Economist falls for Skype-hype


Tomi T Ahonen does a great job of picking apart the Economist package on Skype and the VoIP hype. Make it one of the things to do this week.


Jesse Kopelman

Tomi, how do home zones eliminate price pressure? In the home zone you are paying commodity prices for voice on your mobile phone. As WiFi networks become more prevalent, carriers will have to offer more and larger home zones. The end result of this is that eventually there become very few opportunities to charge a premium for mobile phone minutes. I am not talking about the circuit switched FMC solutions of yore, but modern VoIP based solutions that will work on any WiFi and eventually WiMax network. Perhaps, FMC is not a good name for this and something like LAN/WAN convergence would be better.

Tomi Ahonen

Hi Om, Jesse and Victor

Thank you Om for mentioning my blog about the Economist cover story.

Jesse – I hear you, and I understand that FMC (Fixed Mobile Convergence) is a relevant issue. Notice, however, that this old idea (I personally managed the world’s first fixed-mobile service bundle when working for Elisa Corporation – world’s first digital cellular provider then under the Radiolinja brand and also one of Finland’s biggest fixed lines operators – released in Finland commercially in 1996. This then led to my work in chairing the first international telecoms standard for this in 1997-1998). I then joined Nokia for its convergence business unit, any my White Paper for Nokia “Indirect Access” in 1999 was the world’s first document about deploying internet services on cellular phones. Trust me, I did not avoid discussing FMC because somehow I had overlooked it.

The reality is, that FMC is a relevant opportunity for fixed wireline carriers/operators. But also, it is a nuisance at best, a total irrelevance in most cases, for pure cellular/mobile carriers/operators. As we have seen repeatedly in countries where cellphone penetrations are 100% and FMC services were first deployed, such as Finland, Sweden, Denmark etc.

Jesse, I understand your position. The FMC argument seems compelling on the surface of it. However, in actual competitive situations in some of the world’s most digitally advanced countries and markets, the superiority of cellphone based services, and the ability of the carriers/operators in cellular to react and directly address FMC propositions, with such simple technical matters as “Home Zones” as first introduced in Denmark, will eliminate the price pressure competition of FMC.

I’m sorry, Jesse, that was a valid argument five years ago, but since then competitive forces have proven it to be irrelevant. I will be most happy to discuss this at length if you want, or you might read about it in two of my books m-Profits (2002) or Communities Dominate Brands (2005).

Victor – you make a good point, and definitely we will see VOIP over WiFi and there will be wireless over many areas of the spectrum, typically in unlicensed portions of the spectrum. A bigger threat than VOIP over WiFi is VOIP over WiMax (and/or 802.20) etc.

Here it is the same identical argument. There is an absolute physical limitation to spectrum. We have to allocate radio spectrum to commercial telecoms/IT use. There are bands of spectrum for eg military use, commercial airline use, television and radio broadcasting, police radar etc etc etc. Of the available radio spectrum, ONLY those that have globally accepted allocations by the ITU will ever get any manufacturer like Motorola, Nokia or Ericsson to bother to make phone handsets. Thus even if one country might have some available spectrum somewhere, you will not get handsets unless it is an ITU approved band. And for that, trust me, there is no excess spectrum. The World Radio Congress of 2009 will attempt to find more use for next generation cellular. But its a very scarse resource indeed.

Tomi Ahonen :-)

Victor Blake

Why assume that broadband wireless will not also be offered by non-mobile celllular providers ? One other problem — spectrum is technically infinite. Its an analog range — so expect lots of innovation and creative use of existing spectrum. There already is Skype over WiFi. It’s young, but its there.

On the other hand the mobile cellular operators have an opportnunity to morph into broadband data services companies …

Jesse Kopelman

He makes the same class of mistake he accuses the Economist of, glancing over the issue of FMC. Indeed, he only addresses this in responding to a comment. It may be 5 years in coming, but FMC will come and that will be the final blow for mobile voice as a premium service.

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