China and web content control

One of the long terms issues related to the Internet is the desire of some governments to manage the content that its residents/citizens may view.  There are many reasons for this; without getting into a long discussion about what may be appropriate or not, we can generically say that these content controls are intended as an expression of social (or at least governmental) preferences.  These controls can take many forms, such as preventing the sale of Nazi memorabilia in Europe, controlling Internet gambling in the US, etc.

China has been widely criticized for its Internet content control, which has been said to suppress dissent.  This item points to a more nuanced analysis of these content controls.  Is self regulation due to fear of reprisals better than explicit governmental control?

Verizon and content control

This article in today's NY Times illustrates the deeper linkage between content and carriage that is occurring in today's networks. This is a feature of walled gardens of any sort ... here Verizon chooses to control content and elsewhere Apple chooses to control applications on the iPhone.

What do I think?

• Verizon is on a slippery slope, just as the FCC was under its "fairness doctrine". I am guessing that they will reverse this policy once they realize this.
  
• This issue will become the "poster child" for the network neutrality folks, even if Verizon ends up reversing its decision.
  
• Verizon, whose opposition to network neutrality is on record, made a really boneheaded decision in what is basically a political issue.
  

Do you think that this is a harbinger of things to come? I build an equivalence between Apple and Verizon ... is this appropriate? If not, what are the differences that are notable?

UPDATE 2007-09-27: On they Cybertelecom Mailing List, Sean Donelan had this to say, which I think adds a bit of nuance:

he article [sic] briefly mentions, but doesn't really explain the difference between standard user-to-user SMS texting and SMS short code campaigns.

For whatever historical reasons, subscribers seem to view user-to-user SMS texting as the wireless company acting as a "common carrier" but subscribers seem to view SMS short code compaigns as the wireless company acting as the "information service" responsible for those messages even those created by third-parties.

Members of the Klu Klux Klan buy wireless phone service and send standard SMS messages to each other; but none of the wireless phone companies will operate SMS short code campaigns on behalf of the Klu Klux Klan.

For example, consider this link to Google's content policy for Google Adwords, which is different than the content policy for Google's basic search index. https://adwords.google.com/select/contentpolicy.html

Here is a link to several SMS carrier policies for SMS short code campaigns, as opposed to standard user-to-user SMS.
http://www.emexus.com/Corp/media/downloads/20060424125933_Emexus%20Carrier%20Requirements%20FAQ.pdf

Update (2007-09-27): According to this article, Verizon reversed its policy (as I expected they would). Still, from their perspective, I believe that the damage is already done.

Walled gardens and innovation

The topic of "walled gardens" comes up here (and elsewhere) from time to time (see this, for example).  So, you might find this article, by economist Tom Hazlett interesting.  As his article points out, there is a tension here ... on the one hand, people seem to like their "walled gardens" -- that is, closed systems where the user experience is controlled.  Recent examples include the iPod-iTunes, AT&T-iPhone, or the Microsoft Zune "gardens". 

On the other, these systems often lead to systems that can be viewed as restrictive and/or anticompetitive.  The recent EU antitrust actions and the interest in structural separation and "wireless Carterfone" are also examples of this.

I don't agree completely with Hazlett.  I think that the pursuit of walled gardens promote innovation.  By analogy, consider the competitive era in US local telephony (1894-1920). A winner-take-all battle drove network investment and innovation.  When the battle was over, innovation lagged.

M2Z in the Washington Post

This article in the Washington Post got me musing about M2Z again (see this earlier post). NetZero, a company that was founded during the Internet boom in the late 1990s with a business plan of ad-supported service, still offers the service. Juno was also in this business; both have since been acquired by United Online. According to their financial reports, they received $70.2 million from "billable services" and $11.5 million from "advertising" in the "Communications" category. The billable services have shrunk by $15 million over the past year in this category, while the advertising revenues have stayed relatively constant. Their paid accounts have declined to approximately 2,000 from 2,500 in the previous year. They do not report on free accounts.

So, given this, what would you say about M2Z's business prospects? Is the experience of United Online a useful analogy?

WSJ on mobile in India

This article in the Wall Street Journal is interesting (subscription required). What I find particularly interesting and useful are the cost and operational data. Quoting the article:

Cellular providers initially tapped developed markets, and when those were saturated, big cities and suburbs in the developing world provided easy growth. But to expand further, cellular companies want to reach hundreds of millions more potential customers who live outside the main population centers.

