Talk is Cheap…And Getting Cheaper

-- By DonnaAckermann - 05 Nov 2009

Please find a revised version below.

Background

Over the past decades, after the local and long-distance phone service industries collapsed, AT&T and Verizon transitioned to cellular phones to find a new market. And now, the cell phone industry itself faces collapse because of voice-over-IP (VoIP) competition and emerging technology. To understand why the cell phone companies face extinction, it is important first to understand how a cell phone call works, how VoIP technology differs, and the role of the electromagnetic spectrum.

A cell phone call represents a service provided over a proprietary network, whereas VoIP conversations utilize public internet bandwidth. The cell phone uses radio waves, a portion of the electromagnetic spectrum. The spectrum is considered to be the property of all humankind; yet the government regulates it to prevent signals from interfering with each other by being simultaneously broadcast on the same frequency. The government therefore designates some portion of the spectrum as a station, and whoever wants to use that station needs a government license.

Despite current practices, there is no longer any technical need for the government to divide the spectrum on our behalf because cell phones are sophisticated enough to avoid interference on their own (“cognitive radio”). The government does not regulate VoIP technology because VoIP functions through the internet, a part of the electromagnetic spectrum that requires no usage license, since it was originally assumed that internet would use an insignificant amount of power and therefore would not require regulation.

What VoIP Can Do For You

It is technically possible just by using public bandwidth to route cell phone calls over the internet, instead of relying on spectrum that is licensed to the cell phone companies. Mesh routing, using cooperative routing to allow a large number of people to have services connected through a small number of ports, uses unregulated portions of the public electromagnetic spectrum. Once a wireless mesh network is created as individuals and businesses join it and expand it, VoIP technology will make cell phone companies unnecessary.

For example, Asterisk is a free software VoIP switch, which can do everything that a private branch exchange (PBX) can do, but it does it all for free over the internet. Asterisk’s open source software allows users to talk through computers and telephone landlines. OpenBTS is a free software and hardware package that allows Asterisk to work with cell phone handsets by turning any computer into a cell phone base station. Thus, Asterisk and OpenBTS make cell phone companies superfluous, as those companies only provide access to licensed spectrum, which is now unnecessary because bandwidth is available for free through the internet.

A potential obstacle to the elimination of cell phone companies is the patent war that is ongoing between Microsoft and free and open-source software (FOSS). Microsoft has accused FOSS of infringing 235 of its patents and is seeking royalties. The GNU GPL (General Public License) forbids a company from making patent royalty deals with Linux distributors. Under a loophole (which has since been closed), Microsoft and Novell (a distributor of Linux) entered a pact not to sue each other’s customers for patent infringement. Because the loophole has been closed, this model to collect patent royalties from free-software distributors has failed, leading us closer to the impending “patent Armageddon.” The Supreme Court has not ever directly addressed whether software is patentable or not, and so, in the meantime, the patent issues may prevent FOSS from gaining industry dominance. For a discussion and history of the Microsoft/FOSS patent issues, see Roger Parloff, Microsoft takes on the free world, Fortune, May 14, 2007, http://money.cnn.com/magazines/fortune/fortune_archive/2007/05/28/100033867/index.htm; see also Ina Fried, Report: Microsoft says open source violates 235 patents, ZDNet News, May 14, 2007, http://news.zdnet.com/2100-3513_22-152099.html.

Cell Phone Industry Fights VoIP...

Another example of VoIP technology, which is less sophisticated than Asterisk and is proprietary, is Skype, founded in 2003 in Luxembourg by two developers, which allows calls to be placed from one computer to another, for free. In the third quarter of 2009, Skype users made 27.7 billion minutes of Skype-to-Skype calls. http://about.skype.com/. Skype also allows a person to use a computer to “skype-out” to a landline or cell phone; in the third quarter of 2009, this service accounted for 3.1 billion minutes of calls to landlines and mobiles. Id. The cell phone companies’ initial refusal to allow Skype and other VoIP technology on their networks sparked a controversy, both in the United States and abroad. Europe recently asserted its opposition to the cell phone industry’s restriction on the use of VoIP technology on mobile phones and threatened to apply new roaming regulation or antitrust rules to support its position. See EU battles industry plans to restrict Skype on mobile phones, EurActiv.com, July 16, 2009, http://www.euractiv.com/en/infosociety/eu-battles-industry-plans-restrict-skype-mobile-phones/article-184142; see also EU slashes ‘roaming’ cell phone costs, CNN.com, July 1, 2009, http://edition.cnn.com/2009/BUSINESS/07/01/eu.roaming.cellphones/index.html.

