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US bill heralds end of walled gardens

Market will kill them anyway

Internet Security Threat Report 2014

Analysis The draft telecomns reform bill released by the House Commerce Committee last week would ban fixed or wireless carriers from limiting access to content and applications, which would make it difficult for wireless carriers to keep their walled gardens.

The House draft, an important first step in the telecoms reform process, replaces the distinction between telecoms and information services with a single category - broadband internet transmission service (BITS) providers. It would not allow content blocking, except to conserve network capacity “it this is deemed reasonable”, a term that should be further defined by the FCCs.

Legislation will only accelerate a process that is inevitable anyway as customers grow to expect open access and flat rate pricing on their cellphones as well as on their PCs. Cellular operators, like the original internet service providers, will have to accept that they cannot keep subscribers penned in, but will have to compete for their loyalty and dollars with genuinely compelling content and applications.

To date, operators are displaying mixed behaviour, ranging from the wilfully blind – like Hutchison’s closed garden, which it justifies with claims that it does not see demand for open access; to the defensive, with some cellcos looking to block services such as VoIP; to the creative, where operators are building the content and services partnerships that could enable them to charge decent rates and keep ARPU high even in the open IP world.

Network capacity

The 3G network owners, while they have little prospect of making as much ARPU for data and content as they once hoped for, when they believed 3G would be the only mobile data game in town, do have the advantage of a highly efficient technology, whether UMTS or CDMA, that can reduce the costs of delivering even basic services like voice considerably. We have already seen Vodafone Germany promising a low cost, flat rate voice rate within a user’s ‘home zone’, a move that takes advantage of 3G’s efficiencies to challenge VoIP on cost and flat rate convenience.

When the large cellcos bid for their licenses, they hoped the efficiency of 3G would enable them to deliver basic services more cheaply, while keeping tariffs reasonably stable, and topping them up with new data offerings. Now those hopes for the profit margin have been dashed by Wi-Fi and the approach of WiMAX, but the mobile providers can at least comfort themselves with the idea that they can deliver voice and some other services more efficiently than the IP companies, and in many cases will offer a better experience (particularly in the case of VoIP versus circuit switched voice on a cellular network).

The problem for cellcos is that open access will overload their networks and force them to invest further in capacity, without necessarily gaining a share of the content providers’ revenues. In this context, a fine balance will need to be drawn between control and openness, and the mobile operators will need to learn how to create ecosystems with a range of content partners – a skill in which IP players are already well ahead of them.

Those that can succeed in this will reap far greater rewards than they will by maintaining the walled garden or blocking other services. This seems to be a lesson Vodafone has learned, with its German unit backing away from plans to block VoIP from its network. The Germany subsidiary said earlier this year that it would block VoIP calls from its network from 2007 but last week the company’s group CTO said there was “no long term sustainable business case” for blocking.

After all, European mobile operators still charge for data – including VoIP – by usage rather than on all-you-can-eat basis (although that is sure to change gradually under pressure from Wi-Fi). Therefore, subscribers using VoIP services such as Skye over the cellular networks are paying the data charges, one reason why many critics believe the partnerships of free VoIP options with cellcos – like Skype’s with Germany’s E-Plus - will not work.

CTO Thomas Geitner said: “Are we legally in a position to put in filters against VoIP? Well, I wouldn’t think anybody today would say we couldn’t do that. But clearly building a business case around this would not be a long term, sustainable strategy. Our view is we need to make sure we are cost competitive rather than trying to stop voice over IP.”

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Next page: Content policies

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