Almost two billion new subscribers are projected to start using mobile phones in the next five years, and 80% of them live in developing-world markets, according to estimates by Sweden's Telefon AB L.M. Ericsson. In India alone, more than seven million new cellphone subscribers recently have been signing up each month, bringing the total close to 200 million subscribers in a country of 1.1 billion.

The economics of that growth get dicey. Indian cellular companies charge less than two cents a minute, among the lowest rates in the world, and the average bill is under $10 a month compared with about $50 in the U.S. The more that cellular companies penetrate India's rural areas, the higher the costs to set up and maintain networks. Yet rural customers, living on an average of less than $2 a day, tend to spend even less on phone service than their wealthier urban counterparts. Only companies that can cut costs while expanding their networks can profitably pursue the untapped market.

[snip]

Already, Bharti is reaching customers whom it didn't consider worth pursuing not long ago. In July, Bharti commissioned one of its newest towers in the sleepy village of Madilage, about 300 miles south of Mumbai. To let the villagers know cellular service had arrived, Bharti staged a traditional dance performance on the back of a truck parked under the new tower. About 500 villagers -- a fifth of the local population -- gathered to watch the show and learn how cellphones work. "Incoming calls are totally free!" announced the Bharti emcee.

Peanut farmer Sandeep Pati, 23 years old, is one of the first subscribers in Madilage, but his investment -- he says he spends less than $20 a month on calls -- is already paying off. He rents out his tractors to other farmers and his cellphone means he can arrange more rentals quickly with less downtime. "I can run my business even from the field," says Mr. Pati outside his simple home, where his water buffaloes sleep on the ground floor below his bedroom. "When I had problems with the tractors before, we would just have to leave it where it was for a day, now I can call and get it fixed right away."

[snip]

The cost of building and equipping a Bharti tower has dropped around 40% to $75,000, while the time the average rural site runs on diesel generators has been slashed to four hours a day from eight, Mr. Price says.

Bharti has survived the competition and emerged as India's largest cellular operator by number of subscribers, now 47 million, and a 28% share of the market. In the year ended March 31, earnings jumped 89% to $1.06 billion, as its net profit margin rose to 23.0% from 19.4% a year earlier.

Google as a telecom carrier

This item is most interesting, and adds weight to some speculation I blogged about earlier (see this, for example). If this happens as reported, Google begins becoming both a service provider and a transport provider. If Google does bid on (and win) spectrum in the upcoming auction, they have the ability to move further in this direction.

How does this play in the structural separation model?

Update (2007-09-24): Nicholas Carr posted this item on his blog, which raises some interesting questions, not so much for Google, but for the kinds of industry trends posited by John Hagel and others.

Injecting new life into landlines?

In the US, the number of landlines began declining about 5 years ago. This decline is widely attributed to the increased use of mobile phones and broadband technologies such as DSL and cable modems. This is problematic for most telephone carriers, as a significant fraction of their fixed costs have been incurred relatively independently of the number of subscribers. That is, if a household gives up a second line or fixed line telephone service altogether, virtually all of the infrastructure to support those services remains in place, except that there is now less revenue to support it.

This problem is less acute for Verizon and AT&T, as they have mobile carriers in their investment portfolio, so that the fixed line decrease is offset by increases in mobile revenues. Other companies, like Embarq, Qwest and Windstream, do not have a wireless carriers to offset this revenue decline, so this problem is more serious.

This article in the on-line WSJ (which is unfortunately not available for free) discusses how these companies are trying to provide mobile phone-like services to landline phones, preferably without having to change handsets (CPE). Quoting the article:

In recent years, as phone companies have beefed up their cellphones with a steady stream of enhancements, innovations to the old land-line phone have been slow to come.

But now, in a move largely designed to keep consumers from ditching land lines, phone companies are adding to home phones some of the features popular on mobile devices, like address books and text messaging. And equipment makers' latest home and office phones include a range of new features like in-home video baby monitoring, instant messaging, and access to email and the Web.

