AT&T, Google, The FCC and Net Neutrality

Last week’s most interesting tech news may just be the controversy brewing in the world of net neutrality where FCC Chairman Julius Genachowski is looking to extend these principles to wireless networks. To me it makes sense that all networks should embrace net neutrality and subsequently charge users accordingly. In other words if I want to stream infinite amounts of music and videos, I should be allowed to as I realize I have to pay for my greater than average usage. Currently I use Skype video on an EVDO wireless network when no broadband alternatives exist and I am always fearful my carrier will shut me down for doing so. Why? Because the terms of service of many wireless carriers forbid VoIP and restrict the amount of bandwidth used per month. I would rather pay a few dollars more per month for EVDO and not live in fear. Moreover, if I want to see my family on Skype, I prefer to see them at the highest resolution and best quality possible and it upsets me that deep packet inspection tools are used by carriers to slow “undesirable” net traffic and in turn potentially reduce the clarity of video calls.

When I purchased an iPhone a while back I wanted it purely for web browsing but AT&T forced me to purchase a voice plan which cost me more than $40/per month. Did I feel like I was being ripped off? Sure. But I knew the phone was subsidized and moreover I knew telecom rules, rates and regulations in the US have often defied logic. For many years it cost much more to call someone one town over than it did to call someone across the country. Local calls while generally free cost the carrier money. In the nineties a thriving international callback business was launched when people realized they could call into the US from an international number and hang up and let a computer call them back from the US where rates were far cheaper. This International callback space preceded the IP communications market but similar to VoIP, it looked for opportunities to reduce phone rates by playing on the inconsistencies in international telecom rates and regulations.

Carriers have to deal with these inconsistencies while trying to generate profit in a world where VoIP has wreaked havoc on their ability to make money. Thankfully the cellular market exists because if it didn’t, AT&T would be a very different company – perhaps more similar to Kodak as it watches its monopoly (duopoly, etc) position erode.

Part of the reason the FCC is talking about net neutrality principles has to do with Apple denying Google Voice into the app store. As most journalists know,  you are better off getting information out of the CIA than you are out of Apple – when it doesn’t want to comment that is. Google says Apple didn’t approve of their application, Apple said it hasn’t decided. I believe Apple realizes this application will cut into AT&T revenue, making it less feasible for it and other carriers to pay the hefty fees the iPhone commands from carriers. You may recall an application called Newber which was developed last year allowed the iPhone to have a second phone line and bypass calls which would normally ride on the AT&T wireless network. It should be no surprise that Apple didn’t approve of this application either – or as they like to say about VoIP apps when the FCC asks, — “We are still considering it.”

But back to the Apple/Google or should I say AT&T/Google controversy? Recently AT&T happened to point out that Google Voice doesn’t adhere to net neutrality principles because it doesn’t allow calls to areas of the countries where termination rates are high. Actually AT&T has a good point and while many “free press” advocates are complaining that this is not an apples to apples comparison because Google is not a telephone company.

While this is true, Google is not an underdog and it is difficult to feel sorry for a company which has a monopoly on web searching. Moreover, this dominant position has allowed the company to help wipe out much of the newspaper and magazine business which many argue is reducing the quality of articles consumers have access to. Amazingly Google can give things away all day long without affecting its stock price. They build browsers, operating systems, applications, services and all the while they don’t have to make money from any of it – their core search business fuels the destruction of value in countless industries. In fact blogger Flourian Seroussi thinks Google is dumping and feels they need to be brought to justice.

The reason the newspaper discussion above is relevant is because Google seems to thrive on destroying business models as it looks for new ways to potentially generate revenue. These moves are all considered to be positive for consumers but in the newspaper and magazine example, there is little money left for serious investigative reporting at these organizations. I wonder if Google continues down its desired path, will it also reduce AT&T’s ability to invest in its network? Likewise for other carriers worldwide.

Remember that $40/month I paid AT&T above? Some of it went to reinvesting in a faster network. I may not like to pay it but I do realize carriers need to make profit.

So yes, if Google wants the world to be utopian and fair then it needs to connect to all numbers as well. The company argues that it shouldn’t need to do this but I find the argument less than convincing. One of the things which has bothered me about Skype and now Google Voice is that they tell you they aren’t cannibalizing carrier revenue because you need a phone line to leverage these services. What they are doing however is cannibalizing the carrier’s ability to make money as long-distance is where the profit lies.

Andy Abramson reminds us that AT&T actually had a service called CallVantage which was years ahead of most all other VoIP players and he further explains that AT&T could be in a much different position if they didn’t kill this product. To me it is obvious that when AT&T put back the old Ma Bell back together they realized they were in a monopolistic position to control traffic and it was far better to control the pipes and make money from information providers than it was to rely on other carriers to uphold net neutrality principles. So killing CallVantage made sense to them at the time.

The challenge to AT&T now is what happens if the femtocell market becomes essential to their future? These devices take cell traffic off 3G and 4G networks and funnel it through devices which are connected to broadband lines – similar to how WiFi telephony works via local access points.

In other w
ords, perhaps AT&T will soon have to deal with net neutrality principles from an “information service” perspective – whether it wants to or not. And when it does, its perspective on net neutrality may begin to change.

There are no simple answers here but the ramifications wireless FCC changes could be tremendous, enabling consumers to take advantage of Google Voice on the iPhone today, perhaps at the expense of long-term investment in 4G networks worldwide.

  • somaie
    December 14, 2009 at 2:57 am

    Everyone has their favorite way of using the internet. Many of us search to find what we want, click in to a specific website, read what’s available and click out. That’s not necessarily a bad thing because it’s efficient. We learn to tune out things we don’t need and go straight for what’s essential.
    This goal-oriented way of surfing the web is largely based on short-term results. For example, finding facts to write a blog post, doing a comparison before making a purchase and reading a news site to find out what’s happening right now.

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