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OECD: Telcos Overcharging By Five Orders Of Magnitude

17

Infopolicy

Infopolicy

A little-noticed report by the OECD sheds light on why the telco industry so forcefully prevents more and better internet connectivity to Europe’s entrepreneurs and households: the telcos are currently overcharging by five orders of magnitude by forcing people to use the telco network rather than the Internet.

An OECD report, referenced by Glyn Moody, describes how vastly more efficient the bottom-up Internet is compared to the old telco industry’s top-down model, and notes that in 99.5% of connection agreements on the Internet, there’s not even any written agreement signed. (In the telco industry, by contrast, you can’t even become an individual subscriber without signing written agreements.) The report uses this observation as a base to state that the telco industry has no business meddling with the net in its upcoming ITU meeting, just like the European Parliament declared in a resolution recently.

But the report also highlighted something else: the Internet provides a large superset of the services of the telco industry, at a cost five order of magnitudes less for the same service. In other words, the telco industry is currently overcharging for voice service by five orders of magnitude – that is, overcharging by a factor of 100,000 compared to market price for net connectivity. (This ties well in with our previous observations that the future sales value of voice and storage is exactly zero, but the OECD is arguably a much heavier voice than this site.) The telcos’ ability to do this – to prevent the net’s utility, the public interest, and economic growth – is entirely due to a gatekeeper position that comes from having strategically bought all the small ISPs in the infancy of the net’s commoditization. It is now completely against the telco industry’s interest to roll out internet connectivity at the pace of the public interest, so it doesn’t happen.

This gatekeeper position is not just used to prevent rollout of more connectivity – it is also used to prevent the existing connectivity from threatening the current ridiculous levels of overcharging (think voice apps on mobile phones, and how many telcos actively sabotage traffic from Skype and Viber, for instance).

It can be hard to digest this enormous discrepancy – an overcharge of five orders of magnitude – so let’s break it down into a household example.

If your phone bill was 500 euros last year, it should have been half a cent, according to the OECD:

The performance of the Internet market model contrasts sharply with that of traditional regulated forms of voice traffic exchange. If the price of Internet transit were stated in the form of an equivalent voice minute rate, it would be about USD 0.0000008 per minute – five orders of magnitude lower than typical voice rates.

We’ve posted about this before, about the ridiculousness of paying by the minute for a 9.6-kilobit connection that can only be used for a voice application, when we have 100 general-purpose megabits at a flat rate in the wall.

So where does all the money from this overcharging go? The telcos aren’t posting record profits. Most of the money from this overcharging goes to maintaining the old obsolete telco network, which is now being used to prevent the rollout of the Internet, which is vastly more efficient and isn’t top-down-controlled. A further lot of it goes to maintaining staff who haven’t changed to a net-centric way of thinking – unofficial but reliable sources tell us that Deutsche Telekom alone has a surplus of at least 100,000 employees.

But it is not in the public interest to safeguard jobs that don’t provide value to society (if it were, we’d still be plowing the fields by hand and destroying Spinning Jennies). If we were able to align the telco industry with the public interest, the telco industry would be decimated in size, but next-generation entrepreneurs would be enabled, as would economic growth in new sectors. That’s in everybody’s interest.

Well, everybody’s interest except the telco industry’s. Until this situation changes – and it probably has to be changed politically, starting with net neutrality and continuing with net rollout by other actors than the telco industry – we will keep having this kind of overcharging, and the net’s rollout will remain prevented, stalled, and delayed.

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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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17

  1. 1

    There might be a technical solution to this: http://en.wikipedia.org/wiki/Asterisk_(PBX)

    However, unless someone really starts shipping a VOIP PnP box, it probably won’t happen.

  2. 2
    Anonymous

    in the UK, BT has upped it’s line rental charges 3 times this year, the latest coming into effect very soon. i cant leave BT and join another independent telco, saving me about £100/year because if i did and i wanted to change my broadband, i would have to pay around £135 to go back to BT first. i get a discount on my broadband by using the same company for calls. if i leave that company for calls, my broadband price increases. i would then have to make a minimum of 3 chargeable calls with BT to get a line rental price reduction. what seems to be happening here is that the UK government has forced BT to get faster broadband sorted and to more places (even though there is throttling, restricting, website bans and usage limits etc, etc in place). BT doesn’t want to use any of it’s own money so is upping prices so the public pay the costs incurred but then have to pay for the use of the service as well, after completion. talk about being in a win-win situation! when someone manages to explain to me the advantage of having faster than 20mbps broadband when the limitations put in place by the companies prevent it’s use, i may be interested but it would also have to be at a really, really sensible price, unlike the ridiculously extortionate cost atm!