The stakes are huge for the phone companies, especially those such as Embarq Corp., Qwest Communications International Inc. and Windstream Corp. that don't own their own wireless networks and are most susceptible to the increasing consumer shift away from traditional phones to cellphones. A recent survey by Harris Interactive Inc. found that 11% of U.S. adults use only their cellphones to make calls.

[snip]

Embarq is also testing a text-messaging function for home-phone users in some markets. When a text message is sent to a land-line number, the home phone rings, converts the message into audio, and plays it back. The land-line phone user can reply with an audio message or press a button to send a canned text response such as "Thank you" or "Where are you?"

Those new features don't require consumers to buy a new handset, so Embarq can roll them out quickly. But over time, the company hopes to offer a "digital home phone" that will have a screen showing addresses and voicemails and provide basic information like news, weather and sports. The company is already working with manufacturers to build that product. Verizon Communications Inc. is planning to offer a similar device called the Verizon Hub sometime next year.

"I think there's a lot of opportunity to innovate around home phones," says Embarq Chief Executive Dan Hesse. He says that while land-line phones haven't changed much in the past decade, cellphones have seen a boom in innovation. "Why should cellphones have all the fun?" he adds.

[snip]

Meanwhile, some Internet-phone start-ups are trying to encroach upon the traditional land-line business by offering features that aren't standard with regular land-line phone service. Internet-calling startup Ooma Inc. of Palo Alto, Calif., currently offers users a free second line as well as the ability to listen to voicemails through a Web site.

[snip]

To be sure, these new land-line phones won't necessarily reverse the trend of consumers giving up land lines for cellphones. There's still one wireless feature they can't match: mobility.

Also, not every cellphone feature translates well to land lines. Embarq began rolling out a service in some markets last fall that allowed home-phone users to assign songs for callers to hear -- similar to "ringback tones" on cellphones. But the initiative fell flat in the early trials, because while choosing a ringback tone "is a personal decision, a home phone is a community device," said Dennis Huber, Embarq's senior vice president of product development.

Mr. Altman says phone companies don't need to get too fancy too fast. Just building easy-to-update contact lists into phones would go a long way with consumers, he said. "That would solve 70% of their problem," Mr. Altman said.

Do you think that innovations like this will make a significant difference in the decline of the landline business?

MVNOs

Speaking of the differences between the US and Europe in mobile communications ... I found this article an interesting contrast to this one. It seems the MVNO business is more attractive in Europe than in the US. According to the first article:

But while MVNOs are booming in Europe, some U.S. upstarts already have failed and others soon could follow suit. Despite investments ranging from $20 million to $300 million per company, many of the U.S. MVNOs have fewer customers than their counterparts in tiny European countries launched at a fraction of the cost. Analysts say that's because too many U.S. startups are trying to act like full-service operators instead of mimicking the business plan of a discount airline.

[snip]

Such problems might be avoided if U.S. MVNOs took the same approach as their European counterparts, says Telmore founder Rasmussen. "You don't need to have shops and consultants," he says. "If you want to be competitive on customer service let people do things by themselves." With full-service operators, for instance, customers who want a copy of their bill typically call a service representative, who sends one out in the mail. But at MVNOs like BiBoB, subscribers fetch their own records over the Web and print them out themselves.

Using the Net to cut costs isn't the only thing that sets apart European MVNOs. Many use clever marketing tactics, such as distributing SIM cards (the chips that link a phone to a specific user account) through supermarkets and convenience stores. Telmore did something even wilder: It blew 60% of one year's marketing budget on a giant party for all of its customers, offering live music, draft beer, and free hot dogs. Rasmussen figures the 6,500 people who showed up became roving ambassadors for Telmore, helping it nab 250,000 new customers that year.

Are there other things (eg. different air interface standards in the US) that might be a factor?

iPhone in Europe

It has been announced that the iPhone will make its (official) European debut in the UK on the O2 network ... with Germany to follow (see this) on T-Mobile's networks. But questions remain about whether it will be as successful there as it was in the US. According to this article:

But analysts say Apple may have a tougher time in Europe. They expressed disappointment that the iPhone to be sold in Europe was identical to the one in the United States, meaning that it would be unable to take advantage of faster European wireless networks for Web browsing and media downloads.

