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December 13, 2005

Om, Since You Ask, Here Are My Initial Thoughts on the PC-to-PSTN Price War:

Well, I don't usually like to be seen as crying sour grapes, but I think I have to cry at least a few tears, not just for myself, but for the IP-based communications industry. I bemoan our lack of vision, our lack of creativity, and our failure to recognize that voice really is just an application, that will be offered for free some day soon, and apparently sooner than many companies currently think. For now, providers are trying to suck as much short-term per-minute voice revenue as possible and seem to regard access to the public switched telephone network (PSTN) as the brass ring. In the world I imagine, the PSTN would someday, soon, be little more that a minor, limited-functioning, off-ramp on the robust, ubiquitous, IP-based network of networks. I guess some would say that it is essential to build up your team, your community, your consumer base as quickly as possible, so that when the day comes that we have a new communications network consisting of interconnecting IP islands, your team has the most members. I would do this through innovation, not through replication at a cheaper price.

Andy Abramson and Om Malik have reported that the PC-to-PSTN price wars have
begun. Yahoo has announced its intention to offer a penny-a-minute calling beginning in ‘06. SIPphone will apparently begin offering PC-to-PSTN calling at 1 cent per minute calls anywhere in the US starting today. And Microsoft will start allowing PC-to-PSTN calls tomorrow using MCI network for 2.3 cents/minute. The rest of the Interconnected VoIP providers will probably have to follow suit in a race to the bottom – that is, unless they learn to differentiate and add value beyond cheaper calls to the PSTN. Om notes that this is turning into a brutal price war for PC-to-PSTN calling and wonders rhetorically how big the PC-to-PSTN market could really be to warrant such a battle. He accurately answers his own question – “not very, I assume!” And, Om wonders, “What Jeff Pulver thinks about this.” Well, since you ask, let me throw in my own 2 cents (or, to meet the current price ceiling, my own 1 cent). I addition to my introductory rant in the first paragraph above, I would like to point out that I, too, commented yesterday on Yahoo’s penny-a-minute announcement. Today, I could have taken the same blog, using a universal search and replace, swapping out Yahoo! with Microsoft and changing the price. It turns out I could probably do this for the next month, just swapping out the provider’s name.

The thing is that back in 2003 and 2004 when FWD gave away FREE calling -- FWD never had the buzz of charging a penny a minute. Ok, so maybe we were pretty low key about it, but still, we did serve out millions of minutes of calls -- and this is something that no one remembers. We thought the fact that voice should be free was a given – inevitable. Well, I guess we are not quite there yet. Voice connectivity to the PSTN still garners a fee. Admittedly, this is true, in part because the LECs still compel compensation to reach their precious customers only reachable via the narrowband PSTN. But, why do we have to cave to this extortion? Why can’t we all get together and marginalize the PSTN as soon as possible. Frankly, they don’t really want us on their turf. They have made that clear by gauging us as much as possible to access their customers. Furthermore, the imposition of social obligations, such as emergency response obligations on VoIP providers, confirms that no one regards the IP-based communications industry as anything better or worthy of a little latitude. As I have said before, we sort of asked for imposition of currently infeasible social obligations on the emerging industry. We overvalued the need to access the PSTN and overvalued the need to look and feel like traditional telephony. And here we are holding out PC-to-PSTN connectivity as the great current need of the VoIP industry. They overcharge and impose obligations on the VoIP industry with one goal in mind, to keep us off their turf as long as possible, and at least until they can offer IP-based services as innovative as the ones we should be offering today – services we would be offering today if we weren’t so obsessed with replication and access to the PSTN.

Frankly, I still am not sure how these companies intend to abide by the FCC’s E-911 mandate for “Interconnected VoIP Providers,” but I would like to hear from any of you with any intelligence on how these companies intend to market services without a ubiquitous nomadic emergency response solution. Rolling out and marketing Interconnected VoIP Services on the heels of the FCC’s E-911 mandate certainly shows nerve, the type of nerve I would rather see devoted to innovation and differentiation.

So Om, if you can’t guess from the preceding rant, I am a bit jaded when I try to write about this crap – this race to the bottom. Once again this is a space that we in theory pioneered that is going to the dogs. I should hope that you and others are equally irritated by the current trends.

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Posted by jeff on December 13, 2005 12:45 PM | Permalink

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Posted by: 升降机 at July 14, 2008 05:39 AM

A problem with "our" universal directory may be that there will be another group that would like to form "their" own universal directory, creating a schism that is seen today. Instead it is preferable to strive for interconnection between all the directories as it is there in the email world.

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Posted by: kız oyunları at February 19, 2008 10:38 AM

Geoff M. writes:

"I think the real critical mass will be attained when the connect-it-to-your-PC-Skype-phone becomes standalone."

