Mobile Skype Update

The antipathy of some mobile operators to their customers using VoIP services like Skype over their networks (see our earlier post) looks set to heat up further. UK operator 3 has announced that from May 1st 2009 it will offer Skype-to-Skype calls and instant messages for free over its data network. It is not clear from the announcement whether users will be able to make calls to and from the public telephone network (i.e. involving normal telephone numbers), for which they would presumably pay Skype, rather than 3, though other commentators have suggested that this will not be possible.

Perhaps more importantly, 3 plan to make the service available over the summer to anyone with a compatible and unlocked 3G phone - in other words to users of competing networks. Presumably the thinking is that once a user has a 3 SIM card in their phone, it will be easy to persuade them to take additional paid-for services. Despite 3's claim that "Skype is only available for free with 3 because we don’t think you should have to pay for mobile phone calls anymore." - an unusual sentiment for a mobile phone company - this would probably include paid-for calls, since this is likely to be the only way to reach people who don't have a Skype account, or are not online.

It will be interesting to see how people use this new service. One option would be to put the £1.99 SIM from 3 into a spare, or second-hand, phone for separate Skype use, to avoid having to swap SIM cards. This would be less promising as a basis for enticing Skype-only customers into taking other services. Of course another option for someone with a reasonably high-spec phone is to use a service like Fring, that runs as an application on the phone and enables Skype or other VoIP calls to be made over mobile or WiFi networks without changing the SIM card.

CARTER HAS A CHALLENGE ON HIS HANDS AS GLOVES COME OFF IN DIGITAL BRITAIN DEBATE

Lord Carter has received over 200 responses to his interim report on Digital Britain, and now faces the challenge of reconciling many different views and standpoints without recourse to primary legislation and without legal challenge. Responses come from across the spectrum (apologies !) of the business, with the creative industries (“poets”) outscoring the telecommunications industry (“plumbers”) on the list of respondents published on the DCMS site.

I reckon these responses break down as:

Commercial telcos/ suppliers
12 responses; BT, O2, Vodafone not listed, presumably confidential responses

Creative industries – commercial
13 responses; similarly the main broadcasters (BBC, ITV, 4) not listed

Communications Industry groups
18 responses, including engineering groups

Councils/RDA/Community groups
14 responses; surprisingly several Community Broadband Network groups are not listed; includes Upper Deverills Parish Council !

Creative industries - industry groups
34 responses - the most active group; wide range of organisations covering film, TV, print, radio, libraries

Public interest organizations
3 concerned about rights, 1 about security and 1 child protection

Unions/political parties
5 unions and the Green Party

College/research groups
3 responses

Individuals
14 including two responses from academics and two from MPs

Others
7 responses; eg British Space Centre

At a macro level this represents a lot of different standpoints at different places in the value chain – a nightmare to resolve. But even within distinct parts of the market there are deeply entrenched views. Here are a few comments on those responses I’ve managed to get through so far – contact me if you want more.

“PLUMBERS”
No way are Vodafone and O2 going to give up spectrum without a fight. Despite the best endeavours of the ever-charming Kip Meek from BSG, this one looks like going to the wire. In its tussles with the regulator and Government, BT eventually learned that short-term wins often translated into longer-term problems – this penny has not dropped for these guys yet.

BSkyB wants Virgin Media to open up its network by offering wholesale products, are against public subsidies for USO and want duct sharing. BT will have pointed out the practical difficulties of duct sharing and will be wary of a USO fund (they’ve played that sort of game before). Virgin also favour a market-led approach, but “keep your hands off our network”. The Number (118 118) are more concerned about service provider competition, good wholesale products and Voice over Broadband.

“POETS”
Here the Channel 4/PSB issue is a key focus of debate. Sky and Guardian Media Group (GMG) want controls on the BBC and a market-led approach to PSB. Five is trying to hang on in there with the idea of linear TV and its PSB role (keeping its C4 arguments behind the scenes). The NUJ wants the spectrum released from the Digital Dividend to be earmarked for the PSB. The Beeb’s response is not on the DCMS site, but SamKnows reports that they are keen on playing a “central role” in partnership with other media players, opening up iPlayer for other broadcasters.

Carter’s proposal for a Rights Agency gets a lot of attention. There is almost uniform agreement that piracy is bad, that protecting rights is essential to ensure investment in creative industries. The Design and Artists Copyright Society is concerned that small players will lose out. The “Alliance against IP Theft” ( a collection of 21 organisations mainly focused on the film industry and video games) want a clear role for the Agency (focused on illegal downloading), but for commercial issues to remain managed by the private sector. Even the Premier League get in on the act, demanding protection for their IPR and looking for the Rights Agency to be given clear direction.