[snip]

Mr. Jobs said the iPhone would overcome this hurdle by relying heavily on Wi-Fi technology, which provides broadband Internet access for laptop computers and other devices, though only when they are stationary. When iPhones are on the move, they will shift to a mobile technology called Edge, which is also use by AT&T, Apple’s exclusive network partner in the United States.

[snip]

Also, 20 percent of British mobile users already have 3G-enabled phones, according to M:Metrics, a research firm. “There’s no doubt it’s going to be an obstacle for Apple,” said Paul Goode of M:Metrics. “You’re going to be asking people to downgrade in terms of capability.”

Apple is also going against the grain of the European mobile business by charging £269 ($538) for the phone in Britain, and locking customers in to 18-month contracts at monthly rates of £35 to £55 ($70 to $110). Typically, carriers discount even high-end cellphones in Europe.

Furthermore the carrier O2 has spotty EDGE coverage; the compensation will be free access to a network of WiFi hotspots, according to this article. Interestingly, this article has also raised the specter of competition between wifi and 3G, a topic that has been the subject of several academic studies (see this, for example).

To me, this highlights the potential difficulties firms face when transferring a technology that is successful in one commercial/social environment to another. Can you find other examples of telecom-related technologies that did not translate well? How are these different from technologies that did transfer well?

Microsoft and the EU

As has been widely reported (see this), Microsoft's appeal of the European Commission's decision failed. This story in BusinessWeek and this one in the NY Times begin to contemplate some of the longer term consequences of this decsion beyond Microsoft.

Some of the other cases mentioned involve Qualcomm and other firms that have technologies that are either de facto or de jure standards. If the markets that these firms compete in benefit from standards, should the firms whose technology has been adopted by the marketplace be subject to government scrutiny or intervention? Should a de jure process exempt firms from this?

More broadly, how much should the government manage competition? Do consumers benefit from this kind of intervention? What should be the standard for determining "successful" government intervention?

Update (2007-09-18): Here is an analysis from TLF.

Update (2007-09-21): I found this item to be a worthwhile read. Do you agree or disagree?

Update (2007-09-25): This article suggests that smaller companies may begin "venue shopping" in the EU in order to gain favorable rulings. Is this a good development?

Update (2007-09-26): This item is critical of the EU ruling, and frames the Antitrust fine as a tariff that bypasses the WTO. Do you think this has merit?

Upwardly Mobile In Africa

I think it is wonderful that telecoms in developing countries are getting more attention. The latest article is this one in BusinessWeek, which discusses how telecommunications can revolutionize life in rural developing countries. The article also highlights some of the business details that make this possible, including:

• The ability to purchase minutes in very small increments
  
• The availability of inexpensive telephone instruments
  

As the article points out, these networks can be good buisness and have fostered new ways of interacting, including sending money using minutes.

Metered Broadband?

There have been a couple of articles about metering broadband (see this article at TLF and this response at Techdirt), which resulted in this debate. My $0.02?

• It is clear to me that metering makes sense from a microeconomic standpoint, but only during episodes of congestion. If there is no congestion, the marginal cost of a packet is exceedingly small, so it may well cost more to collect and bill for traffic than the revenue it produces.
  
• As a consumer of broadband services, I prefer to pay flat rate prices. My wireless provider gives me the option of different service levels, and I have chosen to pay more for the "unlimited" tier because I would rather not accept the risk of usage charges should I exceed my monthly allotment (I realize that "unlimited" may not actually mean "unlimited" ...)
  
• As commenters on the previous posts have pointed out, telcos are profit maximizers, so metering is a way for them to price discriminate more finely than they now do with service tiers.
  

Since carriers have considerable freedom in setting prices, they have obviously determined that usage tiers make more sense for them than pure metered prices. Don't you think that they have calculated the costs and benefits of different pricing structures? Why are we having this debate in the first place, since consumers and carriers have clearly settled on a set of pricing and consumption structures independently?

700 MHz auction

Much (virtual) ink has been spilled regarding next years auction of the 700MHz band (much of which took place during my hiatus from blogging earlier this year). At the encouragement of new potential auction participants (like Google), the FCC adopted some new rules. According to this item from Ars Technica (and which has been reported elsewhere), Verizon is now appealing the FCC's decision. This could delay the auctions as the Appeals Court decides on the matter. Stay tuned ...

