[LINK] Within five years ... people will not pay for phone calls

Paul Bolger pbolger at gmail.com
Wed May 16 12:48:38 AEST 2007


Thursday April 27, 2006
The Guardian

In days past, the telephone was a thing of awe: an object admired for
its usefulness but feared for its apparently limitless ability to cost
money. Bosses put up notices urging staff to delay calls until the 1pm
deadline when the morning peak rate - during which calls were 50%
higher - had passed. Parents zealously controlled children's access to
it in case they bankrupted the family while chatting to friends. In
1984, a one-hour phone call in the afternoon to someone up to 56km (30
miles) away cost £4.56. (Further away than that, and you were making a
"national" call.)


The tariff structure was almost impenetrable: was your call before
noon, over a trunk line, to someone more than 56km away,
operator-connected, from a payphone? Each element attracted a
different price. Looking at the tariffs, which covered pages, it is
easy to see why getting accurate computerised billing was one of BT's
biggest headaches in the 1980s. Today, that hour-long call costs 5.5p
on a BT line. The only puzzle is choosing which "call bundle" to pick;
but the prices are far easier to understand.

And there is better to come. Soon, the tyranny of the itemised bill
will be a thing of the past. BT has told the Guardian that household
phone bills for fixed lines will be consigned to the technological
dustbin. "Within five years ... people will not pay for phone calls,"
says Matt Bross, BT's chief technology officer.

Industry statistics tell their own story: according to the IT analysis
group Gartner Research, in 2004 the number of calls made on landlines
fell by 10%; this year it is expected to fall by 20%. By 2010 the
revenue from landline calls is expected to fall to just 50% or 60% of
its present value. The main beneficiary will be the mobile - though
36% of those calls already lost to landlines have migrated to the
internet, using VoIP (Voice over Internet Protocol).

Gartner further predicts that by 2009, one third of Europeans and
Americans will have ditched their fixed phone lines, and be using
mobile and internet telephony instead. In a report, it also suggests
that by 2009, 70% of voice connections around the world will be
wireless.

Communications revolution

Colin Duffy, the chief executive of Voipfone, a telecommunications
company that specialises in providing low-cost voice lines to small
businesses, says such figures herald a revolution in our approach to
communications. "Voice [calling] has just become another piece of data
on a network the customer is already paying for. It is the new
companies who are going to grow around that network and who will
produce the new phone companies."

The demise of fixed-line phone bills is something Sir Bryan Carsberg,
who at BT's privatisation in 1984 was the first director of Oftel -
the telecommunications regulator now folded into the communications
regulator OfCom - views with fascination. "It's a far cry from the
days when my father used the phone," he says. "He regarded it as
something to be abrupt on, to avoid expense, so he was very practical
about how he used it."

Now chairman of council at Loughborough University and recently
appointed to serve a second term as the chairman of the Pensions
Compensation Board, Carsberg recalls: "Then, the phone was in the hall
and guarded as to its use." However, he says the initial aim of
introducing competition in 1984 was not so much to reduce prices but
to increase capacity.

"The government was very keen on the liberalisation of the financial
services industry. Because of that expansion there was suddenly a
demand for a huge amount of phone lines - and BT was unable to meet
that demand, and there was a backlog of 250,000 lines that were
needed. And that was holding up the development of a important
strategic industry." (Indeed, that squeeze on supply meant that,
against the pattern of history, call prices rose between 1981 and
1984.)

"The government became very keen on the idea [of competition] because
in the 1980s there was a lot concern about trade union power and BT
was a monopoly and the government were particularly worried about
union power in a monopoly. That led to the idea that Mercury, which
was the company that had developed from the City shortfall, could
become a second communications provider."

Carsberg, who also oversaw the arrival of mobile telephones, says the
arriviste mobile phone companies helped transform the
telecommunications industry.

"Mobile started up in 1985 and I was on the panel that advised on the
choice of competitor for the BT mobile arm, Cellnet. At the time we
recommended a little-known company called Racal Vodafone which
everyone virtually wrote off." Vodafone split from Racal Electronics
to become an independent company in September 1991.

"At the time of its creation, the expectation was there would only
ever be around 100,000 customers and the usage would be a niche market
for a small number of customers - mainly because the phones cost over
£2,000. Competition has drastically changed that. In the late 1980s I
was working on models that presumed 10m customers by the end of the
90s and everyone said I was way out. What's the number of mobiles in
the country today? I think it's around 50m."