GMG also raise the issue of value disappearing to search engines and other aggregators and want Carter to help them keep control of some of this.

COMMUNITY GROUPS
The views of community groups on network issues are more consistent: “we must have superfast broadband”; a “digital divide” or “two-speed Britain” is a bad thing; “the broadband USO does not go far/fast enough”; and “BT won’t do it, so Government should fund it as a means of economic recovery”. Digital Birmingham argue for public investment in duct; eHampshire want support for local community networks and for Building Regulations to insist on fibre installation in new homes; the RDAs suggest public sector procurement as a way forward; and Upper Deverills Parish Council are using all their influence to press for a faster USO.

THE FREE-THINKERS
There are enthusiasts for 4G and internet radio, concern over the problems of migrating to DAB, and demands for better funding of talent development. The Green Party want mobile base station sharing to reduce energy use and spectrum allocation which allows energy-efficient solutions.

So best of luck Lord Carter – there’s no way to please everyone. Personally, as a “plumber”, I find the “poets” arguments generally self-serving, idealistic and uncommercial, when sharing value with those building the networks has to be the only way forward. However, as the media likes nothing more than talking about itself, I’m sure that’s what we’ll be hearing most about in the coming months.

Banning Mobile Skype

T-Mobile has reportedly threatened to disconnect users of the iPhone in Germany and four other European countries where it has a distribution deal with Apple for the “Jesus phone” if they download and use the Skype application. This is not the first time that T-Mobile have encountered adverse publicity for blocking, or attempting to block, the use of VoIP by users of their service. However, in this case the application only works over the iPhone's connection to local WiFi networks and not via T-Mobile's data service. The operator's suggestion that there may be issues of technical compatibility seems rather unconvincing and is denied by Skype, making the bad publicity worse still.

It is entirely understandable that mobile operators should be concerned about customers whose expensive handsets they have subsidised rendering that investment worthless by avoiding paying for calls. A top-of-the-range iPhone sells on eBay (Skype's parent company) for around $630, though presumably an operator would pay somewhat less and European mobile operators such as O2 in the UK are prepared to give their subscribers one of these for free, in exchange for a hefty £44+ per month subscription. Apple's deal with their franchised network operators unusually involves them getting a share of network revenues and perhaps it is for this reason that they have ensured that the Skype application is limited to calling over WiFi, rather than over 3G or other mobile data networks.

Thankfully for the mobile operators, their immediate predicament is scarcely dire. For one thing, the customers with whom the risk is greatest, those whose handset is heavily subsidised, have (like O2's well-heeled, or gadget-crazy, £44+ per month set) already committed to pay for their minutes whether they use them or not. Even pre-pay customers, who will have paid nearly £400 for a 16Mb 3G iPhone, are likely to find it more convenient to make their calls in the normal way over the GSM network. Perhaps it is for this reason that some mobile operators, such as Vodafone in the UK, have apparently so far refrained from blocking or forbidding the use of VoIP over their networks. Others, such as Huchison's 3 UK have come to commercial terms with Skype and made a virtue of it. Even those who use a VoIP application that has not been blessed and taxed by the operator, such as Fring or Gizmo, may find themselves paying a not-insignificant amount to their operator for the data connection.

Nevertheless, as mobile data becomes cheaper and faster and as the VoIP applications become slicker and better-integrated with the phone's basic functions such as call buttons and directories, very large amounts of currently profitable revenue from both voice calls and text messages are at stake for the mobile operators. This is underlined by over a million downloads of the iPhone Skype application in its first two days - making it the number one download from the App Store in 40 or so countries around the world, including Germany, according to Skype.

T-Mo is not alone in blocking the use of Skype and other VoIp services on their networks through technological and contractual means. So do all the other mobile networks in Germany and their French counterparts do the same, as does AT&T in the US, raising calls for regulatory intervention and not just from the likes of Skype. The VON Coalition, for example, a pressure group which includes, amongst others, BT, Microsoft, Intel, Cisco and Google (and, at least as recently as last year, T-Mobile USA), reportedly argues that

"Blocking of voice applications on mobile devices, such as the announcement of T-Mobile to block Skype on iPhones in Germany, is highly detrimental for consumer welfare in Europe".