Three weeks later, it happens. Netgear announced a standalone Wi-Fi Skype phone:

http://www.netgear.com/pressroom/press_releasesdetail.php?id=305

. If it were integrated with a cell phone, I think it would get traction. We're almost there with smartphones running Skype, but it's still complicated and painful compared to cell.

Posted by: John F. at January 17, 2006 03:58 PM

Usage on the PSTN is increasingly wireless. This suggests that many VoIP-PSTN calls in fact don't terminate to LECs but to wireless (which doesn't have access charges in the U.S.). Seems like there's a great opportunity for someone to put together VoIP-wireless interconnection and cut the LECs out of transit revenues. Such an arrangement could provide expense reductions on calls in both directions.

Posted by: d.l. at December 14, 2005 04:30 PM

A problem with "our" universal directory may be that there will be another group that would like to form "their" own universal directory, creating a schism that is seen today. Instead it is preferable to strive for interconnection between all the directories as it is there in the email world.

Posted by: Aswath at December 14, 2005 08:59 AM

Skype's advantage over FWD is quite simple: ease of use. Skype installs and works out of the box, even behind a firewall; when I first started using FWD, it was almost impossible to find out how to use a STUN server, and finding a client was my own problem. And, for that matter, I wouldn't expect a non-hacker customer to figure out STUN in the first place. I haven't seen the new client, and I will give it a whirl, but FWD's first-mover advantage is long gone.

Posted by: Moshe Yudkowsky at December 14, 2005 08:31 AM

Jeff,

PC to PSTN services are excluded from the FCC's e911 order if they do not require a broadband connection.

Posted by: Ben at December 13, 2005 09:38 PM

I'll have to give you a agora's worth being out of cents. :-) I think the real critical mass will be attained when the connect-it-to-your-PC-Skype-phone becomes standalone.

When that happens, people will buy them, hook them up to their broadband routers like they do Vonage, etc boxes and start disconnecting their PSTN phones.

Many will keep a cheap pay-as-you-go cell phone for 911 and calls from people who only have PSTN phones.

IMHO it's a winning combination and in order to stay in the market VoIP to PSTN bridges such as Vonage along with cell and wireline providers will have to offer low price connectivity for low volume users.

When the wireline companies wise up you will see combination deals, such as a xDSL line, VoIP to PSTN bridge and cell phone deal all at one low monthly price with free/cheap cell airtime to VoIP/Skype users.

I also expect to see the bridge providers to connect to Skype and others to compete. How much longer will we have to go out via the PSTN to connect to other VoIP users?

Eventually this will cover the whole world. For example, I can call a friend of mine in Netanya (about 75 miles) from me in Jerusalem by calling his all-you-can-talk U.S. phone line from mine.
The latency is bad, almost like an old satellite long distance call, but it works.

Geoff.

Posted by: Geoff Mendelson at December 13, 2005 04:51 PM

Jeff, I think two things conspired against you getting recognition for FWD's free calling.

First, the timing. It was too early. VOIP wasn't on the media radar at that point. They didn't get what it was capable of. It's hard to get them interested when you have to start by educating them.

Second, FWD didn't connect to the PSTN. That's a big difference. Without connecting to the PSTN it's just a toy for geeks. It doesn't have any business potential and it isn't a large enough market to be interesting.

Back in 1988 I worked at a research lab that had a number of Sun3 workstations. I built a telephony app (ulaw encoded audio) using the built in microphone and speaker. We thought it was very cool. Then my boss walked in and said "Congratulations you've invented an expensive and complicated telephone." He was joking around it was the purpose of our lab to try things like that, but he was right that it wasn't practical for anything.

The media is paying attention now because:
There's a critical mass of users.
It's a real business market.
It's useable by the non technical (PSTN) user

They still don't get voice as an application because it still doesn't meet those requirements. Those of us who are technical love it. I use Asterisk because it is a great voice application platform. SIPPhone gets it and wants to sell their services as way to host voice applications. FWD has gotten it longer than all of us. :)

Posted by: Daryll Strauss at December 13, 2005 01:29 PM

When you look at the current trends of the industry, it certainly does look like running in circles and I agree with what you say.

Then I realize that its only the technologists who are passionate about improving technology and the experience of the end-user, while business do whatever they have to do to survive and stay afloat and to have their name in the same page as their competitors.

In my opinion, things will start to move towards a different direction when the VoIP industry can formulate a solution to address and uniquely identify the individual users in the network; an identity that can cross the network limitations posed by Skype and all other softphones. For that, we need a universal directory has to be built.

I have some ideas in regards to this. We should talk soon.

That's my 1 cent.

Posted by: Vijay at December 13, 2005 01:21 PM

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