2007 August 28 | Alec Saunders

I like debating Mark Goldberg. Not only is a nice guy with strong principles, but he's an enormously effective advocate for the telecommunications industry here in Canada.

Before I left on vacation, Mark wrote a piece titled An open look at open access which attempts to poke holes in the open access regime which I, and many others, favour. He quotes me saying that I would like to be able to buy my choice of handset, not just the handsets provided by the carrier and notes that my current favorite handset, the Nokia N95, is in fact available from Tiger Direct. In fact, he has a lot of fun at my expense proposing a Department of Official Devices and a Ministry of Supply and Inventory which would ensure that there are enough approved handsets on hand for consumers to buy…

So let's bring this back to the basics.

I am not against handset subsidies. If consumers wish to engage in a contract with a carrier which offers a low price on a handset in exchange for agreeing to take service from that carrier for a fixed period of time, who am I to argue? It's essentially choosing to lease the handset for the duration of the contract, and many people find this a solution that suits their needs.
The carriers should be able to pick and choose which devices they want to stock and sell to their customers. As businesses, they need to be able to respond to their customers.
Consumers should have the right to pay full price for a telephone, contract-free. When you bring your own phone, the carrier isn't providing you the "benefit" of a subsidy, and therefore they shouldn't be locking you into a long term contract. Today that's not true. Just to get service from Rogers for my N95, I had to agree to a 12 month contract.

Let's look at this from the perspective of getting a new car. My choices at the dealership are cash on delivery, or financing in the form of a loan or a lease. If I choose to pay up front, I have a lot of flexibility, but if I choose financing then some of that flexibility goes away. In the world of cellular phones, it's as if the only option is the financing.

Open Access means exactly what it implies — consumer choice. The consumer can choose to take the carrier's package of services and financing, but they should also have the option to choose alternatives without penalty.

Mark's piece concludes:

Which gets to the core of what I think people want with Open Access. I suspect most people are really talking about is price. People who want open access want cheap bits per second.

Don't we all?

How do we link open access with lower prices? People have issues with System Access Fees, with length of contracts, with prices for data plans and prices for long distance. But those aren't issues of open access.

Pricing, of course, isn't directly an Open Access issue. Open Access is the solution to market lock-in's that allow those high prices to be maintained.

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Jaxtr has just announced that they've raised a $10 million A round, and the critics are having a field day. Why? The key word is free. Jaxtr combines some of the services of Grand Central with a free long distance model, transports the calls using VoIP, and terminates the calls on the old fashioned telephone network. Ouch! Their wholesale costs may be cheaper than AT&T, but Jaxtr ain't free to operate!

Free, in the context of telephone services, makes for a tough business model because the wholesale costs of the underlying service which they depend on (brought to you by the likes of AT&T et al) isn't free. According to TechCrunch, Jaxtr will round out these services with paid for models and advertising. The key will be the paid for models. Advertisers paying $5 to $10 CPM, which translates into 1/2 to 1 cent PER CALL, are gravy. The model of a classic web 2.0 ad-funded startup doesn't fit the world of telephony economics.

The other extreme, by the way, is to do as Luca Filigheddu has done with Sitofono. Sitofono is practically the same service as Jaxtr, but targeted at business users, and priced to compete with the classic toll-free line… except that it's global. Same feature set, different business model. Food for thought.

Garrett Smith's opening salvo "Okay so this is really only mildly exciting. Money continues to flow towards VoIP services." really sums it up for me. For a while VoIP was the enfant-terrible disrupting the telco business model by arbitraging away the bloated margins that telcos have been able to earn without interruption for over a century. As the bad-boy of the industry, VoIP promised a whole raft of new services as well that would change the way that we all used our telephones… for ever. But now that it has grown up, it's become boring… the parent with a drink in hand, worrying about the cost of the mortgage.

I'm heartened that the Jaxtr team has raised money promising new paid for services, and that VC's are responding. That's a sign of life beyond paying the mortgage, which is good for all of us in this industry.

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