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Telcos Dead In 20 Years – And They Deserve It

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Infrastructure

Infrastructure

I see three parallel developments that I predict will kill the phone companies as we know them. Unfortunately, this is not a minute too late.

When I was in the Netherlands this week, a major source of irritation was Vodafone NL, who charged me by the megabyte (!!) of 3G internet traffic. To quote Christian Engström, Member of European Parliament: Megabytes? I didn’t know they still made those. 80M cost €20. That is an exorbitant price: 25 cents per meg.

It is not an exorbitant price because it’s the market price, but because it isn’t the market price. The production cost of transferring one gigabyte over a 3G network is approximately one euro. Or was, a year ago; there is no reason to believe prices have risen like oil.

So why use Vodafone, if I’m so angry with them? Why not use my ordinary provider? Because they (3, as in the provider “3″) charge me three euros per megabyte. That’s a 300,000 per cent profit margin. That pricing has absolutely nothing to do with market prices.

It’s more than an annoyance. I’ve spent a large part of my life explaining to people why the free market works, and here’s a smoking gun it doesn’t. This is not an annoyance, it’s a personal insult.

It’s the same thing with Skype being blocked in some mobile networks — the vertical bundling means the operators can prevent a functioning market.

For the same reason, governments have been absolutely insane giving telcos subsidies to roll out broadband. Telcos will never roll out broadband to a level where it threatens their existing business; this is holding back society’s technology levels because politicians are trusting vested interests with being in charge of disruptive technology. Why would you do that?

I see three parallel developments that will kill the telcos for good:

The first development is the shift to mobile handsets. Landlines are disappearing for good. The businesses and offices that are in need of landlines don’t really need landlines as such; they need lots of phone numbers to a fixed location, which doesn’t mean physical bundles of cables. Asterisk boxen and similar solutions is one common way of dealing with it. There are others. In short, businesses get their series of POTS phone numbers through their ordinary internet connection.

This first development kills the primary investment of the telcos: all the copper in the ground, which is being replaced by fiber not necessarily owned by them.

The second development is the political pressure to make internet connectivity a basic urban utility, like streetlighting. I predict the arrival of the first municipal wireless networks within five years, given the current pressure, intended to cover urbanized areas of cities and be loginless. Now, in the US, this can be seen as “competing with commercial actors” and may have a political snag or two. In Europe, though, it would be seen as upgrading the city in the public interest, a situation where businesses will be told to move or be steamrolled over.

This second development makes the copper in the ground twice useless, since it can’t be monetized for stupid ADSL, either. Real fiber to households will still have a market: you can’t compete a shared wireless connection with a fixed gigabit connection. But ADSL? Pffft.

(UPDATE: Apparently, I’m a bit behind — I missed that New Orleans did this five years ago. I don’t know how it has fared. But I still predict more will follow.)

The third development is the handsets’ increasing ability to place voice calls directly over the internet, bypassing the telco network altogether. We’ve seen this development with Skype, Viber and Redphone for mobile handsets, and there are many different actors coming in this field. These phones are all capable of using wireless networks rather than telco 3G connectivity, and usually prefer to. If this development continues, and there is no reason it shouldn’t, it means that at some point in the semi-near future, Android and other smartphones will come in versions without SIM cards altogether, only relying on wi-fi for connectivity.

This means that nobody will use the voice services of the telcos anymore, or at least, nowhere near in the volumes needed to sustain the behemoths.

The combination of these three developments mean that in the quite near future, people will still have mobile phones, but will make voice calls directly over the net using municipal wireless networks at any time they are within city limits. The telcos and telco standards will not be involved.

So won’t this scenario have drawbacks? Of course it will. The telco’s cellphone coverage outside urban areas would be left uncovered. But I’m sure somebody will think of a way to solve that in the coming years.

As a side effect, this scenario means all this “lawful interception” that is currently plaguing residents in the Arab world will be a thing of the past. Telcos and telco standards bodies have been bending over backwards to make sure their own customers can be betrayed. This is an attitude unheard of in Internet culture: defenders of citizens and privacy will defend those values no matter who the intruder is. So what does this mean given these developments? You can’t intercept a decentralized network with end-to-end encryption. That means that hardened criminals can’t be wiretapped, but neither can anyone else. I see that as a fundamentally good development.

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About The Author: Rick Falkvinge

Rick is the founder of the first Pirate Party and is a political evangelist, traveling around Europe and the world to talk and write about ideas of a sensible information policy. He has a tech entrepreneur background and loves whisky.

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31

  1. 1

    “@drandakis: Telcos Dead In 20 Years – And They Deserve It http://t.co/ojJVM5N”: they will deserve it if they do not innovate fast enough!