The VON Coalition describes itself as:

"Member supported coalition of service and software providers and equipment manufacturers organized to advocate and educate policy makers and regulators the viewpoint that the IP Telephony industry should remain as free of governmental regulation as possible."

Never mind the potential irony of such a body calling for regulatory assistance, the tenor of arguments so far advanced is that of net neutrality, or as Robert Miller (Skype's General Counsel) puts it:

"Skype passionately believes that consumers should be entitled to access an open Internet on a variety of devices and on fixed and mobile connections to the Internet."

Unfortunately for them, network neutrality seems to have failed to ignite the same degree of emotional intensity in Europe as it has in the US - perhaps because Europeans believe that if their ISP restricts their access to information or applications unreasonably they can always switch to another one. And, as Miller wistfully points out, current EU legislation in front of the national Parliaments would not help much, requiring no more than that service providers inform their customers first if they are going to restrict traffic in this kind of way.

Whilst the network neutrality debate is probably not yet over in Europe, it might be worth considering whether there are other red rags to the regulatory bull here. This would very probably turn on whether each national regulator deemed that the network operators had Significant Market Power (SMP) in the relevant market (and there might be some debate about which market that would be) and, if so, whether blocking or forbidding access to VoIP services is an abuse of that power.

One problem is that the most likely Market, as defined within the Framework, is Access and Call Origination on Mobile Networks, which was deleted from the list as part of the 2007 reforms, meaning that it is not a requirement for national regulators to carry out regular reviews of the extent of SMP and of the remedies they should apply. It does not mean that EU and national regulators will not take action, though, as has recently happened with the prices charged for calls when one is outside the country in which one's phone service is registered. But action would most likely only happen if regulators are spurred on by public concern and lobbying.

Network operators, for their part, are likely to argue (again) that the loss of profits they make from calls and texts would lead to them cutting back on investment and force them to raise prices, forcing vulnerable consumers off the network.

The glass-half-full view would be that the regulators are (implicitly) right and market forces will not allow what consumers want and technology allows to be blocked by suppliers for very long. After all, T-Mobile's earlier apparent démarche in the UK and the indignation surrounding this latest incident suggest that using restrictive contract clauses and network blocking to strong-arm customers away from using VoIP has about as much chance of longer-term success as the record companies have of stopping illegal copying and downloads of music tracks by brandishing copyright laws.

Pay-back for Functional Separation?

The end of last week saw the publication of three long-awaited and weighty consultations on the future regulation of voice telephone services over fixed networks. The headline summaries where this seismic event was reported in the press centre around BT becoming free to bundle telephone services with broadband and TV. But we see plenty more issues lurking below the surface.

In essence, following the 2005 Telecoms Strategic Review (TSR) the deal struck by BT with its regulator, Ofcom, was that in exchange for BT undertaking to semi-detach its copper local access network (now Openreach), Ofcom would not force BT to separate this activity completely and would allow BT some unspecified degree of extra freedom in the retail (direct to consumers and businesses) market.

Well, so far Openreach is up and running and has been steadily moving towards providing fully equivalent treatment to other communications providers (CPs) and to the rest of BT in relation to local loop services, including taking responsibility for Local Loop Unbundling (LLU), which enables CPs to rent BT's access lines and to connect them directly to their own networks instead of to BT's.

But there has been little in the way of relaxation of the rules. The main reason for this is that Ofcom can, under EU Law, only make changes of that kind following a thorough and objective review process. In principle, of course, this makes it pretty meaningless to include it in a deal. So either the review process is not as thorough and objective as it might be, or the market has changed anyway (the previous review was done in 2003), or (Ofcom's preferred explanation) functional separation has been a rip-roaring success in promoting competition.

So what about the other two consultations? Well, a handy safeguard for a regulator withdrawing regulation from a retail market is to keep a steady eye on the upstream market. In other words, a vertically-integrated firm like BT that sells both to end customers and to its competitors for those customers must not be allowed to hamstring those competitors with unfair practices when it sells to them. Hence the reviews of wholesale narrowband markets and of the charges that BT makes for those wholesale network services. In general, Ofcom sees increasing competition there also and proposes significant relaxation of the controls.

Brief summaries of what is proposed in the consultations below (usual devil-in-the-detail caveats apply):

Retail market review:

• BT no longer has Significant Market Power (SMP) in retail calls or lines
• Except ISDN, but who cares about that?
• So no more retail price caps
• And BT is free to bundle telephony with broadband, IPTV, or whatever.

