Announce The Vintage Computer Forum 1110

We will see a huge worldwide battle between the internet charging model and the phone charging model the next decade.

The phone companies want to charge by the bits transported end to end; the Internet model wants to charge for capacity available. Both have their merits.

The Internet model is much simpler, and works wonders when things are growing by leaps and bounds. The Internet still does; despite some setbacks in the US lately. The "Phone model" works well in a static world where capacity is scarce.

Mobile phones have taken off in "phone company" mode. They use the scarseness of the radio spectrum as a proxy to push high by-the-minute rates. They are currently printing money with their mobile networks.

The costs are there all right, especially when you want to build carrier-grade networks with comprehensive, scalable networks. What the WiFi networks do is that they show what moneyspinners the GSM networks are; and that spectrum is a lot less scarce then what the phone company models want you to believe.

A lot of these arguments are by strawman. This "costs practically nothing" is a strawman argument for the Internet model; or rather a gut reaction against mobile phone rates. Likewise "free" mobile phones are a strawman the other way. TANSTAAFL. The "G-word" (G R A T I S) is heavily used here; and all possible psychological tricks like instant gratification and rate cap "feelgood" tactics are used by everyone.

Amen.

Landlines will probably be pushed towards the Internet model, or pretty close. Bulk rates landline to landline in Europe is close to a cent per minute for continent-wide calling, and it is similar in the US. End-user prices are around 4 to 5 times this. VOIP will push this a lot closer to the Internet pricing model.

Not that this model is free, but a flat rate of around USD 40-60 will give you a slowish DSL-Cable line, with Internet, phone and possibly cable TV; and pretty low caller rates.

In the mean time the Mobile networks are trying all available tricks to defend their high variable prices. These are currently around 12 to 25 cents per minute; or 3-10 times landline pricing. These companies are doing everything they can to keep up these prices, and subsidise all other parts like handsets and monthly rates to keep up the volume.

The "3G" mobile using video (at $0.40 per minute or more), Internet access (at $0.50 per megabyte) try to push this "metered use" knob even higher. It is flopping big-time all over the planet. Meanwhile new mobile companies with pretty modest price reductions are booming.

(Yes, there are successes with video. This requires lower rates. The Economist claims there is a planet-wide standard upper price for entertainment at around $25 per hour. It seems this price level applies for mobile phones as well. 3G comes in above this price.)

This tells me this is going to be a long, protracted battle.

At the same time the cable and DSL companies do their utmost to defend fixed revenue. I ordered Cable Internet, then 384-128, for ~ $ 75-mo in 1999. I still pay the same rate for the same product, but this is now 3096-512; and the network is a lot more stable. I also have a backup link from the cheapest phone-co-dsl reseller available at $28 for 128-384, as a backup. They are really separate; one uses phone co wiring, the other uses cable co wiring. A phone line costs $24-mo in comparison. This is more than a 4:1 capacity-price improvement in 5 years. The Internet really doubles capacity every 9 months. 3-4 of this effect comes from faster lines, 1-4 from more subscribers.

What this does is push the Internet out everywhere it can be the very least bit useful, and everyone having anything remotely resembling high caller volumes on landlines can cap the expenses below two cents a minute or less with pretty modest fixed expenses.

The fundamental business revenues in the Internet are controlled by a pretty large number of rather peripheral ISP's; numbering in the low thousands. The core operators have low control over customer relations, and are operating in a buyers market. The Internet business model with high fixed and low variable costs suits the edge operators well, because the major revenues goes into the edges of the network where the access happens, and not into the traffic intensive core.

In mobile telephony the game is turned. The core operators have strong control. They number in the high tens-low hundreds; and control the business model. They want the business the other way; in that the majority of these operators take a lot of revenue from calls to-from the core radio networks; and the money goes mostly into the core of the business.

I predict that the landline business will turn towards a high-fixed low-variable model and approach the Internet; and that the mobile networks will be where the core Phone Companies will defend their turf.

Remember, whenever someone uses the "G-word" they really want to manipulate you.

-- mrr