  2. 2

    Telcos Dead In 20 Years – And They Deserve It http://t.co/BDjde7S La seconda non mi convince ma per il resto fila…

  3. 3

    RT @glynmoody: #Telcos Dead In 20 Years – And They Deserve It – http://bit.ly/gm22Rp good points

  4. 4

    RT @hjalli: wholeheartedly agrees: RT @glynmoody: #Telcos Dead In 20 Years – And They Deserve It – http://t.co/XE2gCu7

  5. 5

    RT @glynmoody #Telcos Dead In 20 Years – And They Deserve It – http://bit.ly/gm22Rp good points

  6. 6

    Telcos Dead In 20 Years – And They Deserve It http://t.co/ou8HkOH — can’t wait for alternatives to mature

  7. 7

    Cannot wait: Telcos Dead In 20 Years – And They Deserve It @falkvinge http://t.co/bV6l2xz

  8. 9
    Sander

    What a total and utter nonsense!

    1) muncipal wifi networks have been tried (Netherlands: Leiden and Groningen) and apparantly are not feasible. It takes an operator to operate a network.
    2) government funded wifi and other neworks are illegal: EU regulations forbids putting tax money into markets that can be handled by commercial markets
    3) governments demand a lot of money (billions) for 3G/4G licenses. Governments will not give them away for free. And if so: to whom?
    4) what makes you think telco’s will not charge less if forced by the market or regulation. This happened to old skool phone tariffs, and to mobile voice roaming, and Internet, and DSL, adn …
    5) telco’s can and do change if/when necessary
    6) governments demand lawful intercept from *anybody* providing access. Indeed that doesn’t work for criminals, but it’s still the law. If you don’t comply, you go to jail.
    7) telco’s do invest in Fiber. KPN (Netherlands) has switched to providing services over fiber, not cupper, in new areas.
    8) for more wifi you need more fixed Internet. No, mesh networks do not work; it has been tried
    9) “Wimax will kill 3G, fixed Internet and all, as Wimax will offer 50 Mbps across 50 km” (often heard a few years back). Oh no, strangely enough that didn’t happen. And where’s Wimax now?

    And yes international mobile data roaming tariffs are absurd, but as long as people keep using it, telco’s will keep charging it. This will change at the moment more people will swap their SIM for a local SIM, or at the moment the EU says “enough is enough” and imposes a more reasonable MB-price (like the EU did for international voice roaming).

    So: Telco’s have changed, and will continu to change according to developing technologies, markets and regulation.

  9. 10
    Chucki

    Sadly, the Telcos own most of the wireless spectrum in the US and have some of the strongest lobbies. Meet the new boss, same as the old boss.

    FWIW, wireless network operators in the US are required to have Lawful Intercept Gateways (LIGs) to be in compliance with the Communications Assistance for Law Enforcement Act (CALEA) since the act was passed in 1994.

    Cheers!

  10. 11
    Martin

    It is up to the market to take care of things like this. If there is a margin of 300,000 percent, usually someone else will thing that 30,000 percent will do fine. And so on until equilibrium between supply and demand is reached. Problem is that this does not hold in cases of monopoly and oligopoly cartels.

    In parallel to not allowing Skyoe, I would liek to add that I am annoyed by providers not allowing tethering (turning your phone into a hotspot). How many times shall we pay for sending bytes?

    • 11.1
      Rick Falkvinge

      The thing is that the “usually” doesn’t happen. The market does not work. I agree that this is what will happen on a functioning market, but on no market whatsoever can you keep having a 300,000 per cent profit margin.

    • 11.2
      Rick Falkvinge

      And yeah, the restrictions associated with the vertical bundling is another example of how the market doesn’t work.

    • 11.3

      The Market has always been a problem.

      As you say, problem is it does not hold in cases of monopoly and oligopoly.

      Your example of “usually someone else” is a fine one, but you have to develop it all the way down the bottom race…

      Now, in developing it in the physical world there are limits of convenience to where this “someone else” might be located. Let him be too far away and transport costs (or language barrier costs, or product conservation costs, …) offset the cut on the price offer. You can have cheap Chinese bread if you like it stone hard, for example. Some relief, but not all can come from scale economies when big mass production applies, that’s why when combined with ultralow wages we lost almost all industry to China and third world countries.

      In the virtual worlds of digital and on-line however, geographical distance limits hardly apply so transportation costs are nearly zero, and duplication costs are just a few keystrokes one does not need to outsource ;) .

      Even with copyright strictly enforced and the monopoly of patents (which we know it can’t be but in the perfect police state)… the market race to the bottom always reaches exactly ZERO, and even further… producers spend money trying to attract attention of people that have a whole world to look elsewhere. Anyone can write a program, or a book, and try to sell it on-line for a few bucks. But if he has no enforceable monopoly not only on the exact bits of the content but on the whole category of similar stuff… someone will offer something similar for half the price. People who live in countries where living is cheap can offer anything much cheaper than us westerners that need to pay the mortgage, the car,… Those in the western world that get unemployed can spend their idle time creating if even for free because it gives them some sense of last chance usefulness when someone appreciates what they can do. There will always be someone around willing to give things away merely to have his existence recognized by his peers.

