Legacy Regulation Killed Google Voice

Reacting to Apple’s decision to not allow Google Voice for the iPhone, Wall Street Journal guest columnist Andy Kessler complains,

It wouldn’t be so bad if we were just overpaying for our mobile plans. Americans are used to that—see mail, milk and medicine. But it’s inexcusable that new, feature-rich and productive applications like Google Voice are being held back, just to prop up AT&T while we wait for it to transition away from its legacy of voice communications. How many productive apps beyond Google Voice are waiting in the wings?

So Kessler proposes a “national data plan.”

Before we get to that, Kessler complains that margins in AT&T’s cellphone unit are an “embarrassingly” high 25%.  He doesn’t point out that AT&T’s combined profit margin — taking into account all products and services — is only 9.66%.

AT&T is actually earning less now than it was legally entitled to earn when fully regulated — 9.66% versus 11.75%.

Don’t fall for the myth that AT&T killed Google Voice.

The truth is regulators are quietly expropriating wireless profits to hold prices for regulated services like plain old telephone service artificially low.

This has always been how the game is played.  Regulation has kept prices for basic phone service at or near the bare cost providers incur to offer the service, forcing providers to chase profits elsewhere.

In a normal business, an unprofitable product or service would disappear.  But telecom providers are still required by law to provide plain old telephone service to anyone who requests it.  It’s called the “carrier of last resort” obligation.  Believe it or not, providers are still required to provide copper-based, circuit switched phone service in many places, even though they could cut costs by deploying fixed wireless and VoIP to deliver basic phone service.

This service obligation imposes a tax on those of us who have cancelled our landline service in favor of our cellphones in the form of artificially high prices for wireless service.

Kessler offers one solution, but before we get to that, I’ve got a simpler one.

The solution is to give providers full freedom to set prices and choose their own technology.  Yes, I mean freedom to raise prices for basic phone service so cellphones don’t have to subsidize it, because cellphone providers who are affiliated with landline units could afford to lower their prices.

Don’t lose me here: Cellphone providers would lower their prices, because every time prices fall subscribers consume more minutes of use.

Kessler favors a more convoluted plan, which I will admit is more practical politically than my own:

• End phone exclusivity. Any device should work on any network. Data flows freely.

This is stupid.  There may be instances where exclusivity promotes innovation, and others where it might not.

For example, a wireless provider might be willing to negotiate its customary profit margin, compromise the level of control it normally exercises over product design, promise to make special efforts to promote the product and provide technical support, and even make fresh investments in its network or back office systems to fully exploit the product’s innovative features.

A bright line rule would kill both good and bad exclusivity.

• Transition away from “owning” airwaves. As we’ve seen with license-free bandwidth via Wi-Fi networking, we can share the airwaves without interfering with each other.

As Kessler notes, Verizon Wireless, T-Mobile and others all joined AT&T in bidding huge amounts for wireless spectrum in FCC auctions, some $70-plus billion since the mid-1990s.  The fact is, our rulers in Washington, D.C., fifty state capitals and thousands of city halls view wireless as a giant taxing opportunity.

Wireless providers are recovering the $70-plus billion they deposited into the U.S. Treasury right now from each and every one of us in the form of artificially high prices for cellphone service.

Let unlicensed devices operate in the “white spaces,” then refund the $70-plus billion so new and existing carriers can compete on quality of service rather than on artificial cost disparities.

• End municipal exclusivity deals for cable companies … A little competition for cable will help the transition to paying for shows instead of overpaying for little-watched networks. Competition brings de facto network neutrality and open access (if you don’t like one service blocking apps, use another), thus one less set of artificial rules to be gamed.

Congress invalidated exclusive cable franchises in 1984, and most states have recently streamlined the video franchising process so new entrants can obtain statewide franchises instead of negotiating individually with thousands of local franchising authorities.

Kessler’s certainly accurate that competition between telephone and cable providers brings de facto network neutrality and open access.  We have that competition already.  In 2008, competition has pushed down the rates for bundles of Internet, phone and TV service by up to 20 percent, to as low as $80 per month, according to Consumer Reports.

• Encourage faster and faster data connections to our homes and phones. It should more than double every two years.

One way to encourage it is to make it clear up front that investors will be allowed to earn a profit — that’s unclear now due to the possibility of extensive new regulation which would lead to bureaucratic control of broadband networks and bandwidth rationing.

The other way to encourage it is to subsidize it to make up for the harmful effects of taxes and regulation.

If we accept the idea there are too many vested interests to permit meaningful reform of legacy telephone regulation, then we are forced to look for ways to treat the various symptoms.

But the advent of wireless and VoIP technology mean that legacy phone service is unsustainable and will die unless politicians are going to treat it like GM because it provides employment for thousands of unionized workers.

There is still time for the politicians to simply let go of it and let it adapt.

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