Clay Shirky: The Internet and telephones

Posted by | January 09, 2003 | predictions | No Comments

A predictably excellent essay by Clay Shirky on the threat to phone companies from Voice Over IP and WiFi networks.

“they’ve [the Telcos] digitized their entire network up to the last mile, but are still charging the high and confusing rates established when the network was analog.”

Shirky: Customer-owned Networks and ZapMail

Clay describes Fed Ex’s failed fax service – where they supplied a network of faxes and charged less than physical delivery of documents. This failed because people bought faxes themselves. Clay asserts that charging existing rates for telephone calls is a scam that can only be pulled off if the Telcos keep control of the last mile. If people buy products like SIP phones (Internet phones) and use the Internet then they have taken control of the last mile.

Whilst this is great stuff, there is an addendum to the argument.

The problem is that this assumes that no-one owns the Internet as a network, and this is only partially true. A large portion of Internet traffic flows over networks controlled by the Telcos. As they lose the battle for the last mile they will be able to use the leverage they have over the backbone. To do this they will need to be able to differentiate the type of traffic (web browsing, phone calls etc.) flowing over the network. True, costs will crumble, but what we are seeing is a convergence of the all you can eat Internet access model and the pay-per-use voice network model.

The analogy here is the road network versus the rail network. Existing telephone companies run rail networks (and some of the roads). Buying a product like a VOIP hub to use over the free Internet is buying a car to save on monopolistic rail fares. But someone needs to maintain the roads, and there are taxes for their usage and tolls for the bridges.

I suspect that the short term outcome will be much as Clay describes – a revolt against expensive land lines and effectively free phone calls – but nothing is free for ever and in the long term there will be payment. Perhaps network usage will be based upon a bandwidth per datatype fee (text messaging will be more expensive per bit than video) and the Internet will replace private switched networks for most uses other than point to point or mission critical uses such as bank transactions and EDI.