Thursday, November 18, 2004

The Empire Strikes Back

If incumbent VoIP products are "The Attack of the Clones," then how about this for "The Empire Strikes Back"? Om Malik's painfully insightful post on SBC's VoIP end-around got me thinking, particularly the bit about using Cisco's packet-inspection technology (acquired via the P-Cube deal) to degrade the user experience of access-independent VoIP service providers in favor of its own product. Later in the day one of my favorite clients called to generally shoot the breeze about the sector, and inadvertently filled in a piece in the puzzle.

He was keen to to discuss Vodafone's data-pricing strategy for 3G (basically, download from our portal and the packets are free, go to a third party and you will pay for them), and its implications for the market more generally. We then started talking about the idea of discriminatory pricing for content based on source (i.e., whether it's telco-friendly or not), and he highlighted the case of Portugal Telecom, which (unbeknownst to me) apparently already distinguishes between content downloaded from servers in Portugal and abroad. Then I recalled a paper by Andrew Odlyzko which dealt with discriminatory pricing (Andrew himself subsequently pointed me to a more recent paper which might is even more relevant), and mentioned Om's observations to the client, who immediately responded, "This makes sense to me now."

I asked what he meant, and he related a presentation from a Cisco representative that he saw at a much larger and better-resourced competitor's conference. In it, the Cisco man apparently remarked that he thought European mobile data pricing schemes were a good template for the industry as a whole. Surprised that no one in the audience followed up on this point, my client cornered the Cisco man afterward and asked, "Can I just clarify, do you mean that in the fixed broadband world operators should start charging for data on the basis of what it is and where it comes from?" The Cisco man said yes.

Then it clicked, for both of us - deep packet inspection is not only a tool for managing bandwidth in a sea of P2P traffic, nor is it merely a blunt instrument for dealing with cheeky upstarts like Vonage and Telio, it is in fact the key to your future billing system. Picture this "customer care" letter from the not-too-distant future.

Dear esteemed customer,

You've probably noticed that we've made some changes to your account. First of all, we've doubled your access speed for the same low monthly price (lucky you). However, due to the irresponsible behavior of a few, we have had to make some changes to the way we bill for the data you use.

Firstly, feel free to keep using our TurboVox VoIP product, safe in the knowledge that you will only ever pay the $15 monthly fee for unlimited national calls to fixed lines, and the same fabulously low prices for fixed to mobile calls. However, should you decide to use the access-independent voice services offered by one of our worthy competitors, we will monitor the dataflow associated with these calls and convert the total number of packets to minute equivalents at the end of each month. Please consult the easy-to-use packet/minute conversion table on the next page for more information. Please note that traffic identified as Skype calls will be billed at a minute-equivalent of 20 cents per minute. We cannot ensure call quality.

Similarly, for our hugely popular video-on-demand services, rest easy - you'll still only pay for the actual content itself. For content downloaded from other sites, charges apply. For example, files with the extension ".avi" cost $10 per gigabyte for the first two gigabytes, and $7.50 per additional gigabyte. If you think you're particularly clever, by all means feel free to carry on using any fancy-schmancy, smart-assed port-hopping filesharing applications you like. Encrypted data in unidentifiable protocols will be charged at a flat rate of $20 per gigabyte.

We're sure that over time you'll learn to appreciate, if not love, the changes we have made to our value proposition to you. After all, keeping you happy is our number one priority, and we're looking out for your best interests. Remember our motto, "Revenge is a dish best served cold." Have a nice day.

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