much for a service that is largely "free." 

Subsequent to the original purchase date, most reports about the transaction were negative--suggesting that eBay's purchase was looking like a worse and worse decision with each passing year.  Business Week continued to follow the operation of Skype within eBay to see how the transaction would turn out.  The articles suggested the acquisition, in hindsight, was a bad idea--and getting worse all the time

But, what happened since April, when no buyers were willing to even purchase all of Skype for $1.4 billion?  Who knows?  But Skype is now valued at a higher revenue/EBITDA ratio than Google (15X vs. 11X).  And, if it's relevant, Skype's 15+ revenue/EBITDA was multiples higher than the 4.4 recorded by Apple over the fiscal year ending in September 2009.

Continue reading The Alchemy of Net Neutrality: Does Double Discrimination Create Value?
September 30, 2009 2:01 PM

VoIP and POTS: Regulatory Classifications or Magical Incantations?

It's that time of the year again--when nothing is as it appears.  I know this because my kids started to nag me about Halloween costumes.  You know, what they should be (and what I have to buy).  The first catalogues started coming in the mail last week, and the Internet has been humming with on-line searches since then.  But, witches, goblins, and haunted houses aren't the only artificial distortions decorating the autumn landscape this year.

Last Friday, the 25th, AT&T sent a letter to the FCC complaining that Google asserts the right to offer a service that closely resembles regular phone service, but without terminating calls to high-cost providers, like "traffic pumpers."  To be able to selectively avoid completing calls to carriers that charge excessively high termination rates confers a big cost advantage over ones competitors.  Therefore, AT&T argues, on the one hand, that Google should be treated like every other provider of "phone" service and be required to terminate calls to all parties.  Google, for its part, claims that Google Voice is an application and not subject to "common carrier" obligations.  According to Google's service description, the "common carrier" transport portion of its service (if there is one) is provided by a competitive carrier called Bandwidth.Com.

Alternatively, AT&T explains that even if the "Google Voice" service is an "application" or an "information service" it violates the "fourth principle" of the FCC's existing Broadband Policy Statement principles, which apply to all providers of "telecommunications." para. 4. [Note: the existing Broadband Policy Statement principles apply not just to "telecommunications services" which would only cover "telecommunications" offered for a fee to the public, thus Google's point that its service is "free" does not mean it cannot violate a Broadband Freedom principle.]  The fourth Broadband Policy Principle provides that, "consumers are entitled to competition among network providers, application and service providers, and content providers."  AT&T also argues that, if Google Voice is an application, Google's service would violate the Commission's proposed "fifth" principle of "non-discrimination" which would ensure consumers that a provider could not block access to another provider.

So, what's the big deal?  Where is the magic?  Where are the "illusions"?  Isn't this just a business-as-usual, Hatfield-McCoy, AT&T-sniping-at-Google letter?  Well, I'm not sure.  As I've disclosed before, I do some consulting for AT&T, but I wasn't involved in this letter, and  I'm not privy to AT&T's reasons for sending it, but I would caution against taking  the letter too literally--in the AT&T v. Google sense.  I'm just an educated observer, but I actually think another blog, Telecom Ramblings, got the right answer first in this post from September 27th. 

Continue reading VoIP and POTS: Regulatory Classifications or Magical Incantations?
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."

Continue reading When Irresistible Force Meets Immovable Object . . . In the Land of the Free
April 16, 2009 5:32 PM

Broadband Grant Derby: And the Winner Is . . . The Rural LEC! (Unless . . .)

After diligently not poring over the many ( no doubt, well thought out) Comments submitted Monday to the NTIA in response to its request for comments on its implementation of the Broadband Technology Opportunities Program, and casually perusing the FCC's Notice of Inquiry ("NOI") regarding a "National Broadband Plan", I can now tell you the answer to who gets the $7.2 billion in broadband funds.  The winner is  . . . the same firms who now take the majority of the USF high cost/low income fund:  the rural LECs and their progeny. 

How do I know?  Because the politics haven't changed, and when big, entrenched interests are at stake, the status quo is the safest course of action. When I say the "winners" are the "rural LECs", I mean no disrespect at all toward the firms that I generically paint with that label; it's just a shorthand way of referring to the firms that are currently subsidized via the USF high cost fund.  My only point is that firms respond to incentives, and firms that currently benefit under the status quo will continue to prosper, because it seems unlikely that the regulation-related incentives will even be clarified any time soon, much less changed in a way designed to promote financially-risky broadband deployment.  Said differently, for all the questions the FCC asks in its NOI, the key to the success of the broadband stimulus grants (or any other broadband plan) hinges on the one key question that the Commission declined to ask, much less address: the jurisdictional classification of VoIP.

Continue reading Broadband Grant Derby: And the Winner Is . . . The Rural LEC! (Unless . . .)