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November 02, 2005
Whitacre, Once Again (and a little more vehemently), Calls Unaffiliated VoIP Application Providers "Freeriders":
For those of you who missed it, Ed Whitacre was quoted in Business Week as follows:
"How do you think they're [VoIP providers] going to get to customers?
Through a broadband pipe. Cable companies have them. We have them. Now what
they would like to do is use my pipes free, but I ain't going to let them do
that because we have spent this capital and we have to have a return on it.
So there's going to have to be some mechanism for these people who use these
pipes to pay for the portion they're using. Why should they be allowed to
use my pipes?"
"The Internet can't be free in that sense, because we and the cable
companies have made an investment and for a Google or Yahoo! or Vonage or
anybody to expect to use these pipes [for] free is nuts!"
More and more, I hear Bell reps use the "F" word ("Freerider") to describe unaffiliated VoIP applications providers. Last year, Whitacre used the word in the Wall Street Journal to describe Vonage and Skype. (Frankly, I had mixed feelings about his failure to mention Free World Dialup. Can't we be a threat to SBC's existing revenue stream? I've been told that sometimes it's good to be noticed, and sometimes it's better to stay below the radar. I, of course, need to learn a little better about this "staying below the radar" thing).
I also heard Larry Babbio of Verizon make similar accusations last year at PFF's Aspen Summit. And, I certainly hear it a lot from the cable advocates (often the same advocates who fought so long and hard for unbundled access to the Bell network and reductions in access charges).
On the flip-side, I have heard a few Bell reps acknowledge the potential to create a mutually virtuous cycle between Internet access providers and Internet application providers. Interestingly, I've heard this forward-thinking logic emanate most recently from BellSouth employees. This gives me hope. I trust that this is not just transitory rhetoric designed to get us to help them out from under regulatory oversight. I, for one, believe there is a model whereby the proliferation of applications, on the Internet, including voice and other communications applications, could help increase the value of the Bell broadband networks.
In any event, if I were Whitacre's counsel, I would have suggested that he keep his mouth shut for another few months, until SBC had successfully used the VoIP ASPs to achieve its end-game -- no regulation -- and then come after the ASPs as so-called "freeriders," much as they came after the UNE-P providers and then the facilities-based CLECs who preceded VoIP. The slowly escalating assault is how the UNE-P and CLEC wholesale access issues essentially played out. By historic analogy, the existence of local competition by CLECs reselling Bell services through UNE-P ("unbundling" of the entire Bell service platform - essentially allowing CLECs to offer the same tired POTS services that the Bells offer at a 5% discount) was used to get the Bells long distance authority. UNE-P demonstrated "robust", "irreversible" competition. Once the Bells got the right to provide inregion long distance service, however, they went after UNE-P providers as "freeriders." The Bells got long distance authority and then killed the competition that got them there. I have grave concerns that the Bells will start using the "F" word more and more against unaffiliated VoIP application providers, much the way they called the UNE-P providers "Freeriders". We have heard the early rumblings, even while the Bells still need us as the vehicle to get out from other more onerous unbundling and other common carrier obligations.
I believe there are qualitative differences between the value of IP-based communications applications and the value of UNE-P. UNE-P was simply discounted POTS services, adding little additional value to the network. IP-based communications, to my mind, can and should be so much more, and should help drive broadband, and increase revenue streams for the Bells and other Internet access providers (once they recognize the unsustainability charging for metered voice service).
I think there has to be a more forward-looking dialogue between the Bells and other Internet access providers and the Internet applications that do increase the value of the network and help drive broadband uptake. I would really not like to see the future of broadband and advanced Internet-based communications stifled by infighting between all the players trying to harness the Internet and revolutionize the communications experience.
Tags: voip, sbc, freeriders
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Posted by jeff on November 2, 2005 05:31 AM | Permalink
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Comments
Greed, it all boils down to greed. It will not lead to happy shareholders because greed will only scare customers away.
