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.)

Google’s Android – the newcomer in the Darwinian market for mobile operating systems just two years ago – has leapt past both RIM’s Blackberry OS and Apple’s iPhone OS to take the lead as the most-used platform for smartphones in the United States.

That’s a stunning commentary on the ferocity of competition in the wireless space; it also offers a cautionary tale about the risks of regulating in the hopes of leveling the proverbial playing field in markets for digital technology. As Bob Hahn and Hal Singer put it in Why the iPhone Won’t Last Forever: “New technologies often seemingly emerge from nowhere, but also frequently lose their luster quickly.”

This, alas, is a lesson easily forgotten. Washington is now abuzz with proposals for regulatory interventions designed to give some companies a leg up in various niches of the wireless market at the expense of rivals. No doubt, the FCC’s upcoming report on competition in wireless will provide fodder for such pleadings, even though the ascent of Android (and similar tales from the annals of Silicon Valley) ought to remind us that today’s 90-pound-weaklings may be kicking sand in the faces of digital bullies in the time it takes to download the Godfather trilogy from Amazon. And that churn is typically traceable to the ingenuity and nimbleness of upstarts in an open marketplace — not the inclination of regulators to call balls and strikes.

The most benign explanation for the regulatory amnesia is that big innovations can radically change the business pecking order, inevitably undermining somebody’s idea of equity and fostering new demands to put things right (or at least back where they were).

Some wireless companies are already seeking rules that would allow them to avoid big capital outlays to build networks in rural areas, while others want regulators to deny their competitors access to more spectrum for expanding broadband capacity.  The FCC’s next wireless competition report may hint at whether and how the Commission wants to play ump.  If you ask us (please…), this would be a good time for the FCC to show some humility as the current pro-competition, pro-investment, pro-innovation trend plays out.

Some consumers have long complained about Apple’s practice of locking iPhones so that they could only work on AT&T’s network, and Apple’s practice of deciding what applications could and could not be installed on the phone. They argue that the arrangement minimizes competition and limits their choices. But, as Bob Hahn and Hal Singer documented in a study published last fall [Download Here], the exclusivity agreement has likely spurred others to accelerate their own innovations and provided consumers with a wide range of smartphone alternatives, some of which are arguably superior to the iPhone.

If we’ve learned anything from the technology marketplace of recent years–change happens overnight and apparent dominance ends fast. Or, perhaps you’ve forgotten that AOL once seemed to have an iron grip on Internet access, Microsoft was the favorite target of antitrust zealots, Google was once just a mathematical expression, and Apple was a struggling afterthought in a computer market dominated by the Wintel partnership.

As Hahn and Singer wrote in September 2009: “Although casual observers have often claimed that a particular innovation was here to stay, they commonly are proven wrong by unforeseen developments in this fast-changing marketplace. We argue that exclusive agreements can play an important role in helping to ensure that another must-have device will soon come along that will supplant the iPhone, and generate large benefits for consumers.”

And, from personal experience in the U.K. where the iPhone is sold by multiple carriers, we can tell you that having a choice in carriers does not deliver iPhone nirvana. There is something of an iPhone price war that makes the phone more affordable, but the user experience once you own the phone is not all that rosy. Reception is quite spotty in the countryside when traveling on trains, and dropped calls from London to Manchester are the rule rather than the exception. And that’s with a provider that’s reputed to have a very good network.

Still, our personal experience is not the key issue. What counts for decision makers is the relative benefits and costs of exclusive agreements. The primary benefits of banning an exclusive iPhone-type agreement would be greater price and non-price competition in the mobile device market. But competition in this market is already intense. From BlackBerry to Droid, new smartphones are coming out all the time. Even Google has produced its own branded phone. Are consumers better off with identical iPhones from every carrier or from a wide variety of smartphone models competing to distinguish themselves with an expanding array of capabilities, applications and designs?

Barring exclusive agreements carries significant costs. Carriers would have weaker incentives to aggressively promote new devices and ensure network quality. They would also have fewer incentives to innovate, such as developing new and better networks, like the “4G” networks that are coming online now to handle exploding data demands by consumers and businesses.

The real question for policymakers and the courts is the underlying structure of the market and whether a dominant player forecloses competitive choice or new entrants. In the smart phone market, it is hardly the case that the iPhone is dominant. Apple is a major player, but Research in Motion (BlackBerry) and Nokia outsell it. A long view of this market shows that competitors have risen and fallen over time–exactly what one would expect in a market that is changing rapidly. And the available choices are enough to make your head spin.

The mobile device marketplace in the U.S. is remarkably robust. That dynamism makes it easy for regulators to pick the right economic policy: namely, a light-touch regulatory approach that allows device makers and networks to innovate. Consumers will be better off if the courts appreciate the fundamental economics of the market and follow regulators’ lead. If they want continued innovation and expanding choices, this class action against Apple and AT&T is one that consumers should pray that they lose.

(This blog post was published earlier on Forbes.com.)