Is a “Net Zero” Phone Bill Achievable?

18 Comments

GE last year unveiled plans to help consumers achieve what it calls a “Net Zero” home — as in zero utility bills — by bringing together solar, wind, fuel cell, smart appliances and interfaces with smart grids and other technologies. The conglomerate’s efforts are the subject of a case study in my new book on technology-enabled business innovation, “The New Polymath.”

Beyond GE, as I learned during my research, there are German consumers producing surplus electricity from their solar panels and selling it back to the grid. There are companies “following the moon” — processing at the cheapest nighttime locations around the world. Certain utilities are actually excited about this environment of changing consumption patterns — they refer to it as their “virtual power plant” — since it would allow them to potentially postpone investment in additional power generation capacity. And so it occurred to me, why are similar innovations not taking place in telecom? Why isn’t there a carrier out there touting net zero phone bills?

If that makes you burst out laughing, I don’t blame you. After all, we’ve been conditioned to expect all kinds of shortfall, overage, early termination, roaming and other creatively named charges on our phone bills, never mind the additional 20-25 percent in taxes. For many people, landline, mobile and cable bills far exceed those of electricity, water and other utilities combined.

But as I wrote about the telecom market for the book, I cataloged many signs of consumer/community ingenuity and at least some telcos that are looking at more creative business models:

  • Take the Lafayette (Louisiana) Utilities System. After five years of bruising court battles with AT&T and Cox (the local cable company), the community can now take advantage of broadband download speeds approaching 50 megabytes per second (Mbps) for $58 a month. The maximum AT&T offered the community was 6 Mbps; Cox did somewhat better with 15 Mbps (although more recently Cox finally started to increase speeds — it started offering the Cisco DOCSIS 3.0-based “Ultimate Internet” service with up to 50 Mbps). Of course, both companies wanted customers to sign up for triple-play packages, as well as the spoils that come from long-term contracts and installation fees.

  • Bharti of India is letting its equipment suppliers like Ericsson and Nokia Siemens operate and — importantly — absorb the capex of its network. This is somewhat similar what cloud computing offers the enterprise — on-demand, low-waste investment with savings that can be passed along to consumers. (For more on cloud computing, attend Structure 2010, June 23 & 24 in San Francisco)

  • Another example is MAXroam from Cork, Ireland, which envisions the world under one giant area code with no roaming charges. It currently offers voice coverage in more than 210 countries and data coverage in over 140. Plus, each user can get up to 50 numbers associated with the MAXroam service, enabling travelers to give out a number local to the country they’re in while saving their callers an international toll.

  • Karin Morton of Rio de Janerio, Brazil, after fattening local telcos with hefty long-distance charges on her frequent trips outside the country for years, has now conditioned herself to use Skype on her iPod touch wherever she can access Wi-Fi. She carries a basic phone as back-up for emergency calls, but saves herself the monthly voice and data charges by using an iPod instead of an iPhone.

  • And Martin Geddes, formerly of BT, brims with new business models for telcos, specifically those that involve the removal all kinds of supply-chain inefficiencies. “Call center operators are paid to transcribe names, addresses and credit card numbers of people for whom the telco they are placing the call from already knows. Trucks deliver parcels to homes where the telco knows you are already out.” In his world, these new revenue sources would subsidize customers like Morton and in turn, provide access to her global social and business network, which could then be leveraged for other revenue sources.

It may take a large influencer from outside the industry like GE to pull it all together, but if the stodgy public utility industry can embrace it, surely the telecom industry can as well. May be someday soon we’ll hear telcos glowingly talk about their “virtual power plants.”

Vinnie Mirchandani is a technology adviser, blogger, former Gartner analyst and author of the upcoming book, “The New Polymath.”

18 Comments

vinnie mirchandani

FTM, thanks and of course – it’s economics 101 – no free lunch. In the examples above there are tradeoffs. Many will not want to carry two phones like Karin. Others may not replace their SIM cards to MAXroam’s when they travel. Some would not want to buy broadband from a government entity. Others will continue to find comfort in traditional pricing. Even in utilities for Net Zero to work, there will need to be capex at home in solar, wind, smart appliances and at utilities in their smart grids. The point is it is a new world of business models, mentality in utilities allowing homes to produce and even sell their own surplus energy. And it’s about consumer choices.