Micropayments and Adblock

There have been a number of posts recently like this one was relevant to the subject of micropayments, which I discussed earlier. In that item, one argument was that web site advertisements amount to a form of micropayment for content that was not expected by industry analysts. The use of the Adblock extension has resulted in a loss of revenue for websites that have relied on advertisement (see this, for example).

It seems as though this user-controlled technology may force major changes in how micropayments have been accomplished. How radical do you think the Adblock-related changes in Internet-content delivery will be? Do you forsee a kind of technology "arms race" in which content providers try to subvert the Adblock technology?

Walled gardens and the telecom industry

There is an interesting juxtaposition between this article and the articles referred to in this earlier item on this blog.

The previous post discussed Apple's possible desire (or not?) to build a wireless infrastructure. The rationale for this is the desire on their part to completely control the user experience, as the company does through its iTunes/iPod combination and in the hardware/software bundling of its Macintosh platform (see this item for more). Doing this, in essence, creates a "walled garden" of a sort ... a space in which user activities are controlled (at least to some extent) by the service provider. While this enables the development of a peerless user experience, it also provides many avenues for the service provider to profit.

Another related thought ... some of the motivation behind the "wireless Carterfone" is to eliminate these "walled gardens". Is regulation necessary? Should Apple be discouraged from building one? Should government have anything to do with this whatsoever? If carriers are eliminating them anyway (according to the article), is "wireless Carterfone" dead?

More generally, which direction do you think the industry will go? Is Apple swimming upstream by wanting to move in this direction while the rest of the industry is moving away from this direction? Who is the visionary?

Apple and the spectrum auctions

There have been numerous rumors that Apple will bid on spectrum in the upcoming auctions (see this, for example). In this article, Brian Caulfield of Forbes argues that this speculation doesn't make sense for Apple.

How would Apple's entry change the dynamics of the wireless industry?

History of technology: Thin clients

I enjoy technology history, so this article in the NY Times caught my eye. You can also relate the quote below to my previous post on micropayments ...

In the world of information technology, the future often arrives as predicted but rarely on time. The big things that ignite new markets and change people’s behavior, like the personal computer and the Internet, are actually collections of related technologies rather than single breakthroughs — symphonies rather than solo performances.

The PC revolution was the crest of a long wave of advances in chip design and software. The Internet, through decades of incubation, exploded only after millions of people began using newly affordable PCs with faster communication links and souped-up browsers.

The Internet shook the business world, but about a decade later than forecast. A similarly late though potentially revolutionary trend may finally be getting its day.

A decade ago, the network computer — also called the thin-client computer — was promoted as a replacement for personal computers and desktop software. Thin clients have no hard drives to store desktop applications, like Microsoft’s Word or Excel, permanently. The leading supporters of the inexpensive, terminal-style machines were Microsoft’s archrivals at Oracle and Sun Microsystems.

The market never took off in the 1990s. But the vision of a decade ago now seems within reach. Years of progress in hardware, software and networking have enabled thin computers to mimic the user experience of PCs for most tasks. Evidence that thin computing may really be catching on came in July, when Hewlett-Packard announced it would buy Neoware, a thin-client maker. The $214 million deal sent a message: thin-client computing was a market that could not be ignored.

Blu-ray recorders

This story is an interesting development in the ongoing format war. The price is steep, up to US$1752 (compared with US$199 for an upcoming HD DVD player).

How much would a 50 Gbyte hard drive cost? Are these storage media substitutable? Assuming that digital rights management (DRM) issues can be resolved, do you think that this feature will make a difference in this war? Has the market moved away from the need for high capacity, portable storage like this?

On this topic, China has announced a third format, as reported by Ars Technica. Do you think this will have an impact on the ongoing format war?

Structural Separation

There has been a bit of a debate going on that argues, in essence, since network neutrality seems infeasible, let's separate transport from services. BT in the UK has taken this approach, which has apparently been hailed by EU Commissioner Viviane Reding. I have a few questions about this idea:

• We have tried structural separation in the past in the US ... some of us remember Computer I and Computer II. Is this proposal different? Why? How?
  
• While structural separation, in theory, does remove incentives on the part of network operators to discriminate, to what extent would infrastructure investments be inefficient? That is, can transport providers make more efficient investments if they know (and can confidently predict) upcoming services and their deployment? Part of this is a problem of opportunism and asset specificity that Williamson predicted would result in increased transaction costs (and hierarchy).
  
