Skype Petitions FCC for Access to Mobiles

VoIP provider Skype, backed up by Columbia University's Tim Wu, who published a report on anti-competitive practices by the mobile industry, has petitioned the FCC to invoke the 1968 Carterphone ruling for mobile networks. This ruling mandated that AT&T permit consumers to attach any device that did not damage the network to be allowed to connect and paved the way for innovations such as fax machines. Skype hopes that the extension of this ruling could be used to force mobile network operators to allow its client software to run on handsets, which is generally abrogated under operators' terms of service and can be halted through network monitoring and management techniques such as deep packet inspection that identify the type of traffic (see World: 24 November 2006: Nokia Integrates VoIP Blocker into Flexi Intelligent Service Node).  

Outlook and Implications

Defenders of the Network: The wireless operators are keen to defend their revenue streams, which means keeping "free" VoIP and instant-messaging clients that can utilise bundled data packages to provide services off the network. They also hope to maintain control of the devices as they are the gatekeepers to the burgeoning world of content and data-service revenues. They would of course have a number of options open to them should this come to pass. The first argument would likely be that the bandwidth used by Skype would clog up their new data networks and therefore "damage" them. If that failed, a number of options would be available including lowering the cap on theoretically "uncapped" data packages (often around 2 GB), which would make VoIP extremely uneconomical. Casual data rates have recently been raised by most of the providers to US$0.03 per kilobyte, and this would have been prohibitive for VoIP at any previous rate. Estimated requirements for an active VoIP connection vary depending on the codecs used, but range from 21.2 Kbps to 87.2 Kbps. While it is likely that the mobile clients do not act as a "supernode" that manages some of the peer-to-peer activity, Skype generally uses a de-centralised peer-to-peer architecture that can take from 5 Kbps to 60 Kbps (kilobits per second: 1 byte = 8 bits) just when running in the background as a supernode. It also opens numerous TCP/IP connections that have been attributed with router instability (see World: 25 October 2006: Analysing the Upstarts: Skype’s Threat).  

FCC Support and Cable: FCC Chairman Kevin Martin is keen to open up networks of all kinds to promote competition and innovation amongst device and application manufactures. He was quoted by USA Today on 1 February noting that "there would be some real consumer savings on the wireless (cell phone) side…On the cable TV side, it would allow more innovation." On the cable side this ties in to moves to force the cable companies to separate security (programme-access functions) from the core set-top box, allowing third-party manufacturers to sell solutions to customers of all cable companies, as has been mandated (and delayed in enforcement) since 1996 (see United States: 11 January 2007: FCC Rejects Comcast Waiver on Freeing Set-Top Box Market). With regard to the defence option available above of lowering data plan caps, this could have the opposite effect as data policies are tightened, impacting on innovative applications that would add functions that do not cannibalise core voice revenues.

Hardware Too? The USA Today article notes that should an extension of the Carterphone ruling apply to the mobile world, it would also make the exclusive hardware deals such as the Cingular/Apple iPhone deal hard to enforce. This may be inaccurate in that the Carterphone ruling applied to the network operator, not the hardware manufacturer. It is hard to see why a network operator would not want a user to purchase a handset (as long as it passes the damage test) and then be able to use it on the network, although Verizon in particular has a reputation for disabling features such as Bluetooth transfers to protect revenues from content downloads. What it could also mean if Carterphone is applied in the reverse is that network operators may not be able apply network or SIM locks to hardware—a standard feature of the mobile business model that also came under attack with recent reversals of protection under the Digital Millennium Copyright Act (DCMA), which had been used to illegitimate the hacking of such locks (see United States: 27 November 2007: U.S. Copyright Office Gives Go-Ahead for Phone Unlocking). 

Likelihood: The original legislation was intended to open up a monopoly market—far from the situation with mobile networks, but the FCC's Martin seems to see appeal in separating equipment markets from networks. The Cellular Telecommunications and Internet Association (CTIA) is probably not far out when it describes the move thus: "Skype’s self-interested filing contains glaring legal flaws and a complete disregard for the vast consumer benefits provided by the competitive marketplace. Skype’s 'recommendations' will freeze the innovation and choice hundreds of millions of consumers enjoy today." While mobile data networks are still in fairly early stages of development and have yet to provide a significant cash bonanza for the operators, it is unlikely that such a move, which would lead to a total overhaul of tariff structures, would be feasible from the FCC in the near future. The Skype client is downloadable for Windows Mobile and Pocket PC devices, and Skype has had some success in getting onto operators/handsets. This includes the deal with a newly innovative and open Hutchinson (3) and a deal with Nokia. Operators are likely to make efforts to limit that particular move—possibly using Nokia's own network level blocking features (see World: 15 February 2006: Skype Goes Wireless with Hutchison and World: 8 January 2007: Nokia Adds Skype and Near Field Communications to Handsets). Competition from alternatives such as WiMAX- and Wi-Fi-enabled devices will likely lead the charge for Skype in the United States (see United States: 8 January 2007: Sprint Adds Nokia to WiMAX Deployment). It is worth noting that if Skype did achieve great success, it would be shooting itself in the foot (or have to seriously re-consider its business model) as it only generates revenues from connection to the POTS (Plain Old Telephone Service) network—ubiquitous Skype-enabled handsets would theoretically make that irrelevant. This issue will be raised again and again as networks moved to converged IP-based architectures and voice and data become as one. The USA Today article reports high level support within the FCC, but the IP landscape of the future as seen by Martin appears to be one of open but tiered access rather than strict net neutrality (see United States: 12 January 2007: Mobile Contract Early Termination Fees in U.S. to Come Under the Spotlight). Cheap, flat-rate "uncapped" and fully open data-service-based access should remain many years away.