FTM

2 cents from a non-telco guy. There is a law of conservation..which states that you have to spend “money” to get proportional “value” – in other words, “value” is conserved. Behind every seemingly net-zero biz-model, there lies a smart alex plan that makes you spend money “indirectly” while offering you “direct” value.

Google searches are not free. Newspapers are not really as cheap, nor is TV. They all run because of the well-oiled ad factory. If businesses did not have to spend on ads, think how much cheaper would the goods and services be? No, am not suggesting for a second that it is desirable / possible to live in an ad-free world. On the contrary. Ads (and the markup they result in) is what fuels consumerism and creates markets and thus brings new (forms of) value. Let’s not confuse this for “free value” being generated, or a “net zero” possibility.

Telecom, from what I see, is no different. If a new player emerges and offers amazing new biz models, then he has a clever new way to monetize his business, while his marketing teams drive our focus to the consumer value on offer.

Of course competition and corporate greed are strange bed-fellows. They drive each other and innovation becomes a survival need. So all kinds of book-balancing will happen. But if you pull yourself back a bit, you will clearly notice the law of conservation-of-value at work. For sure. At best, Phone calls can only be as free as search. And search is not really free.

vinnie mirchandani

Rocky, competitors are able to provide various services at a fraction of what the big telcos are charging. So, compare advertising revenues against a more realistic, efficient market based revenue base. And who says advertising is the only alternate source of revenue?

as far as what you call the “loophole” around conference calling – if the free conferencing vendors are happy providing their services for just the termination fees (a mechanism which has been in place for decades), why should we not let them? If you want to pay the big telcos 50c a minute per participant for a 800 conference service, you are more than welcome to, but there are rational consumers like Sam above who would rather use that money elsewhere.

Rocky Agrawal

My point with the advertising comparison was that these services cannot be provided for free because of the extensive infrastructure requirements. Yes, they can be provided cheaper than they currently are. But it’s a long way to free.

With respect to the free conference calling vendors, the purpose of these fees was to compensate rural ILECs for their higher costs. Much of the cost difference between rural and urban operators have been reduced over time to the point that new players can exploit the system to provide “free” services.

But these services aren’t free — they are being covered by additional costs borne by all of the customers of AT&T, Verizon, Sprint, etc. “Rational consumers like Sam” are free riding on the system. I’m paying for his free conference calls.

vinnie mirchandani

Rocky, respectfully I disagree. I have a chapter in the book called Arsonists – it’s about many tech/telecom categories – enterprise sw maintenance, printer ink, mobile roaming etc where the challengers are bringing lower cost/better quality. In each instance the bigger incumbents use FUD, and cry about how they have to spread the lost revenues over other customers. And they all bitch about how these new players are “exploiting some loophole”. Yes, big loss when printer ink is 5K a gallon (not a typo), when a call to a software help desk is $ 10k a call, when storage is $ 2 a gb a month and when a mobile call from overseas costs you $ 2 a minute. There is 60-70-80% SG&A and excess margin to be removed in most tech categories. The only way that is going to happen is with newer thinking, newer players to push the incumbents.

And again, advertising is not the only alternative model – Martin Geddes in his interview in the book has several other ideas for new telco revenue sources.

vinnie mirchandani

Paul, it is already happening in Germany – consumers are selling back to the grid home surplus. But Net Zero in utilities is not just that – it will fundamentally reshape the consumer’s role, impact that industry’s supply chain and pricing mentality. In terms of “producing” more bandwidth, that’s why I included the Lafayette example above. With FCC’s encouragement you will likely see more of those entities. There are other community models like that from Fon which allow members to share wifi connections. So, even if may not qualify as net new “producers”, they reshape telco supply chains and provide more consumer choice. Coming up, I can see hotels selling or packaging telepresence services by the single use, airports selling you wi-fly for the flight you are about to take etc. In contrast most telcos are about monthly fees, long term contracts.

Vikram, I like your example but why just restrict to voice? In recent years, we have seen a proliferation of advertising, sponsorship and other models where businesses are willing to subsidize to get consumer attention. In the complex way the telco industry parses out revenues, many of the free conference calling services seem to do ok with the call termination revenues – not from consumers.

