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On Neutral Networks, settlements and freeconference
From: David Farber <dave () farber net>
Date: Mon, 19 Mar 2007 18:19:32 -0400
Begin forwarded message: From: Brad Templeton <btm () templetons com> Date: March 19, 2007 5:51:32 PM EDT To: David Farber <dave () farber net> Cc: ip () v2 listbox com Subject: On Neutral Networks, settlements and freeconference I have been surprised to see comparisons of the issues surrounding freeconference.com and network neutrality. In fact, I feel one key issue makes the issues at deep odds. Freeconference exists by taking advantage of artificially high termination fees that exist at rural phone companies (such as those in Iowa.) A termination fee is a fee paid by the long distance provider to the local phone company where the called number is in order to complete the call to that phone. Normally, the termination fees for most phones are well under a penny per minute. However, rural LECs can charge a great deal more, up to 7 cents/minute. In theory, this is because it costs them more to send a call to a farm in rural Iowa. However, freeconference and some other companies turned this into a situation similar to a 900 number. A 900 number is a number where the caller pays more than the actual cost of telecom, and some of that money is paid out to the recipient of the call. You also see this with small-nation PTTs which charge exorbitant fees to terminate international calls and give the money to the called party, and some providers of non-US mobile numbers, where some of the extremely high cost of calling a mobile number is paid out to the mobile user as a kickback or to a company operating ordinary numbers within the mobile-number exchanges. The use of rural phone companies provided a way to do a (comparatively cheap) 900 number that looked like a regular number. This took advantage of the fact that most customers want simple pricing, so the cell carriers in particular offer unlimited long distance or flat rate long distance. They might be charging the customer 3 cents/minute for all calls, and lose money if you call a farm in Iowa that costs 6 cents to terminate. These companies located their numbers in places like Iowa for no other reason I can imagine but to take advantage of this price. You probably knew that, because there is no free lunch. I knew it because my phone company charges me the real price. I pay half a cent/minute to call your cell phone, and 7 cents to call freeconference. I see the real price and know it's not free. On the other hand, it is disconcerting to see big telcos block numbers. I am not bothered by the IXCs (long distance companies) as there is a very competitive market there. Let them offer whatever services and prices they want. Many already have differential charging. The cell carriers are competitive but they are fewer in number and there are barriers to entry for new ones. It is the idea of a cell company blocking a number, in theory to stop competition, which has reminded people of the network neutrality question. In fact, this is an artifact of the extreme non-neutrality of the PSTN. The PSTN uses a sender-pays model, and has a complex and regulated system of settlement payments to compensate the other end of a call. However, the party paying the money does not get to negotiate the price, which is always a recipe for disaster and market failure. The internet works a different way. On the internet, I pay for my connection to the middle, and you pay for yours. Packets don't cost differently based on where they are going. That's one of the more important things that keeps the network neutral. Can you imagine the internet if a packet to Iowa cost 10 times more than a packet to New York? Or if one to a small country cost 1000 times as much? And you couldn't negotiate the price? That's what the PSTN is like. And the internet would be rife with regulatory arbitrage to keep the price of packets high and funnel that money to the people receiving the packets. The real answer is simple, but hard in our overregulated world. The PSTN should become like the internet. When you get a local phone line from a local phone company, you should pay for the cost of the connection to the switch -- for both incoming and outgoing calls. Just like the internet. The other person should pay for their own half too, for both incoming and outgoing. They actually give us that illusion for local calls, though there are settlement payments there too, but they are vastly smaller, and they have been abused, too, back when they were larger. Truth is, most people would never see a difference. All the phone companies would just offer flat rates to cover incoming and outgoing. Now in this model, it does cost more to get a phone line to a farm in Iowa. The congress has decided it wants to subsidize that, though I think they do that in a pretty stupid way. However, if we want to subsidze the rural phone, let us do so directly. (Frankly, I think all we have to do is open up some more spectrum and you would quickly see rural phone service cost vastly less than urban service cost in the days these regulations were put in place.) I can't support freeconference.com because it would be supporting the use of a loophole in stupid regulations that should be opposed from all directions. A netural PSTN, with internet-style pricing, would finally allow the tremendous surge of innovation we're seeing in (surprise, surprise) internet telephony. Then we can strike down the backwards caller-pays-for-airtime model of European and other cell phones and put in the internet cost contract that has brought us the wonders of a neutral network with understandable flat-rate pricing. More thoughts on this area can be found in my blog post on the subject: http://ideas.4brad.com/whoops-freeconference-coms-pants-fall ------------------------------------------- Archives: http://v2.listbox.com/member/archive/247/@now Powered by Listbox: http://www.listbox.com
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- On Neutral Networks, settlements and freeconference David Farber (Mar 19)
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