By comparison, the US Federal Communications Commission (FCC) is sending mixed signals with respect to the use of VoIP technology on cell phones. In March 2008, the FCC held an auction to sell the recently-freed 700 MHz spectrum; AT&T and Verizon were considered the big winners because they each bought a lot of spectrum. Chris Ziegler, FCC releases 700 MHz auction details, engadget.com, Mar. 20, 2008, http://www.engadget.com/2008/03/20/fcc-releases-700mhz-auction-details-verizon-atandt-big-winners/. The 700 MHz spectrum is considered particularly valuable because of its ability to penetrate buildings and cover all fifty states, including rural areas. Joshua Topolsky, Open Access: everything you wanted to know but were afraid to ask, engadget.com, Feb. 5, 2008, http://www.engadget.com/2008/02/05/open-access-everything-you-wanted-to-know-but-were-afraid-to-as/. One of the conditions of this auction was that the frequency be open access, perhaps indicating the FCC’s desire to allow VoIP technology on cell phones. Id. While the ACLU and others earlier pushed for open access to mean open devices (where a device is not locked to a specific carrier), open applications (meaning applications are not limited to a specific carrier), open services (allowing consumers to do as they please with their data), and open networks (which would allow part of the spectrum to be licensed by small start up providers), the FCC only required open devices and open applications. Id. So while the FCC can publicly claim to be supporting open access, which would allow VoIP technology to flourish on cell phones, in reality its support for open access is lukewarm at best.

In April 2008, the FCC further demonstrated its reluctance to allow VoIP technology on cell phones when it turned down Skype’s open access petition, which would have given Skype federal protection to run through cell phone carriers. Nancy Gohring, FCC to Turn Down Skype’s Mobile Open Access Plea, pcworld.com, April 1, 2008, http://www.pcworld.com/article/144025/fcc_to_turn_down_skypes_mobile_open_access_plea.html (hereinafter Gohring); Paul Miller, FCC Turns Down Skype’s Open Access Petition, engadget.com, April 2, 2008, http://www.engadget.com/2008/04/02/fcc-turns-down-skypes-open-access-petition/. The FCC claimed to turn down Skype’s petition because the Commission has enough rules requiring open access, including the requirement that the 700 MHz frequency be kept open access. Gohring. But if the FCC were really in favor of open access, why restrict Skype? The United States may be less willing to fight for VoIP technology on cell phones and open access in general because the government profits from keeping cell phone companies in business; cell phone companies pay the government when spectrum is originally licensed and then pay a second time when taxes are levied on those consumers using telecommunications services.

Unfortunately, what may drive the U.S. government even more are the political campaign contributions candidates receive from the telecommunication PACs. AT&T is the largest contributor to candidates, contributing over $44 million since 1990; Verizon has contributed $18 million. Center for Responsive Politics, OpenSecrets.org: Chart of AT&T's contribution history; Top All-Time Donors, 1989-2010. Indeed, the telecom PACs specifically contributed $9.4 million dollars to members of Congress to fight net neutrality becoming the law. Bill Allison, Fighting net neutrality, telecom companies, outside lobbyists, cluster contributions to members of Congress, Sunlight Foundation Reporting Group, Oct. 22, 2009, http://reporting.sunlightfoundation.com/2009/10/22/fighting-net-neutrality-telecom-companies-outside-lobbyists-cluster-contributions-to-members-of-congress/. “Net neutrality is the policy of preventing broadband service providers from blocking certain traffic or establishing tiered pathways for Internet content.” CQPolitics, Sept. 29, 2009, http://www.cqpolitics.com/wmspage.cfm?docID=cqmidday-000003212381. In application, if net neutrality became the law, wireless carriers could not block VoIP services, such as Skype, on a specific device (such as Apple’s iPhone). Id. With so many millions at stake, it is understandable (although not defensible) why the U.S. government has not actively encouraged the spread of VoIP technology. And many fear this type of money-based politics will only worsen in the wake of the recent Supreme Court decision, Citizens United v. Federal Election Commission. See, e.g., Deborah Tedford, Supreme Court Rips Up Campaign Finance Laws, NPR, Jan. 21, 2010, http://www.npr.org/templates/story/story.php?storyId=122805666.

...And the Industry Loses

In the end, VoIP and free communications endanger the cell phone companies’ survival, but the cell phone companies cannot stop the development or spread of technology, and so the cell phone oligopolists will die. Recently, after significant resistance, AT&T enabled VoIP technology on the iPhone over its 3G wireless network, as it had already allowed VoIP technology on its other wireless devices. Cleve Nettles, Apple, AT&T, the FCC, Google and Skype remark on AT&T opening VoIP over 3G, 9to5mac.com, Oct. 6, 2009, http://www.9to5mac.com/apple-skype-vonage. This move, which AT&T had to do to appease its customers, is a hopeful sign of the beginning of the end for the cell phone industry. With the technology in place, only time will tell how long it is until the regulatory and political framework changes so that a cell phone call is just another free commodity. No one can accurately predict the timetable, but I will not be surprised if free cell phone calls are the norm within the next decade.

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Check out this recent NYT article that discusses the Line2 App on the iPhone which can receive phone calls over Wi-Fi. The article's ending is particularly relevant to my paper's discussion: "Cell carriers go through life hoping nobody notices the cellephant in the room: that once everybody starts making free calls over the Internet, it’s Game Over for the dollars-for-minutes model." David Pogue, IPhone App to Sidestep AT&T, nytimes.com, March 24, 2010, http://www.nytimes.com/2010/03/25/technology/personaltech/25pogue.html.