Friday, June 15, 2012
There is some good news about the decision by Verizon Wireless to offer shared monthly data plans. But there could be a lot more if the FCC applied its Carterfone policy. That policy gave consumers the power to decide what and how many devices to attach to a network connection. If Carterfone applied, consumers could use multiple devices to access a network subscription, albeit perhaps not at the same time. Because wireless handsets each have a separate identity, Verizon and soon every other carrier will offer the shared data plan option, albeit at much higher prices factoring in the surcharges for using more than one wireless device.
Readers over the age of 40 may recall that there was a time when the wireline telephone company totally controlled what devices could connect to the network. The Bell System had a monopoly on “authorized” handsets and prevented even a used, secondary market for Bell telephones. Subscribers feared that the Bell System would know whether a non-Bell vintage telephone was in use, when more than one phone was attached. Carterfone liberated the marketplace for both new and used handsets.
It is a remarkable time that the Carterfone policy somehow can be converted into “job killing government regulation.” The policy promotes consumer sovereignty, but in this bizarre time it gets framed as something bad because it requires government to do something. And what does government do? It removes the ability of companies to establish bogus regulations designed to preserve a monopoly and maximize profits. In retrospect it appears crazy that Bell System managers could argue that anytnon-Western Electric telephone could harm the network (and something they called “systemic integrity”) as well as risk the lives of telephone company personnel. But that strategy lasted for years and preserved incredible profit margins for AT&T.
History repeats itself. Verizon surely cannot make a credible argument that allowing multiple devices to share a download basket of capacity triggers greater costs for the company. Bear in mind that every wireless carrier provides shared access to a basket of voice minutes. So how is data any different? It isn’t.
The lack of Carterfone enforcement means that wireless carriers can create a bogus, new “cost element.” Because these carriers copy each other (some would say collude), expect every wireless carrier to create a new billing line item for that second, third and fourth device sharing a single monthly throughput allowance.
Tuesday, June 12, 2012
The old school view for metering emphasized efficiency and resource management. Without a meter tied to variable payment, subscribers would “overconsume” and waste resources. Carriers ignored the metering option to stimulate experimentation especially for new services. For example, Internet access subscriptions initially were offered on an All You Can Eat (“AYCE”) basis. Even now cable television operates offer AYCE, largely because the business model involves a broadcast function (one-to-many) and the carrier incurs no greater costs with increased consumption.
Internet carriers have applied conventional metering economics in migrating data subscribers from AYCE to monthly download caps. Wireless carriers never offered AYCE, but they have agreed not to debit minutes of use for on-network voice calling. This feature promoted positive networking externalities: a network accrues greater utility for users as more subscribers join the network.
Some wireless carriers now want to abandon metering for voice services, not because the economics of metering has changed, but because of changes in consumer behavior. Carriers can tout a generous new unmetered voice service, even as several tiers of usage merge into one option, offered at a higher price for many. Because consumers are spending more time and money on data plans, wireless carriers have to find ways to retain voice service revenues. One way would be to take a page from cable television operators and require subscription to a basic (now AYCE) voice plan, as a precondition to getting a data plan. In cable if you want access to higher-tiered content, you must first subscribe to the basic tier.
As they eliminate baskets of minutes in exchange for an AYCE plan, wireless carriers prevent subscribers from downgrading their voice plans to cheaper and smaller usage allotments, closer to actual (and declining) usage. Wireless carriers now can offer AYCE on the valid assumption that few subscribers will overconsume.
Remarkably the International Telecommunication Union (“ITU”) has flown under the radar scope of critics. This specialized United Nations agency does have a substantial impact on telecommunications, spectrum management and the Internet. Wireless carriers in the United States can blame the FCC all they want for spectrum scarcity, but the true originator of spectrum allocation decisions typically is the ITU. Nations usually follow the ITU consensus in their domestic allocations. While nations can take a “reservation” to the ITU consensus and make a unilateral, national decision, few do. Pursuing an exception usually ends up costing the outlier, because equipment adhering to that specification may not have the same scale and efficiency as one adhering to a global standard. Think first generation cellular AMPS versus GSM.
It should come as no surprise that the ITU has turned its attention to the Internet: as we migrate more information, communications and entertainment to an IP-centric network, the ITU surely will offer its “good offices” to anticipate and resolve conflicts.
The U.S. has disproportionately low influence in the ITU, largely because few U.S. citizens serve in senior management positions. Such underrepresentation results from limited second and third language skills and the perception that working at the anything related to the United Nations won’t enhance one’s career. Of course it does not help that the organization of structure and unstated philosophy of the ITU tends to favor non-Western nations, even when the matter does not involve development and bridging the digital (or analog) divide.
The ITU has not engaged in a power grab as much as pursue its real or perceived mission.