Skype Asks FCC to Impose Carterfone Regs on Wireless

by on February 20, 2007 · 4 comments

It hasn’t even been a week since Tim Wu made such a splash with his “Wireless Net Neutrality” proposal and already a major corporation has run to the FCC asking for it to be implemented into law! (Tim, my old friend and occasional nemesis, you know how to get results!)

Today, Internet phone giant Skype filed a petition with the Federal Communications Commission “to confirm a consumer’s right to use Internet communications software and attach devices to wireless networks.” The 32-page filing repeats many of the arguments Tim Wu made in his paper about the supposed need for regulators to step in and impose Bell System-era device attachment rules to modern cell phone operators. Specifically, Skype wants the FCC “to create an industry-led mechanism to ensure the openness of wireless networks.” I’m not sure what that means but I am certain that entire forests will fall as the paperwork flies at the FCC in an attempt to interpret and implement these new regulations.

I disagree on so many levels with the Skype petition that I don’t know exactly where to begin, but luckily I don’t have to say much. I just need to point to the excellent critiques that my TLF colleagues and current and former PFF colleagues published last week in response to the Wu paper. Here’s a sampling:

There are many common themes in these essays. In a nutshell, I think the primary reason that we’re all so uncomfortable with the Wu proposal and Skype’s call for such regulations is that Carterfone-like rules and corresponding FCC interconnection/attachment mandates are completely inappropriate for competitive markets. Those rules were handed down in an era of government-protected monopoly for telecommunications. But there are no longer any protected monopolies in this marketplace.

Rules structured for an environment of government-sanctioned monopoly are unnecessary in an environment characterized by open markets, competition, property rights, and freedom of contract. For example, there are no such “device attachment” regulations for the automotive industry or even the computer software sector. In those and countless other capitalist industries, competition, market negotiations, contracts and the common law–not preemptive government regulation–are left to sort out these matters.

In an environment free of government restraints on entry and characterized by rivalry and innovation that was almost unimaginable in past decades, there is no need for Carterfone-like mandates. Carterfone rules were thought to be necessary in the era of black rotary-dial telephones only because competition was thought to be impossible. In today’s modern marketplace, constant technological change and the threat of new entry provides the most important safeguards against the threat of consumer abuse.

Skype seems to think consumers are suffering from great harm, however, because there are some limits imposed on the use of the (heavily subsidized) cell phones that subscribers are given. For example, many cell phones are “locked” by carriers to ensure they are only used with their service. People aren’t exactly rioting in the streets to have their phones unlocked, but I can see how some people might want them unlocked at some point. Well, if your’re one of those people, then go get one! As my PFF colleague Scott Wallsten points out, Amazon.com has a page explaining how to use unlocked GSM phones and apparently offers 163 different phones for this purpose. (You can always pay a premium to unlock most phones, so I can believe that number). Also, just for kicks, type the phrase “unlocking your cell phone” into Google. When you get done reading through those 1.4 million webpages explaining how to do so, get back to me and let me know what the problem is here again.

Regardless, even if some phones are locked, I’m not sure why we need FCC bureaucrats imposing rules mandating that all phones work exactly the same way in light of the fact that consumers have options. What’s wrong with a mix of open and closed systems? Isn’t experimentation with different business models a good thing? Moreover, because many (most?) cell phones are heavily subsidized, consumers typically burn through their phones fairly quickly and upgrade to hip new models to make sure they’re not seen carrying yesterday’s clunker of phone around.

OK, but what about other attachments? Shouldn’t we as consumers have the unfettered right to access anything we want with our cell phones? We’re slowly getting to that point through market competition anyway, but I don’t see anything wrong with mobile operators striking exclusive partnerships with certain vendors or media providers for certain types of services. As service speeds continue to increase, service options will multiply and we’ll gain access to more and more stuff. I already get more sites and services through Verizon’s “EV-DO” service than I know what to do with. I have an LG “Chocolate” phone and can use it to access a huge amount of material from a wide variety of providers. So, again, I just don’t see the problem here.

And, by the way, there are some benefits to having a semi-walled garden approach. Right now, for example, I don’t get any spam on my mobile devices. That’s partially a function of a semi-walled garden approach to websurfing and device attachment. Moreover, many parents will shudder at the idea of everything on the Web being perfectly accessible from Junior’s phone in the name of cell phone “openness.” A semi-walled garden can make it easier for parents to limit a child’s access to objectionable materials. (Of course, many savvy kids will evade those walled gardens and find a way onto the Internet anyway!)