      This is something no industry can compete with. Pay attention to the whole copyright/patent issue… it isn’t about protecting creators rights… it is about protecting dominant monopoly positions rights. When they try to ban downloading and peer-to-peer, they are not so much chasing illegal copying of their protected content… they are covertly banning the download of any alternative content with a price tag they can not compete with because they need the only thing that really matters to them… the profit margin ;) . Imagine Micro$ofts today threatened position… when downloading complete ISO files of GNU/Linux distributions becomes impossible.

      The market of mass production NEVER worked unless monopolies were established. Something we were not acutely made aware of until DIGITAL and ON-LINE conspired to shrink the marketplace and put it in whole at your fingertips. Just like the Statute of Anna seemed a good bargain to printers in its time because the needed inversions for printing and transportation costs in time and weight gave a de-facto monopoly to a few, and those technical advantages have vanished now leaving no arguments left on which the monopoly can perpetuate itself, other businesses are being affected.

      The crisis is leaving most mass-production businesses ill-prepared for the future, as the fixed costs of their infrastructure (built upon long term loans) are becoming higher than the benefit margin they can squeeze out of the total sales of their warez (pun intended ;) ).

      That is why traditional printing houses (and film studios) with huge outstanding loans on their infrastructure are absolutely fighting going digital… the profit margin on digital wont pay these loans they can not simply get rid of.

  11. 12

    Still, namewise it makes sense that your provider 3 charges three euros :).

  12. 13

    Just as with the perfect communist community, the free market community is a utopia. For a free market to function, all markets need to be made available to all consumers at all times. This is not the case with the telco-industry (or any other industry) since the big corporations always use their dominance to create oligopolies.

    A “free” market without any governmental regulations and/or subsidies also fails to provide the necessary infrastructure for people living in rural areas. Thanks to extensive tax funding here in Sweden, even people in the northern parts of our country have access to high speed Internet connections via the fibre backbone.

    The thought that the market will “think of a way to solve that in the coming years” is way to optimistic. No, what we need is tax funded infrastructure owned and maintained by the state which the telco-companies then can lease.

  13. 14
    gastlind

    “Well established”, big companies will always try to use their riches and position to stay in power. All at the cost of increased efficiency and real innovation. As the guilds once did to try to stop industrialisation, as the “workers” in the industry once did to try to prevent the usage of robotics in efficient manufacturing plants. The same will happen now – copyright industry will fight piracy, Hopefully fail and then be replaced by something more efficient – to the benefit of the consumers. Although the middle hands will do all in their power to prolong that fight and get hold of all the dollars they can along the way.

  14. 15
    Paul Charles Leddy

    Be careful w/ New Orleans example. A lot of people in the States claim they are going to do something, and then it goes nowhere. The article you linked to linked to another about Philly’s wireless network, which seems dead-in-the-water, from what I could find.

    Big corporations have a way of getting in the way.

    The private wifi in Portland, Oregon completely failed, was way underestimated in cost and maintenance. It takes a LOT of towers to support a small area since your clients are sending with VERY weak signals, no matter how strong your signals are. Ping this guy for some insight, he’s a wifi phreak:

    http://www.personaltelco.net/RussellSenior

  15. 18

    http://www.exicon.mobi/blog/roaming-rage/ Here another blog on the matter.

    Arriving in London I noticed a Vodafone ad and was surprised to see that this is actually a promotion advertising data roaming at £1 per MB per day. Then, a bit later when buying a prepaid card (to save on voice call roaming) in an O2 shop, I asked about data roaming and discovered they charge GBP 3 per MB…. gulp….

    Funnily I then get an email, on my Blackberry promoting a report from Informa predicting an 86% growth in roaming revenues for mobile operators to $65B thanks to smartphones and resulting data traffic. You can download an extract of that report here. https://commerce.informatm.com/reports/main/global-mobile-roaming-4th-edition.html#pricinginfo

    Fortunately with my Blackberry I have an unlimited “global data roaming” package (actually 10MB/month) in 80+ countries around the world, so don’t need to worry that much about racking up the bills when roaming. The other benefit with Blackberry is they compress-decompress the data as it goes over the network. The typical compression ration is about 6:1 meaning 6MB is equal to 1MB. This saves you both time and money.