Aswath – I for one and glad they did not split voice charges even more . Telcos are extremely siloed already (the excuse if often oh, that’s a separate legal entity) across their mobile, broadband and other services. Of course, where it suits them they have their triple plays but that is a land grab around last mile opportunities.

On Skype, the whole mobile global roaming market is up for grabs. It would be a supreme irony if the major telcos woke to the stupidity of their $ 1,2,3 a minute charges from many countries and used it as opportunity to go after Skype. Don’t hold your breadth – but it is just one of the many inefficiencies and inconsistencies in the telco marketplace that opens up opportunities for a MAXroam.

Rocky Agrawal

The economics of advertising just don’t support this sort of subsidization. Take Google — the world’s most successful advertising company. Their annual revenues are $24B. Divide that among an estimated 500MM users and you come up with a $48 ARPU — annually. (The real number of users is likely higher, meaning an even lower ARPU.)

That’s less than Verizon or AT&T’s ARPU for one month of service.

Even ad-supported WiFi (which has a lower operating cost) hasn’t been successful.

Airlines are already offering WiFi. Either on a per flight or monthly basis.

The free conference calling and other services you’re referring to are exploiting a loophole in telecom regulations for which we all pay. Those subsidies should be eliminated or sharply cut back.

Sam

Back in the 90s, when mobile companies were actually competitive, O2 (then called BT Cellnet) offered me a new tariff that they called “Pay Upfront for Life”.

For a one-off fee of £99 i could choose between 50 anytime or 200 evening/weekend minutes per month to other O2 and UK Geographical numbers, and there was no line rental/subscription fee.

Some twelve years later i’m still using it and my average yearly bill is usually less than £0.50.

Coupling this with Localphone.com’s hybrid VoIP/Calling card service and an iPod touch and pretty much all my voice communication needs are catered for.

Paul

Homes can use the sun that shines on them, or the wind that blows by them, to generate electricity and feed it back into the grid, offsetting utility costs to achieve a net zero power bill.

I can use VOIP and subsidized services (Google Voice) to reduce my telecoms bill, but eventually I’ll need a source of IP traffic. Outside of Skype and its supernodes, where is the opportunity to give back w/telecom? Could you give us a hint?

Vikram Venkatasubramanian

A ‘net zero’ bill voice communications per se may not be unreal but at least in the short term, I see that being more akin to a head fake. Here is why:

Voice ARPU for the carriers is already falling and more homes are choosing to eliminate their land lines, which are a cash cow for voice ARPU. At some point the business justification for voice only services is going to weaken when compared to data based services. But bottom line is that humans need to talk and voice is never going to disappear. So, I think the real driver for a ‘net zero’ voice bill is going to be in adapting strategies that diversify the recovery of capex AND opex related to voice by the pricing/monetization of value added services e.g. voice embedded social networking, business networking, collaboration, etc i.e. give the voice part away for free but capture your wallet on the ‘cooler’ offerings.

So, in effect, we will still get a monthly bill for something and it just may not be labeled as your phone bill.

vinnie mirchandani

Judith, in many ways they already are but unlike power utilities who don’t charge us one rate for using TV and another for kitchen appliances, the telcos have mastered the art of slicing the bologna and then dreaming up all kinds of fees on each type of service. Of course, if more consumers would be as disciplined as you, we would already be close to Net Zero bills.

Aswath Rao

Do telcos charge differently for different services? In POTS, fax and modem calls weren’t charged any more than voice calls. True, they tried to place a modem surcharge, but they weren’t allowed and that was that. Contrast this to today’s hot topic that Skype will charge a fee for mobile Skype to Skype calls, even though no more Skype resources are being consumed compared to wireline calls. I hope you will comment on this new master some time soon.

vinnie mirchandani

Aswath, if the capex is just being spread out X years, then your point is valid. But as we are seeing in cloud computing, there are certain economies of scale and much higher leverage and smoothing out a consolidated vendor can provide. Many servers in data centers, pre-virtualization run only at 15 to 20% utilization.