Comment: This looks on the face of it like Ofcom straightforwardly delivering its side of the bargain. But Ofcom is a regulator, remember, so it's not quite that simple. In particular, Ofcom reminds us that the question of universal service remains separate from that of remedying the effects of market power. Which it is in principle, but in practice the existing retail controls were concentrated on the bottom 80% of the market and anyway the justification for universal service obligations is that the market (i.e. competition) is failing to deliver what the regulator wishes it would do for some portion of the population.

Wholesale market review:

• BT no longer has SMP in the transit and local-transit markets (which are now to be considered all one thing)
• But it does have SMP in call origination and termination and all CPs with access networks have bottleneck SMP in termination
• BT will no longer be required to offer Carrier Pre-Selection (CPS) or Wholesale Line Rental (WLR) in line with detailed and prescribed Functional Specifications. We think this could come as a bit of shock to some customers of those services!

Comment: The transit market is about carrying calls from one network to another. Local transit is where this involves a local exchange - one to which local lines are connected. This is the telephone network equivalent of motorways and major roads, where competition can most easily take root, because the traffic is already bulked up.

By contrast, collecting calls from and distributing them to local lines (call origination and termination) is less amenable to competition and, in practical terms, if you call me, your phone company will ultimately have no option but to pay my phone company to connect the call to me - a bottleneck, whether my phone company is large or small.

Of the various ways that have been devised for getting around the problem of getting competition into local networks, CPS and WLR are relatively cheap and easy for anyone wishing to offer a competing service to adopt. They involve using the incumbent operator's, in this case BT's, network to originate calls and provide line rental, respectively. CPS was only introduced in the UK in 2000 and did not really start to be a usable proposition for two or three years after that and WLR got going even more recently. However, Ofcom prefers LLU, because it drives competition deeper into the network, to borrow one of their favourite phrases. CPs have to invest more money and expertise to get it to work and they have more scope to make their service different and perhaps margin to compete on price. Since Ofcom find that CPS and WLR are mature services, they propose that detailed prescription is no longer warranted at the wholesale level.

Does this mean that the significant numbers of CPs still relying on CPS and WLR will find their business models obsolete overnight? We doubt it. For one thing BT has undertaken to provide equivalent products using its 21CN next generation network and Ofcom regards these new services (including Wholesale Voice Connect - WVC - which provides the equivalent of CPS and WLR, together with call termination) as being adequate replacements. It is also probably preferable for BT to keep its networks gainfully loaded with traffic, as CPS and WLR will tend to do and LLU will not. Perhaps most importantly, it might be regarded as a Litmus test of Openreach's independence that it should continue to meet demand from its customers without being obliged by the regulator to do so.

Network charge control (NCC) review:

• Price caps retained for call origination and termination, interconnect services (links, tie cables, work done and all that) and PPP (product management and planning), though the latter is RPI+0 to RPI+6.5, which is both pretty wide and a bit of victory for BT, on the face of it, since Ofcom and the OLOs have had a bit of a thing about this rather nebulous and overhead-ish category since whenever and Ofcom have had a new prod at it.
• No price caps on local-tandem and single transit (ST) - double + transit, involving several network hops, was already uncapped from last time around. So ST has gone from RPI-11.5 to nothing in one go, it seems - not exactly steady-hand-on-the-tiller stuff, some might argue.

Comment: This pretty much follows from the findings of the wholesale market review. However, a key linkage that remains to be made is with Ofcom's Mobile Sector Assessment (MSA), which will encompass potential changes to the charges made for terminating calls on mobile networks.

Mobile World Congress 2009

A few observations from meetings, exhibition and atmosphere at the 2009 Mobile World Congress in Barcelona.

 Main themes

Less hype, fewer people, less money, less WiMax, more of the same.

 Networks

-          Network spending in slowdown; mobile operators looking to get more from existing assets and less capex.

-          More agreement on that the roadmap from 3G through HSPA and its Revisions, then on to LTE (maybe initiall for hotspots, rather like initial 3G).  Much less talk of WiMax as an alternative to LTE in mature mobile markets.

-          Although the direction towards LTE has larger consensus, there is also agreement that capex limitations will push its implementation out further

-          Telstra in Australia making a big play of running 3G over 850MHz, so giving greater coverage, and upgrading rapidly through the gears of HSPA

-          Good explanation by Telstra of cost comparison between LTE and GPRS (LTE is approx 2% cost/bit of GPRS).  Also a possible new measure of base station efficiency:  kilograms per square metre per bit per second!