    The reason I’m writing about this is this cost really limits access for users to the World Wide Web and the use of apps whilst traveling. At this price no consumer is ever going to:

    - Share pictures over the mobile web with sites as most pictures are at least 1MB. Imagine you just arrived at your destination with a beautiful view. C-L-I-C-K and you cannot share that picture with your friends. Afterwards the moment is gone.

    - Download apps. Imagine you’re sitting at an airport waiting for your plane…. surf the appstore find a great game to download….. nope sorry it’ll cost you nearly GBP just to download.

    - Using apps. I use Google Maps for my directions every time I travel. Each time I ask for directions the applications loads the map using data… there goes another pound.

    All of these quickly add up and stick it to your wallet. BIG TIME. And this money does not go to the developers, it infact limits income for the developers. Developers are the innovators creating applications and services that they cannot monetize because of price barriers put in place that they have no influence on.

    Limited usage results in less interaction, less eyeballs, less attention and therefore less relevance. For any developer of applications of web, traffic is critical. This cost is so prohibitive that this will seriously impact mobile competitiveness to European mobile internet economy.

    Imagine a Tesco or Carrefour charging you for every second you are in the shop. The products on the shelves are free or you need to pay for them on top of you having to pay for your time in the shop….. how will that impact customer behavior in the shops?

    It baffles me that this is taken for acceptable particularly as the economies in Europe are struggling and it’s the mobile developers and application companies that are creating jobs and the future. Asia and the US are already taking the lead in mobile innovation and emerging business models, a domain that EU used to dominate. Tactics like this that will only accelerate pushing innovation away.

    Successful innovation has to do with adoption…… and you just can’t adopt new services with inhibitive prices that even the manufacturer of the product can’t influence.

  16. 19

    I am very pleased to say that at http://www.mobeevoice.com we have been successful in developing a very robust high quality and uber affordable globally available ALL-IP Network driven fixed to mobile communications service which now delivers inbound and outbound voice and IM over 3G data & Wifi.. Our customers are provisioned with a POTS number from their country of residence and/or from other qualifying countries by our service … Once subscribed to our service the Customer’s completed subscription generates an SMS , this vector once delivered to the handset then delivers to our Customer’s handset our Mobile over IP application suite thereby enabling Mobile over IP/ 3 G services to be deployed. This cutting edge Application: MobeeVoice carries with it the allocated POTS number and seamlessly provisions a whole new world of connectiviy to our customers handset by our unique Over-The-Air delivery technology together with a Landline over IP service and numerous applications for use on PC’s. LapTops etc .. MobeeVoice.com has considered all of the possible Voice and soon to come IM over IP communications needs that our Customer could want or need and has developed both the solution and very importantly a killer price point , The price point? In-Network IP Mobile to IP Mobile or IP Mobile to IP landline , IP Landline to IP Mobile : every 10 minutes US$0.01 cent … .. Outstanding Value…
    Outside Network Calls? Charged in 6 second increments ( Landline calls globally average about 2-3 cents per minute ; calls to Outside network Mobiles : average 13 cents per minute … ) No inbound call charges ever… no contracts required .. Just great technology providing a great service with awesome audio quality .. all over IP ..
    The future is here …

  17. 21

    Det finnes håp om telekommunikasjon uten overvåkning http://bit.ly/f3H97d #dld

  18. 22
    xuset

    Man, I see this article written from the anger caused by a lot of money spent during your last travel using data roaming?… in fact you speak very easily about several concepts but from a lack of actual knowledge…

    For starters you should change the title of the article for “Telcos will change their business model in the next 20 years” and there you got it, but “will disappear”… all the reasons you give are nonsense, I will not spend my time because Sander has explained it very well point by point.

    Just one extra comment: you spend your first lines in the article talking about abusive charges for data traffic… and you know that cost is in roaming, because indeed, data traffic is rather cheap using flat rates. Moreover, how can you say that people will use skype, etc over data networks and at the same time say they are very expensive??? kind of contradictory, isn’t it?

    • 22.1

      It’s not that contradictory, xuset.

      The telcos charge a lot to transfer compressed voice and data over infrastructure they control, pricing per kb or mb, but they can not eternally restrict the use of free protocols to convey the same data through the connections they charge a flat rate for, and whose use is therefor much cheaper (over their own and same infrastructure!).

  19. 23

    Nécros du jour: La mort des opérateurs télécom http://is.gd/AHLMT2 et la résurrection du web http://is.gd/jN70Rj (via @guardiantech)

  20. 25

    Y por acá dicen "Telcos Dead In 20 Years – And They Deserve It" http://tinyurl.com/4og46w6

  21. [...] Telcos Dead In 20 Years – And They Deserve It >> Falkvinge [...]

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About The Author

Rick is the founder of the first Pirate Party and is a political evangelist, traveling around Europe and the world to talk and write about ideas of a sensible information policy. He has a tech entrepreneur background and loves whisky.

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