• Assuming that the above questions are resolved, how would this be implemented? Do you think it could happen voluntarily (as it did in the UK)?
  

Internet regulation news

The US Department of Justice filed this in response to the FCC's Notice of Inquiry on broadband competition. The filing has been picked up by the media (see this in Forbes and this on the BBC website). Forbes summarizes the filing as follows:

The Justice Department on Thursday said Internet service providers should be allowed to charge a fee for priority Web traffic.

The agency told the Federal Communications Commission, which is reviewing high-speed Internet practices, that it is opposed to "Net neutrality," the principle that all Internet sites should be equally accessible to any Web user.

**snip**

The Justice Department said imposing a Net neutrality regulation could hamper development of the Internet and prevent service providers from upgrading or expanding their networks. It could also shift the "entire burden of implementing costly network expansions and improvements onto consumers," the agency said in its filing.

Such a result could diminish or delay network expansion and improvement, it added.

The agency said providing different levels of service is common, efficient and could satisfy consumers. As an example, it cited that the U.S. Postal Service charges customers different guarantees and speeds for package delivery, ranging from bulk mail to overnight delivery.

I tend to agree with the idea that users ought to be able to pay for various levels of service as a matter of principle. On the other hand, I am concerned with the incentive that carriers have to "starve" a best effort tier to drive users to higher service levels. How would you go about managing this incentive in a way that is enforceable, economically efficient and technologically feasible?

Update (2007-09-10): I found this article from CNET interesting and helpful. Did you?

Update (2007-18-09): This article takes a look at the international aspects of this debate. Also, this article raises the possibility of further Congressional action in the US

Standards and the future of CDs

For the recent anniversary of the compact disk, I was asked about the past and the future of this large scale data storage medium (this article in the Pitt News is a product of these queries).

In response to a question, I wrote:

I think the CD still has some value, though downloading has diminished the technology's future prospects. There are still a large fraction of consumers who purchase CD's , and they do so for several reasons. First, there are many music systems that accommodate CDs (home stereos, car stereos, etc.), so they remain more versatile until these are retired by consumers. A factor in this is the lack of a standard digital interface for MP3 players. Not everyone owns iPods! Second, CDs can be (legally) shared and resold. it is legal to create MP3 (or other compressed audio formats), so a CD gives owners the option of using multiple formats. Finally, CDs tend to be a more durable format. That is, it is not vulnerable to disk crashes or xray erasures the way hard disks or flash memory are.

We have also seen bridge technologies. Prior to CDs, cassette-based audiotapes dominated the music industry. Many cars had cassette players, so when CDs came to dominate, it was possible to purchase an (analog) cassette interface that connected to a portable CD player. In this transition, it is possible to purchase low power FM transmitters that use an "empty" slot in the FM band. The downside of this approach is that this "empty" slot varies by location, so it requires a bit of adjustment on the part of the user to match the tuner to the player. It is definitely not as good as the prior transition technology, in my opinion.

How much is the transition to MP3 players from CDs hampered by the lack of a standard digital interface? The de facto standard is Apple's iPod interface, though I don't know if other digital media players support that standard. Some audio devices now have an analog interface, which can be connected to the analog (headphone) output of the digital media player. Is that adequate?

More on standards committees

This item in the NY Times caught my eye today (it was a followup to this earlier one). It reminded me of the early days of digital communications, when AT&T came into the ITU with the T1 transmission system to have it standardized. It too failed ... and it led to a world of two standards -- the North American digital hierarchy and the ITU digital hierarchy.

It points to the reality that standards committees are made up of people, usually who work in organizations that compete in the marketplace. So, standards committee deliberations are extensions of marketplace competition. These discussions and decisions are also deeply influenced by all of our human traits and foibles that aren't always logical or rational.

So, much as Microsoft clearly wanted its Office Open XML standardized, do you think that they have the market clout to have its proprietary "standard" prevail? Are we going to have a world of two "standards"? If we do, is anyone going to care about the non-Microsoft one? Can Microsoft go another rout, such as the formation of an Open Office XML consortium to guide this standard, effectively bypassing ISO?