Monday, May 24, 2004

Will Telephony go to Zero (dollars)?

A reader of this blog anonymously posted a comment to one of my earlier posts, How Cheap Can It Get?, asking if the price to make a phone call might one day drop to zero. The answer is YES and that day is already here.

How can you make a free phone call? Download Skype, go to a coffeeshop with free Wi-Fi access, and dial anyone else who has a Skype phone.

While we are still a few years away from ubiquitous free calling (and free Internet access for that matter) this day is likely to come sooner than later

Jeff Jarvis has a report on an article by Eli Noam, a Columbia professor, in which he argues that:
the entire information sector - from music to newspapers to telecoms to internet to semiconductors and anything in-between - has become subject to a gigantic market failure in slow motion. A market failure exists when market prices cannot reach a self-sustaining equilibrium. The market failure of the entire information sector is one of the fundamental trends of our time, with far-reaching long-term effects, and it is happening right in front of our eyes.

Eli seems to take this as a negative, while I tend to think in terms of Joseph Schumpeter's concept of Creative Destruction -- the deconstruction of these industries is enabling an entirely new generation of technologies an industries to evolve.

In the future we will pay for certain aspects of connectivity -- reliability, security, and performance. Like drinking water, in the western world basic access will be ubiquitous (it may just taste funny) and you will pay for the higher quality bottled stuff. Telephony will become just "...a voice application, completely indistinguishable from any other kind of application that can run on an IP network..." (Michael Powell, Chairman of the FCC)

1 comment:

JC said...

I agree that the trend to "almost-free" telephony has started and can only accelerate from now on. In it's mature state I envision the telephony business as something very similar to e-mail: the basic service (making a call + limited voice-mail) is free and available from a myriad of players (ISPs and ASP). Advanced features (unified messaging, conferencing, etc.) are available for a fixed monthly premium.

However I completely disagree that it is the result of a market failure, on the contrary. For decades telephony has been driven by monopolistic forces that have maintained high barriers to entry and prevented the free market to play its optimisation role. Now that deregulation is taking place and commodity telephony solutions become available, competition is kicking-in and bringing massive improvements in cost and functionalities to this industry. Yes the total revenue of the telecommunications business is going to shrink dramatically but it is to the benefit of the end-users and to the benefit of smart, lean and mean companies that can deliver an "almost-free" telephony service profitably.

JC Francois