  3. 3
    OneGuyFromFinland

    Rick, I’m a fan of yours and I usually 100% agree with all your blog posts.
    Also when reading this post I agree with the statements that the telco model is largely outdated and the overpricing is there. However, there is one great advantage of the current telco model that should be discussed in the public. It’s quite rarely talked about, but I think it’s obvious, once you come to think about it.

    I mean the intrinsic anti-spit mechanism that’s featured in the telco networks. (Spit means voice-based spam.) Strictly *because* voice calls are expensive in the phone network, we are saved from a great amount of voice spam! It’s of course possible to send automated spit to people’s mobile phones as regular voice calls, but there are actual monetary costs if someone does that. Compare this to systems where sending of messages is essentially free: well, email spam is a great example…

    I think that, undeniably, the money-charged calls are a strength of the current telco model. I’m rather much concerned about a “VoIP-only world”, since it sounds to me like a “world where you’ll get incoming calls that are pre-recorded Viagra ads, 20 times a day”. And please note: voice spam is definitely more annoying than text-based email spam! Just compare getting twenty spam emails vs. getting twenty spit voice calls… The annoyance and waste of time would be terrible. We are currently protected from this, because making calls in a telco network costs real money.

    Of course, we can always say “there will be better anti-spit mechanisms for VoIP calls”, but that’s fantasy until someone shows a very concrete solution for this. (I haven’t yet seen one. Yes there are all kinds of proposed systems that, for example, require you to do a Captcha puzzle before being able to make a VoIP contact, or people can explicitly white-list speficic contacts, but these ideas sound like a serious degradation of usability from the current system, where you can just dial someone’s number and expect the call to get through.) Moreover, I haven’t yet received nearly any unwanted VoIP contacts, but that doesn’t prove spit to be a non-problem. Obviously, if a system such as VoIP gets a near-universal adoption and a very prominent role as a way of communication (like the telco-based call service today has), it will unavoidably attract spammers – who are, currently, quite effectively blocked, thanks to the charging model of the telcos.

    Well, at the same time, I agree that you’re right about “lawful interception”: from a civil freedoms perspective, a voice connection that cannot be easily wiretapped is a clear winner.

    I just would like to see the very real spam/spit threat be taken seriously. No one seems to be talking about it. I really don’t want to witness the deployment of another technology that is “more advanced” than the old one but still makes the total user experience worse, not better.

    Non-related comment: Wouldn’t it be great, if your blog posts had their posting date visible? Now it’s only visible in the URL, but I think it would be good to have it also on the page itself. It kinda provides context, if the reader can see the date when something was written.

    Keep up the great work! You’re one of the very few political figures I could say I admire. Wow, I actually said that aloud ;)

    • 3.1

      There is a future unsolvable problem for CAPTHAs. Soon computers will be able to solve pretty much any such CAPTHA better than humans can, and thus they cannot be used to tell if a person is a computer or not. Turings challenge will pretty soon by met as well. I think we better start building proper FOSS solutions to this problem.

  4. 4
    Filino Rupro

    We need a new infrastructure! A peer-to-peer network, based on radio! It’s possible if we use all radio spectrum!

  5. 5
    Per "wertigon" Ekström

    I’m glad that the POTS (Plain Old Telephone System) is on the way out. Despite this report, progress is happening in the right direction.

    My prediction? When 5G cell phone system comes around, there won’t be a dedicated “phone link” anymore – everything will be sent over the data link of the cell phone carriers. Yes, even voice calls. After that it’ll only be a matter of time before low-price carriers will take advantage of that.

    Competition will bite the telcos in the ass sooner or later. It’s just a matter of time. :)

  6. 6
    Antti

    I think that a problem that many telcos face is that they are not profitable ENOUGH when compared to some record breaking companies. I get the feeling that what used to be a good profit margin just doesn’t cut it anymore.

