Skype

With due to credit to "Ripley's Believe it or Not!^®," so much odd and bizarre is happening in Washington in the "name" of "wireless innovation" and competition that the topic calls for its own collection of: "Believe it or Not!^®" oddities.

Skype co-founder Niklas Zennstom, the co-founder of illegal-music-downloading site Kazaa, who had to avoid entering the U.S. because of copyright-infringement liability... is now seeking a U.S. court injunction to shut down eBay's Skype for alleged copyright violations!

Sometimes the simplest solution can somehow elude people for a period of time.

• After long pushing hard for net neutrality legislation and wireless net neutrality regulation, TechCrunch's Michael Arrington, finally had an epiphany and figured out that he could become a fully satisfied consumer by simply choosing to take his business elsewhere -- from the AT&T Apple iPhone to the T-Mobile Google Android mytouch 3G phone. 

Competitive differentiated choice -- what a concept -- why didn't anyone think of this before?

• Consumers that value and want different things... can shop around and find what they want from different providers.
• Amazing. People don't have to lobby Congress, petition the FCC, or instigate an antitrust review -- they can simply vote with their feet and take their business to a provider that sells what they want.
• And even better with this competitive choice thingy going on, if a consumer decides they want something new or different in the future they can get it without having to wait for the government to figure out whether or not  they should force all providers to provide it.

Mr. Arrington's epiphany -- that robust wireless and broadband competition not only exists, but actually works very well -- is a powerful reminder that the first and best solution for consumers is not regulation, but to simply to choose to take their business elsewhere. 

The latest wireless statistics submitted to the FCC today show that the U.S. leads the OECD in wireless competition, use and price; the U.S. is not falling behind.

• These data show why:
  • Monopoly net neutrality regulations are unnecessary;
  • The U.S. leads the world in wireless broadband adoption and use; and
  • Broadband mobility is as important as broadband speed to U.S. consumers.  

The CTIA study is based on Merrill Lynch's research of OECD data. Please read the report's summary findings below:  

"The price per minute of service in the United States is the lowest of the 26 OECD countries tracked by Merrill Lynch.

Consumers in the United States have the highest minutes of use per month of the 26 OECD countries tracked by Merrill Lynch.

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:  

• Reports suggest that eBay's plans for a public IPO in 2010 is a result of eBay not being able to get a high enough private market price ($1.7b) for Skype and the fact that current market conditions are not ripe for initial public offerings. (eBay originally paid $2.6b for Skype and added an additional $500m later, then subsequently wrote down $1.4b of Skype's value.)
• eBay-Skype unsuccessfully petitioned the FCC in 2007 to apply monopoly-era Carterfone regulations to wireless. The FCC did not grant the petition.  
• The issue resurfaced again in Washington as FreePress, in a 4-2-09 letter to the FCC, argued that net neutrality should apply for the first time to wireless networks and specifically that Skype's voice application should be able to make calls over carrier's 3G networks.     

So how does eBay-Skype's pending IPO change the landscape?

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.

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.

"eBay Retreats in Web Retailing," the WSJ top story today, suggests some Internet competition may be devolving. 

What does it mean that eBay has decided to retreat from competing in web retailing against Amazon and other online retailers of new goods, in order to focus on:

• Selling secondary-market/used goods, and
• Brokering overstocked, clearance, or out-of-season goods? 

First, it is a stark reminder of the Internet's unbeatable network effects where the strong tend to get stronger and the weak tend to get weaker.

The recession has created new urgency for multiple content industries to find a better way to protect and monetize their property/content in the digital world.  The dotcom bubble ethos that “information wants to be free” is like a gross mold destroying the incentives to create and distribute valuable content digitally. (Be sure not to miss the shocking analysis at the end of this post comparing revenue generation per user in the digital "ecommony" versus the real economy.)  

The first point of this post is to connect-the-dots why several content industries are currently in the news actively pushing back against the "ecommony" anti-business model, where content owners are expected to effectively give away their valuable content to the open Internet/digital commons without the requirement of permission or payment.

The first broad and serious counter-movement by business may be in the offing to ensure that valuable content is indeed paid for when distributed digitally. Serious financial and business risk is driving creative thinking about how to better protect and monetize valuable content digitally.

It was very welcome, but not surprising news, that FCC Chairman Martin and a majority of the FCC plan to deny eBay-Skype's petition to apply 1960's "Carterfone" monopoly regulations on today's wireless competitors.

This was not a close call. Carterfone regulations were appropriate forty years ago with a monopoly and no competition. However, dusting off ancient regulations for a bygone monopoly era have no business or relevance today. 

The facts are that Americans enjoy more wireless competition than most any country in the world, enjoy the lowest or near lowest wireless prices in the world, and use about four times more wireless minutes than our european counterparts, because of the dramatically lower prices -- all per the American Consumer Institute. 

• The market is serving consumers excellently, and vastly better than regulators could ever hope to.

The Skype petition is an excellent evidence that the net neutrality movement does not believe in competition policy or a free market Internet, but believe in a government managed Internet.

• The FCC majority rightfully understands that government control and regulation of the Internet would be an unmitigated disaster for all concerned.