Re Biz model – even in the utility example, many consumers will likely want to keep paying their utilities rather than invest in home solar and wind and smarter applicances. But it will be nice to have the choice of moving to Net Zero. That is also the point with telecoms. We need newer business models. Surely the brain-dead sell people a subsidized phone, then lock them into 2 year biz models or trying to still sell 50c a minute conference calling has run its course. Also, we see over and over again poor 3g spots and rural coverage. Why not allow for newer providers, Fon like communities to provide options?

Ralph, good catch. Mea culpa. Not sure why for a telco savvy audience I even tried to expand the acronym :)

Judith Nappe

Now all we have to do is tell ATT, etc, that they are a UTILITY. Over and over and over till it sinks in. Just a UTILITY, at&t, that’s all you are. Get over yourself. Stop sucking people dry.

I have a goPhone and pay $25 every 3 months. This happens to be enough for me. Not for everyone, but quasi-workable. It has lots of signal loss, delayed message delivery (up to a week) and so is not for many people, really. I’d be up a tree in emergency, probably. But I cannot afford telecom prices at $25/mo for lowest service.

Dov

I already have a net zero phone bill. In the United States, deaf people like me are required to open an account with a telephone relay service in order to be able to use the relay service, which connects deaf people with hearing people. As part of this new account I get two free telephone numbers, one of which carries the area code for my area in case I want a to give out a phone number that carries the local area code. Every time I make a call I call this relay service via the Internet (at i711.com), and any call made on my behalf, they get paid back by the federal government.

As for the phone numbers I received, both are tied to my email address. Anybody who calls me, if I’m online, then a live instant message chat box opens and I’m asked if I’d like to accept the call, and if I say yes, then a conversation ensues, with the relay operator acting as relay between the hearing person who called me. The relay operator types into the IM chat box so I can see what the hearing person said, and when I type back, the operator converts what I said back into voice. If I’m offline, the operator asks the caller if s/he wishes to leave a message, and if yes, the message is sent to my email address. If not, a message is sent to my email box containing only the phone number and time of call and letting me know that someone had tried to contact me at my phone number but containing no name or message.

I do not own a landline, nor do I own any cellphone or smart phone or a telephone. All that is really needed is access to a computer somewhere (and, of course, access to the Internet). (I only contact telephone relay services via online, but there’s no reason that anything I’m saying here doesn’t apply to those calling relay services through a landline or cellphone or smart phone or through a TTY/TDD.) So I receive virtually no telephone bills at all, though I make plenty of telephone calls every day.

The reason that online telephone relay services require deaf folks like me to register is because before such registration was required, deaf people could not make emergency 911 calls because there was no way for these calls to be traced. Now that we are required to register, for the first time in exchange we deaf folks are now able to make 911 calls in an emergency. If I do not log in at least once every three months, I will lose my telephone numbers and they will be recycled and given to someone else. I actually log in each time before I may a call, which is nearly daily, so in practice that’s not going to be an issue for me.

Ralph

Bandwidth is measured in Mbps, which stands for Mega bits per second, not bytes.

A 12MB file transmitted at 4Mbps will take 24 seconds, not 3.

Jon

On the ball Ralph! Bit and byte have long been deliberately mixed-up by the tel-com hype. We are far from the promised land of net nothing. Wake-up and smell the roses Vinnie. Aswath knows best, the middle man redundancy is a drag on your cloud.

Aswath Rao

Some how I am not able to imagine the viability of Net Zero in comm, even though I am not able to articulate my intuitive feeling. But I can point out problems with specific examples suggested in the post.

  1. True that Bharati’s vendors are absorbing initial capex, but they are hoping to absorb the cost over a period of time. And the consumer is the one who will be paying that amount. Since the vendor would have factored risks into the recovery the payback will be more than otherwise.

I just don’t see how telcos can be in the middle in distributing “presence” would help us to get Net zero. I have to inform the telco what info to share with whom. The telco may know I am not home, but I don’t want a delivery person to know. Wouldn’t it be much more efficient for me to directly communicate with UPS? As far call center requiring consumer information, what is missing in PSTN is the ability to send data once a voice call has been established. Since that goes away with VoIP, isn’t it more efficient for the two end parties to communicate. Introducing a Middle is not going to help us reach the goal of Net Zero.

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