With that historical perspective, some even predict large mobile phone
bills may also soon be a thing of the past.

Mobile phone companies are vulnerable because the development of
phones with Wi-Fi capability and instant messaging services on PDAs
enables people to make VoIP calls via public wireless access points. A
new company called FON is trying to develop a free worldwide wireless
network by encouraging people to share their Wi-Fi bandwidth for a
small fee.

The emergence of WiMax technology, which offers wireless broadband
speeds over distances of some miles, may make it not just possible,
but economic to avoid the mobile networks and route mobile calls
through a comprehensive wireless internet connection. Some believe
WiMax might even threaten 3G, and the £22.5bn spent on licences by
mobile networks.

Companies such as the computer giant Siemens are developing what is
known as an intelligent mobile phone. Tim Bishop, the company's head
of strategy, said: "We are developing intelligent phones that will be
combined GSM, 3G and Wi-Fi devices underpinned by the VoIP technology.
The phones will be intelligent and just seek out the cheapest
service."

Indeed, at BT, Boss predicts that all mobile calls could also
eventually be free. "We can see those people who make a lot of mobile
phone calls will do so from the web and because of that we are aiming
to put more services into data devices."

Even broadband, which for most people was the first step into
"unmetered" communications use, could become free - at least as part
of a package. Robert McKinnon, who works for the Korean phone
manufacturer ZyXel, says many companies in the telecoms market are
working towards a model where both phone calls and broadband will be
free, unlike Carphone Warehouse's recently announced "free" model,
where consumers still pay monthly charges of £11 for line rental and
£9.99 for all their phone calls.

Of course, consumers will naturally be delighted at the possibility of
free broadband and unmetered fixed and mobile phone calls. But there
is one small potential snag: if everything is free, who pays to keep
the internet running?

Subscription packages

Katja Ruud, Gartner Telecoms Group's research director, says that
though the traditional telecoms companies were slow to tackle the
question of losing customers from their voice networks, the question
is now preoccupying the entire industry.

"Nothing is free," she says. "The incumbents are looking at bundled
revenue models that will let them offer subscription packages made up
of voice, mobile, internet and video for the consumer and mobile
desktop and applications for the business user. If anyone tries to
break those models then things will follow the Nordic model - and the
innovator will be bought by the incumbents."

Professor Martin Cave, a telecoms expert at the University of Warwick
Business School, also suggests that the notion of free broadband and
telephones may be an illusion. "What people are going to pay for is
the transmission of bits over the network - and they will have no
choice in that," he says. "Put very crudely, you'll pay for content,
so if you want to watch a film you'll pay for its transmission. That
film will have to be separated from the transmission mechanism for
other data but you will still pay for the data you use."

At the moment, he says, people seem to prefer their telecoms services
via lump-sum payments rather than on demand. But this payment model
could change as the network gets clogged with the latest blockbuster
films. "With broadband the offerings are tiered in terms of speed. In
future it may be tiered in terms of data use. The standard UK model is
that you pay for your speed and then download as much as you want. But
once people routinely start to move Hollywood movies, that will put a
huge stress on the network and there will be a need to expand the
network. That will have to be paid for."

Cave also warns about the prospects of firms offering cheap or free
telephony services. "Services like Skype [which uses a peer-to-peer
VoIP model] are freeloading off the excess capacity in the network,
but as that capacity is taken up it will be interesting to see how
that will affect the quality of service it provides."

BT and NTL Telewest have started to respond to this new-look world. BT
is spending £10bn on its "21st-century network" - effectively turning
the telephone network into a dedicated internet - while NTL Telewest
will roll out a full multimedia package giving customers internet
presence, video and TV, instant messaging, file sharing and features
to manage time and availability.

BSkyB, too, intends to become a major player in the so-called
converged broadband/TV market, a move signalled by its purchase last
year of the Easynet ISP.

Yet Carl Ford, the content director for Pulver.com, the company
started by Jeff Pulver, the man widely acclaimed as the pioneer of
VoIP technology, points to what may be the only workable business
model for the broadband industry in the future.

"People will have to come up with new ways of making money - trying to
charge for access is old thinking. Google are making money because
they are offering direct access to people who want something to people
who want to sell something. That could be the future."

One thing is certain, though: the telephone's presence as a
money-sucking instrument in the front hall is over.




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