  7. [...] A little-noticed report by the OECD sheds light on why the telco industry so forcefully prevents more and better internet connectivity to Europe’s entrepreneurs and households: the telcos are currently overcharging by five orders of magnitude by forcing people to use the telco network rather than the Internet.   An OECD report, referenced by Glyn Moody, describes how vastly more efficient the bottom-up Internet is compared to the old telco industry’s top-down model, and notes that in 99.5% of connection agreements on the Internet, there’s not even any written agreement signed. (In the telco industry, by contrast, you can’t even become an individual subscriber without signing written agreements.) The report uses this observation as a base to state that the telco industry has no business meddling with the net in its upcoming ITU meeting, just like the European Parliament declared in a resolution recently.   But the report also highlighted something else: the Internet provides a large superset of the services of the telco industry, at a cost five order of magnitudes less for the same service. In other words, the telco industry is currently overcharging for voice service by five orders of magnitude. (This ties well in with our previous observations that the future sales value of voice and storage is exactly zero, but the OECD is arguably a much heavier voice than this site.) The telcos’ ability to do this – to prevent the net’s utility, the public interest, and economic growth – is entirely due to a gatekeeper position that comes from having strategically bought all the small ISPs in the infancy of the net’s commoditization. It is now completely against the telco industry’s interest to roll out internet connectivity at the pace of the public interest, so it doesn’t happen.   Click headline to read more and access hot links–  [...]

  8. 7
    Ano Nymous

    Actually, the analog copper-wire telephone system together with the internet does provide something that the internet alone (or the landlines alone) does not: Redundancy. The internet requires lots of electric power at every stage of it, and the old telephone wires are easily torn down by falling trees. If there is a power outage, IP telephones, routers etc. in one’s home must be on UPS for them to work, at least in Sweden every one of the automatic telephone switches (Ericsson AXE) has a battery backup, so the landline phone still works for hours and even days. Also, the internet is the first target of a totalitarian regime that wants to control information flow *cough, USA, cough*, because it facilitates publishing to everyone and is possible to use anonymously.

    The landlines can also be used to provide internet access for people living far from optical fiber or other centrals, making it impossibly expensive to get their homes wired into that.

    Also, at least that is my experience, the telephone system is by far more robust than internet connections. It is very rare that a landline doesn’t work, however internet connections temporarily fail regularly. I wouldn’t trust an IP telephone with an emergency call.

    Unfortunately the landline systems are now largely digital except the line between the subscriber and the first switch, but that has obviously not yet caused any big problems. Perhaps the companies who made the gear realized how important the system was, and therefore didn’t build it with planned obsolescence and cheapness in mind…

    Public interest is not only about money, it is even more about reliability. And the reliability of the landline compared to internet, with everything needed in ones home included, is propably at least two, maybe three orders of magnitude better.

    If the prices has to be five orders of magnitude higher, SO BE IT. MY LANDLINE STAYS.

    However, when it comes to the mobile telephony network you are absolutely right. It’s just as unreliable as the internet connection that it can convey, so there is no disadvantage using the internet for voice there.

  9. 8
    d.

    I agree with this article 100%

    Know what’s even more absurd? The price of text messages. Most operators around here charge the cost of a minute of voice calls (which are already overpriced x100 000, as the article shows) for a single 160 byte data transfer.

    Let’s take for example one finnish phone operator, the rate for text messages in their prepaid accounts is 6.66 cents. That amounts to 0.041625 cents per byte, which equals 43646.976 euros per mebibyte.

    Yes, you read that correctly: over 43 thousand € per mebibyte of data. Downloading a single CD ISO with that rate would amount to over 30 million euros.

  10. [...] yesterday’s article about telco voice services being overpriced by five magnitudes – that is, a factor of 100,000 [...]

  11. 9

    We stumbled over here from a different web address and thought I might check things out.
    I like what I see so i am just following you.

    Look forward to checking out your web page for a second time.

  12. [...] Read here: falkvinge.net/2012/11/26/oecd-telcos-overcharging-by-five-orders-of-magnitude/ [...]

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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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