-          Telstra now claims SMS as less than 50% of data traffic

-          China Mobile pushing their TD-SCMA by trying to stress the importance of a roadmap of unpaired spectrum (on towards TD-LT(E))

-          Femtocells still something of a religion, led by faith rather than (yet by) reason

 Vendors

-          Blood on the carpet – a real sense of space and fewer people in the main exhibition hall for vendors

-          Chinese (Huawei, ZTE) even more of a presence than ever before.  This makes life awfully difficult for western-based vendors.  A quick Porter five-field analysis shows that the combination of intense industry (vendor) competition and strong customer (mobile operator) power puts great pressure on vendors’ volumes and commercial terms

-          Some vendors deciding to save cost and focus their activities via their pavilions, without taking up stand space in the halls (eg Cisco, HP)

 Devices and Operating Systems

-          All the consumer devices still in the shadow of the iPhone – which wasn’t even there.  Samsung (again) had a well set-out exhibition stand by theme (highdef multimedia, camera, music, comms)

-          Nokia starting to take a pop at BlackBerry (eg “BlackBerry tax” [the RIM relay]) to mask its own lagging in push email

-          Microsoft saying (again) it’s about to come good in mobile.  A slight irony that it is promoting itself as the platform of choice (slightly less ironic that a lot of appdev stands said “we’ve got our app working first on Windows Mobile, because that is easiest)

-          MS promoting Windows Mobile 6.5, partly in holding pattern till WM7

-          MS said that RIM’s and Apple’s vulnerability was the integrated nature of their hardware and software, and that the “open” Microsoft approach allowed more and more rapid innovation of device formfactor, price and features

-          MS claiming that Linux Mobile isn’t really “free”:  you incur costs for extra elements of the OS stack, eg photography, instant messaging.  These make it more expensive than paying the WM royalty (“which is less than the cost of the glass on the device”)

-          Market for devices is more sustainable at the moment at>$200 ex-factory cost.  This is growing a lot faster than cheaper featurephones

-          Qualcomm and Nokia have buried the hatchet on patent suits.

-          Hyundai entering the featurephone market??  They had a stand.  Maybe their satnav had broken down on the way to the Frankfurt Motor Show?

 Applications

-          Lots more booths with map-based applications (mainly GPS, rather than network-based)

-          More space (or maybe it seemed like that) with developers and providers of network optimising solutions and products, eg radioplanning, network management, sitebuild – ie reducing networks’ capex and opex

-          A sense that a lot of developers are at the same financial stage as last year

-          The nearest thing to hype at this year’s event was:  if you haven’t got an AppStore of your own, you’re in the wrong gang (at least for this year).

 Overall mood

-          Very quiet on the Monday.  More energy on the Tuesday, mainly in the developers’ halls

-          No sense of any major meaningful announcements

-          Could be some challenges next year for GSMA to persuade sponsors and booth-holders to stump up as much money

-          Very pleasant weather, so a relaxed atmosphere on the main outside areas

Broadband Speed - Disappointment Guaranteed?

An interesting post by Darren Waters, editor of the BBC News website's technology index. He has been monitoring his experience of broadband speeds on his Virgin Media "super highspeed" broadband service. For most applications the actual speed (ie how big the file is divided by how long it takes to arrive) is a lot lower than the headline speed of 50Mb/sec.

http://www.bbc.co.uk/blogs/technology/2009/02/speed_diary_day_five.html

The blog shows that the advertised headline speed is fairly irrelevant to the actual experience of an average customer, even when the provider can actually deliver such speeds reliably within the confines of their own network.

The limitations, especially in the newly designed cable broadband networks, are not at the access layer of the network (the wire from the local network node to the home). They are out in the internet world beyond.

It just goes to show that messages about headline speeds can only disappoint. Maybe it's time for Virgin Media to change their marketing, rather than fiddling further with their technology.

Digital Britain - interim report

Putting the Carter before the horse ?

Lord Carter’s interim report makes a good start at identifying action areas and key issues across the huge and varied arena of communications and broadcasting markets in the UK. But NetStrategics believes he has a long way to go before he can substantiate any real ways forward which will win general support – not to mention suitable funding ! There is more than a whiff of sanctimonious attitudes to digital inclusion and the UK content industry – the market should be encouraged to tackle these issues itself, and overall the report puts the cart of intellectual neatness before the horse of market complexity.

For a detailed critique of Carter's proposed 23 actions, please email me at huw.williams@netstrategics.co.uk