April, 2009

There are two primary problems with eBay-Skype's attempt to get the Government to force competitive wireless providers to carry Skype's free communications app under the guise of wireless net neutrality and Internet openness; first, it is wildly uneconomic, and second, it is anti-competitive.  

• The issue has surfaced in the news (USAToday, WSJ) as Apple enabled a Skype app on the iphone for use on free public WiFi networks, but not on the iphone's commercial network provided by AT&T; and again when Google's Android banned a tethering app because it violated T-Mobile's terms of service as reported by CNET.  

I.  Skype's .2% Uneconomics

What is uneconomics? Just what the term implies, not economic, unsustainable... arbitrage.

Where is the line between preserving privacy and promoting publicacy? Most would agree there is a line in the sand somewhere where most everyone would agree that publicacy models (i.e. businesses that monetize making information that was previously private -- public) should not cross.

However, in reality there is a big wide grey area around that "line" that few have really thought about, or even tried to define, until recently. The causes of that vast privacy-publicacy grey area are at least fourfold. 

Wow. Daily Internet traffic in Sweden immediately fell more than 40% after a new Swedish law went into force cracking down on illegal file-sharing. The new law obligates ISPs to to report the IP-addresses of suspected copyright violators to copyright owners.

• Per an AP story: "Statistics from the Netnod Internet Exchange, an organization measuring Internet traffic, suggest that daily online activity dropped more than 40 percent after the law took effect on Wednesday. Henrik Ponten of the Swedish Anti-Piracy Bureau welcomed the plunge in Internet traffic as a sign that file-swappers are reducing their activity for fear of getting caught. "There's no other explanation for it," he said."

FreePress in petitioning the FCC to apply its Broadband Principles to wireless (because they currently do not apply to wireless) effectively has conceded that broadband is not the duopoly market they have long alleged, but is a competitive marketplace.

Anyone watching the Internet content marketplace closely is witnessing the formation of a critical mass of high-powered opposition to the Internet Free Culture ethos that no one should be required to ask for permission or payment to use content on the Internet.

• Something big is afoot.
• Powerful forces in the traditional scarcity economy, i.e. Big Media, are no longer rolling over anymore, but are finally pushing back against the abundance ecommony ethos that asserts that content on the Internet is common property that anyone should be able to use as they wish without permission or payment.  

The possible tipping point here is the newspaper industry's belated realization that giving away their content for free online, in return for traffic, has been an unmitigated disaster because it is not an economic or sustainable business model. 

The open Internet's inherent vulnerability to bad actors made the front page of the Wall Street Journal today in an important-to-read article: "Electricity Grid in U.S. Penetrated by Spies." 

Now we better can much better appreciate why Senate Commerce Committee Chairman Rockefeller is so concerned about cybersecurity and committed to making protection of the Nation's critical cybrastructure a much more urgent priority for the Internet.

The WSJ article hit the core internet problem on the head in the article -- its a lack of accountability:

Why is one of the most-serious identified internet/cybersecurity risks currently affecting the Internet and network operators not on the FCC's radar screen?

• More specifically, why does a search of the FCC's website for the term "conficker" return zero results? (see below)

Given that eBay's announced spin-off/IPO of Skype in 2010 is a material market event, this high-profile IPO represents a potentially tectonic development in eBay-Skype's (and FreePress') push for wireless net neutrality/Carterfone regulations and applying the FCC's broadband principles to wireless providers for the first time. There are much broader implications of this market development than many appreciate.

Some brief background information is helpful to understand the broader implications:  

The main takeaway from Google's earnings is Google continues to take substantial revenue market share -- it is becoming increasingly dominant in search advertising and search syndication despite the economic downturn.  While Google's growth has slowed, its market share gains don't appear to have slowed as much -- evidence of Google's many network effects.  

There is a new circular logic argument being offered that in effect takes fast rural deployment of broadband hostage to the net neutrality movement's latest demands for net neutrality to be put above all other broadband or Internet goals.

• A post by Stacey Higginbotham of Gigaom effectively connects Free Press' latest demand that the FCC apply net neutrality to wireless for the first time and argues in her post that if wireless providers are allowed to apply for stimulus grants for rural broadband without mandated net neutrality, they somehow could control what a subscriber could access on the Internet.