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Free lunch in a digital age?

8 October 2012
black and white photo of IET president Dr Mike Short for his online blog

For years we've been talking about how the Internet would make the phone service free. IET past president Dr Mike Short asks if it’s worth a free lunch to discuss good coverage as well as higher speed broadband access?

From about 1870 to 1920, the phrase ‘free lunch’ in American literature, refers to a tradition once common in saloons in many places in the United States. These establishments included a ‘free lunch’, varying from the rudimentary to the quite elaborate, with the purchase of at least one drink. These free lunches were often used as enticement for further ‘paid for’ drinking - an early example of pre-temperance era cross subsidy.

Broadband is not yet a free or subsidised universal service. Long have public networks had licensed conditions, whether they are telephony, mobile or cable TV including provisions for coverage, access, inclusion and in many cases quality or price regulation.

But new business models are emerging. Take public Wi-Fi and Google Fiber for example. If public Wi-Fi or Google Fiber are free who pays for the ‘free lunch’?

Wi-Fi hotspots

Wi-Fi hotspots have in some cases been subsidised by city councils, hotels or now coffee shops; almost all in unlicensed spectrum and with high-speed (best efforts) shared access. In order to pay for the free lunch the site owners want a return whether better inward investment, more hotel guests or visitors, or data for promotions and offers. These models have all flourished well in an unlicensed way in the UK such that there are now more public hotspots per head than anywhere else in the world.

This low-cost approach has been market led and provided many Broadband benefits. The absence of regulation has led to fast deployment, many new services and the trialling of various business models.

‘Fiberhoods’

The new Google Fiber network in Kansas City will offer speeds of up to 1gigabit per second for $70 per month ($120 if you want to add a cable service).This exceeds the US national broadband average of 5.8mbps; or pay $25 a month for one year for installation of a 5mbps Internet connection that would carry no other cost for seven years?

The Wall Street Journal recently reported that “the move was designed to accelerate the deployment of faster networks and show off the sort of services that high-speed connections can enable.”

More than a demonstrator perhaps as Google offers services effectively through a cross-subsidy. By contrast, for decades the US federal government and network providers have engaged in an elaborate plan to subsidise high-cost areas and populations. Now Google is giving away basic Internet access for free. Any resident located in one of Google's ‘Fiberhood’ footprints can subscribe to free Internet service at speeds of up to 5mbps, i.e. about the national average.

Neighbourhoods or ‘Fiberhoods’ need to sign up enough potential customers to qualify for Google’s service before a 9 September deadline. But many neighbourhoods — often the least prosperous pockets of the City area — remain far behind the pace needed to hit their Google-established investment thresholds of customer penetration. This may mean that many of the free connections Google agreed to make to public buildings, library branches and community centres won’t happen.

Coverage

There are limits to this approach. Unlike cable and telephone companies which must provide service in all areas of a city, Google will provide service only in areas where advance registrations assure the economic viability of providing the service. Imagine the outrage if European cable companies and public telcos would face if they engaged overtly in a ‘pick’n’mix’ deployment.

The Kansas City Star reports: “Google insists it’s too early to write off any of what it calls ‘Fiberhoods.” For example, it has begun to fix problems that have complicated apartment dwellers' efforts to sign up for its service. More significantly, the company points out that it has every incentive to round up as many customers as possible.

Google Fiber subscribers who sign up for cable service will receive an Android-powered tablet as the TV remote control. This will allow Web-based interaction with the TV. Now Google services, running on Google hardware, powered by Google’s OS, has moved market power away from the network. Here is an Internet player that has just integrated backwards to control the last part of what it doesn’t already own – the network itself.

Policy and regulation

These examples have brought into question old ideas about communications networks – and communications regulation.

Wi-Fi hotspots or Google Fiber may not offer a telephone service. Why should they? Traditional telephone services are a legacy of the 1800s. They view a voice call as just another Internet application or service, no different from Angry Birds or social networks. Consumers subscribing to Google Fiber will be able to make phone calls, but those connections will be more like Skype than a traditional telephone call from a Bell company. Customer care is most likely to be online than through retail stores. Ecommerce and online advertising are both expected to pay their way.

Not all cable channels (e.g. HBO or Disney or ESPN) have chosen to offer transmission rights to Google. Google Fiber subscribers may not be able to get some channels, but the Internet is full of other movies and entertainment that the fibre can stream quickly. Google Fiber could mean that what today is called ‘over the top’ content comes from non network-controlled sources. Google’s own video service, YouTube, has already got a package of specially-produced programs.

Other regulatory assumptions are also being challenged. For over a century public policy has been based on assuring that network providers do not abuse their strong position against users. This assumption that the network provider holds the economic upper hand seems to go out the window in Kansas City. For the first time the economic strength of a (major) user is sufficient to allow it to build its own network.

Public policy used to worry about a network owner cross-subsidising to control content. Now all of a sudden, a content company can cross-subsidise into the network business. Want to guess the default search engine for Google Fiber? A need to debate net neutrality AND service neutrality together in a converged world?

Trade-off

For years we've been talking about how the Internet would make the phone service free – Wi-Fi and Google Fiber just made the Internet free! And now coverage gaps?

However, the trade-offs between business models that offer different coverage, service and cost profiles are tricky ones, for competition, investment and regulation. Is it worth a free lunch to discuss good coverage as well as higher speed broadband access?

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