Posted by: Eric Standlee at November 3, 2005 12:18 AM
Thwarted thinking; you have customers paying for a "broadband pipe", still a bitpipe, and than you want application providers pay you as well. As a customer I could actually live with that if it meant I have to pay less or rather nothing for "my" bitpipe and have free access to applications (providers) and other users. The flawed reasoning is found when Business Weeek qoutes Ed Whitacre saying "my pipes".
But we shouldn't be surprised of this business model, as it already exists. You pay your cable company but TV stations pay the cable company as well. Maximizing revenue, profit, streams indeed. But this is short-sighted. Ed Whitacre said that the capital investments were made, obviously that investment did not factor in the additional revenue streams to make a positive business case.
I agree with Jeff that we can think of models that do increase the value of the network, drive broadband uptake and allow new innovative services to flourish.
And I actually work for an incumbent. Than again, this incumbent I work for made public statement of its separated targets of driving broadband uptake and innovative services. Both are benefiting in their own right. So not stiffling one or the other but focusing on making them both attractive for users will drive revenue (and cost reductions because of scale of economies). The consequence if we don't; our customers are empowered enough to "vote with their feet" indeed
Posted by: Colin at November 2, 2005 11:01 AM
Henrik,
I'm not in the U.S. either, I'm in Israel.
What I meant is that before the telephone company "meltdown" people in the U.S. paid per minute prices for voice and monthly flat rates for data. If you factored out the average users on line time, the per minute rate for data access was far lower than the voice rate.
Cell phone companies invested lots of capital assuming that people would pay their higher than landline per minute rates for both voice and data.
It did not work out that way, which both caused a lot of investors to loose money and many applications that would have been viable in a cheap cell phone data environment to never happen.
For example, when I had a company that was building a handheld gaming device, we had planned for an option of WiFi support to sell games to users. This led to an aborted attempt to start a company to build and operate advertiser supported WiFi networks, because a teenager was not going to pay $7 an hour to Starbucks or $1 to their cellphone company to download a $.50 game.
Geoff.
Posted by: Geoff Mendelson at November 2, 2005 10:26 AM
People such as these should realise that the broadband users actually PAY for the broadband they're buying from them. It's mind-boggling that this little fact is looked over.
Geoff: Americans and "relatively high price for voice"? I'm not quite sure what you're talking about but it seems to me that you guys have it a lot cheaper than the rest of the world, and for me it's the cheapest to call North America, of all foreign countries. I keep hearing about this and that many free minutes in the evening / at weekends / whatever, too, and it's nothing new. So, what high prices?
Posted by: Ralesk / Henrik Pauli at November 2, 2005 09:19 AM
In the U.S. people have paid a relatively high price for voice and a low rate for data. That's what caused all the cell phone companies to go bust a few years ago, no one was willing to pay voice rates for data over their cell phone.
At some point the landline phone companies are going to have to accept that people want to pay data rates for data, whether it's email, P2P files, video, web pages and of course VoIP.
If not people will "vote with their feet" and go to service providers that provide the services they want, at the price they want to pay.
I have great hope for advertiser supported WiFi if investors can get over their fear of Google announing a "Google zone" in their area and killing their service. Once WiMax with it's extended range becomes popular, this will be less of a problem.
As VoIP codecs become better and better, the bandwidth needed for VoIP will decrease which currently is a problem for many service providers. They are simply not equipped to provide the constant bandwidth needed with low latency for voice.
On demand video will drive this need more than VoIP, so eventualy all service providers will need to provide fast, consistent connections or customers will go elsewhere.
As Jeff calls them, purple data streams will take over the current high demand applications, web surfing and bittorrent.
Geoff.
Posted by: Geoff Mendelson at November 2, 2005 08:16 AM
Old song.. people selling pipes shouldn't pretend to cut a stake in what will stream in it - think about analogy from oil world, the stake is much higher there...
We all should say loudly to ISP/Broadband providers that they get their money for a pipe, and it's non of their business to intervene in its contents. They could compete in it, that's all.
Posted by: Victor at November 2, 2005 07:46 AM