I’ll just conclude with a snippet from the Skype filing that I found particularly interesting. On page 6 of the filing, the company notes that “Skype recognizes that software applications such as Skype are part of an interdependent ecosystem of wireless carriers, mobile operating system developers and device manufacturers. These relationships are fast-moving and multi-dimensional.” I think that nicely captures just how dynamic this marketplace is today. But if this “interdependent ecosystem” is encumbered with meddlesome federal regulations, then I think we’ve seen the end of the “fast-moving and multi-dimensional” nature of this sector.

  • http://bennett.com/blog Richard Bennett

    The lunacy of the neutrinos never ceases to amaze me.

  • http://bennett.com/blog Richard Bennett

    The lunacy of the neutrinos never ceases to amaze me.

  • http://www.galets.net galets

    just wanted to share some of my own experiences with you… As it’s often happening is our politicized society, when someone is talking about making the game fair to consumers, it might just mean the opposite. When I hear about consumer protection acts, I actually think: here comes some more legal base to protect big company FROM consumer claims.

    but enough observations, just facts: I recently received a message from Skype, which read: “our free calling services to USA and Canada has ended, if you want to call USA and Canada for free, subscribe to a yearly plan”. I thought: this is pretty neat! Plan seems to be fairly cheap and I have a wife in Moscow, Russia. Why not get an unlimited calling plan so that she can be calling me on the cellphone whenever she wants? So, I went to the Skype website and read terms. I felt a little uncomfortable when I noticed that offer is only valid in USA and Canada, but I thought: okay, she might not physically be here, but I am. So as long as I sponsor her purchase, we’re fine. In the end, how will they determine where one comes from – by ip address? No way in hell this is going to happen.

    guess what – it DID happen. I started noticing that regardless the unlimited calling plan on account, all of her calls were charged per minute anyway. I contacted the customer service to have charges rolled back and received an answer: “you’re calling from a foreign IP address, we are not providing this service to outside IPs”. This was not mistake – they were dead serious – you can call USA phone for free, but only if your IP is based in USA

    Why would that be a case? Skype doesn’t incur any additional costs by connecting call coming from an IP in Russia, nor any other one for the same argument. We’re not in China. Skype has no pressure from government to limit the freedom of communications. There is no geography in the internet – it’s supposed to be one big network where any node freely accesses any other node free of additional cost. So, why is the convenient calling plan being blocked from non-USA ip addresses? The only reasonable explanation is because Skype doesn’t want to allow people use discounted rates when they can charge them full price. When it means revenue, it’s ok to bend concepts to your own advantage.

    Now you should see why I take the struggle of “fair” Skype with “wrong” providers with a grain of salt. Skype is as wrong as they are. It just uses our support to bet a bigger piece of pie and once a piece of pie is received it would exploit consumers with the same unfairness as every other big corporation does

  • http://www.galets.net galets

    just wanted to share some of my own experiences with you… As it’s often happening is our politicized society, when someone is talking about making the game fair to consumers, it might just mean the opposite. When I hear about consumer protection acts, I actually think: here comes some more legal base to protect big company FROM consumer claims.

    but enough observations, just facts: I recently received a message from Skype, which read: “our free calling services to USA and Canada has ended, if you want to call USA and Canada for free, subscribe to a yearly plan”. I thought: this is pretty neat! Plan seems to be fairly cheap and I have a wife in Moscow, Russia. Why not get an unlimited calling plan so that she can be calling me on the cellphone whenever she wants? So, I went to the Skype website and read terms. I felt a little uncomfortable when I noticed that offer is only valid in USA and Canada, but I thought: okay, she might not physically be here, but I am. So as long as I sponsor her purchase, we’re fine. In the end, how will they determine where one comes from – by ip address? No way in hell this is going to happen.

    guess what – it DID happen. I started noticing that regardless the unlimited calling plan on account, all of her calls were charged per minute anyway. I contacted the customer service to have charges rolled back and received an answer: “you’re calling from a foreign IP address, we are not providing this service to outside IPs”. This was not mistake – they were dead serious – you can call USA phone for free, but only if your IP is based in USA

    Why would that be a case? Skype doesn’t incur any additional costs by connecting call coming from an IP in Russia, nor any other one for the same argument. We’re not in China. Skype has no pressure from government to limit the freedom of communications. There is no geography in the internet – it’s supposed to be one big network where any node freely accesses any other node free of additional cost. So, why is the convenient calling plan being blocked from non-USA ip addresses? The only reasonable explanation is because Skype doesn’t want to allow people use discounted rates when they can charge them full price. When it means revenue, it’s ok to bend concepts to your own advantage.

    Now you should see why I take the struggle of “fair” Skype with “wrong” providers with a grain of salt. Skype is as wrong as they are. It just uses our support to bet a bigger piece of pie and once a piece of pie is received it would exploit consumers with the same unfairness as every other big corporation does

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