Heard about Viber yet? It’s an app for the iPhone and for Android smartphones, the neatest means yet for making virtually free phone calls and sending free text messages to anyone, anywhere, anytime. Oh, and did we mention that the voice quality is typically superior to that of the mobile phone networks? The only catch is that both parties need to install the software.
Well, not quite the only catch. If Viber and similar mobile phone applications from Skype and others are widely adopted – and we can’t imagine why they wouldn’t be – their use will significantly erode the revenues of the wireless telecom networks. This would bring into sharp focus an issue that neither the telecoms nor their regulators are eager to confront: Should the carriers be allowed to decide which applications can be used on their systems, and on what terms?
Viber is not a technological breakthrough. Dozens of companies offer ways to take advantage of the somewhat arbitrary distinction between voice and data communications built into the wireless carriers’ price plans. But Viber is the slickest, most seamless way to date to use so-called voice over Internet protocol technology on popular smartphones.
So what’s the problem here? Thanks to pricing structures going back to a time when the only wireless application that really mattered was voice communications, the voice “tail” still wags the data “dog.” Voice and text messaging use a small and rapidly diminishing share of wireless bandwidth, but generate much of the wireless telecoms’ revenues.
That is likely to force wireless telecoms to change the way they price services. They could switch to plans in which smartphone users were simply charged for their use of the networks, however they chose to use them. Indeed, since voice and text use so little network capacity compared to, say, video streaming, one could imagine plans that threw in unlimited voice minutes as a “free” bonus. Alternatively, they could maintain the voice-data distinction, charging fees for access to Viber-like voice applications – or simply bar access to services that competed directly with their own.
Now, from an economist’s perspective, there’s nothing wrong with charging according to use – especially since the FCC has muscled the big wireless carriers to provide advance notification when customers’ usage exceeds their plan limits. The second approach, controlling access to applications, is more problematic.
We all think it’s OK for a movie theatre to bar patrons from bringing their own popcorn. Isn’t that the same as a wireless carrier barring use of a competing service on its network?
Maybe. In a competitive market, wireless customers who don’t like the restrictions imposed by one telecom are able to shop for another more to their tastes. (Right now, for example, T-Mobile and a number of regional carriers are trawling for business by offering flat-fee unlimited data plans.) If there isn’t much competition, though, it’s the job of the antitrust agencies and the FCC to prevent the carriers from protecting their own services at the expense of competitors by assuring that Viber and its ilk can be used on the networks on reasonable terms.
We think the wireless carriers deserve the benefit of the doubt (at least in markets with several carriers), because there is evidence of robust competition specifically aimed at enticing the tens of millions of Americans who still use plain-vanilla cellphones to step up to broadband Internet access.
But everybody needs to remember there’s no free lunch here – that, one way or another, the telecoms need to cover the costs of subsidizing smartphones and expanding their wireless networks to meet the exploding demand for bandwidth. And that’s probably going to mean bigger bills (along with bigger benefits) for customers who dive into the astonishing world of high speed wireless.
(This post was also published on Forbes.com.)