Good riddance to minutes

Telecom executives' speeches at investor conferences always include hand-wringing about the prospects of continued pricing pressure. MCI CEO Michael Capellas promises analysts that the return of a debt-free MCI won't mean another “irresponsible” wave of price-cutting. Level 3 CEO James Crowe refers to WilTel and Broadwing as those guys with “unsustainable pricing levels.” Verizon CEO Ivan Seidenberg arranges a joint keynote with Comcast CEO Brian Roberts at the USTA Conference in Las Vegas as a signal to the investment community that the two have no plans for a “devastating price war.”

News flash: Pricing pressure will not go away. We call this capitalism. Get over it. The movement toward an Internet-like, flat rate, unlimited access pricing model is inexorable and long-standing. The notions of local, long-distance and international will mean no more to the communicating public in the not-too-distant future than they do to people browsing the Web today.

Does anyone think the Internet will adopt minutes-of-use pricing? Does anyone think the Internet and public network can happily co-exist? The FCC Trend Report says public-network access — otherwise known as local telephone service — actually has gotten more expensive since 1984. The perception that charging a penny per minute approximates free is not at all true, given the volume of minutes one might want to consume. A typical AT&T customer spending $20 per month translates to usage of at least 250 minutes. Does it really make sense to spend more on billing systems than delivering the basic service? Keep in mind that tracking minutes of use continues to make the exchange of traffic between networks a messy and litigation prone affair.

The telecom industry based on rationing public network minutes of use never grew faster than 2% to 3% per year, as continuously improving revenue requires a continuously improving value proposition. Picking up the telephone to call a neighbor offered the same voice quality in 1950 as it does today. Profit growth in traditional telecom meant driving out costs, in particular, driving out labor costs. A company like Verizon achieves profit growth by employing fewer people in 2004 than it did in 1984.

The model of the telecom monopoly enjoyed an extremely good run, given that monopoly over most commodities did not survive past the 1920s. But I am not suggesting that Verizon, SBC, BellSouth and their global allies will accept their plight and step aside without an ugly fight. However, they would be better off trading lawyers and lobbyists for engineers. The feudalistic system of communication scarcity will inevitably give way to a communication renaissance.

DOSSIER DANIEL BERNINGER

Occupation: Senior analyst with Tier1 Research (www.tier1research.com) and VoIP pioneer with a decade of experience that includes helping launch ITXC Vonage and Free World Dialup, as well as stints with Bell Labs, VocalTec and pulver.com.

Location: Washington, D.C.

Favorite Web site: www.nytimes.com

Device inventory: AT&T Wireless Ogo. No cell phone.

Favorite Web site: (besides his own, www.danielberninger.com): news.google.com

What's next: Covering the demise of telecom monopolies around the globe, working on yet another start-up and continuing efforts to bring communication to half the people on earth by 2010.