Wednesday, October 14, 2009

Figure skating and free conference calls

by alec on October 14, 2009

I’ve become a fan of Battle of the Blades, a new reality show that matches up retired hockey players, and retired Olympic figure skaters in pairs competition.  Eight pairs, and each week one is eliminated – a Canadian version of Dancing with the Stars.  I love it because:

  • the hockey players aren’t figure skaters, and they don’t dance like figure skaters.  Some wear skates with picks, and some wear hockey skates.  The result, however, is something unique, a mash-up of the two sports.
  • the program itself enlarges the audience for both sports.  It’s a crossover, and appeals to an audience that might casually watch figure skating, or hockey.

In a lot of ways, Calliflower is like the Battle of the Blades.  We are a web application with a core experience built around conference calling that is something new and different from older conferencing services.  We creatively use the tariffing regime to enlarge the market for conference calling services by making them affordable to many who might not otherwise use them. Our customers are organizations and people from all walks of life, ranging from folks who provide pastoral care to the terminally ill, to life coaches, business users, educational institutions, governments, industry associations and more. We’re making a real difference by providing an affordable service for these folks.

In a peculiarly ironic moment last week, at AT&T’s behest Congress asked the FCC to conduct a probe into Google Voice over Google’s decision to block calling to services like ours.  Democratic grass roots organizations, after all, used our service in the last election to both organize around the nomination fight, and also to organize to get the vote out on election night.  Republicans have recently been holding town halls with various luminaries of the party to develop a vision for the party moving forward. 

So why is AT&T taking this approach?

The major incumbent carriers (including AT&T) have marketing plans to give everyone a bundle of minutes that includes long distance.  Industry insiders know that this is the most profitable way to sell services to customers,  because most people don’t ever use the entire package by the end of the month when it expires. The accounting term for this is “breakage”, and it’s pure profit.  Savvy consumers, however, understand that the unlimited evening and weekend packages let them talk as long as they want, coast to coast.  The carrier simply prices the package knowing the average number of minutes that the user is likely to use. Terminating a call in most large urban centers costs around 0.25 cents/minute, which makes this plan very profitable. The exception is rural carriers where the cost is 10x higher. 

As a result:

  • smart service providers (including iotum) struck deals with the rural carriers whereby they split the termination fees with rural carrier;
  • thousands of small businesses started to use conference calling for the first time, since it was affordably priced;
  • and millions of consumers gobbled up these services because it didn’t cost any more to use them than the price of a regular phone call.

It didn’t matter to the incumbent carriers so much 7 years ago when these services first started appearing because the “bundle everything” plans didn’t exist yet.  They were happy to bill the customer for extra long distance minutes.  Now that they want to market their services with unlimited long distance minutes, they’re trying to put the boots to their competition (us and companies like ours) by obstructing calls, lumping us in with sex chat services, using labels like “traffic pumping” and refusing to pay their bills.  Yes, refusing to pay their bills.  Our company hasn’t been paid a penny of termination fees in the last 2 years of running the Calliflower service

Eventually, I’m sure they’re hoping we’ll give up, but we haven’t yet.  We adjusted our business plan 14 months ago, and brought some innovative paid-for services to market.  Our free service is a great marketing tool for our paid services, and we have the satisfaction of knowing that for many of our free customers – those who provide counselling, pastoral services and the like – we’re making a real difference.  Not only that, our paid services are still orders of magnitude less expensive than traditional conferencing, because we take advantage of modern infrastructure and service providers.

Under the incumbent carriers, conference calling had been one of the most profitable and most expensive voice service they sold.  Now, thanks to web-based services like Calliflower, everybody can afford conference calling, and in today’s economy that’s a blessing to a lot of folks.  Is it any wonder the carriers are anxious to put a stop to it?

AT&T has tried to drag Google into this fight by characterizing this as a fight about Net Neutrality, and painting Google as a hypocrite for refusing to terminate some calls from their free Google Voice service. 

AT&T is wrong.

In the internet world, where so many goods and services are digital, Net Neutrality is the modern day equivalent of Teddy Roosevelt regulating the railways. Roosevelt made sure that every business was treated fairly when using the railways to get their goods to market, because left to their own devices, the railways were inclined to give themselves price breaks on transportation when they owned an interest in the manufacturer.  In a Net Neutral world, incumbents like AT&T wouldn’t be allowed to differentiate between the cost of voice bits and web bits running on their network.  All bits would be equal.  Consumers would be in charge, not network operators.  Today, just as the railways favoured their own goods over the competition 100 years ago, the incumbents are attempting to favour their own voice traffic over competitors by seeking permission to restrict bandwidth, shape traffic, and even block some kinds of calls altogether. 

No, this is not a fight about Net Neutrality.  It’s simply about big telephone companies behaving like old-style robber barons and attempting to manipulate the United States Government and the regulatory regime around voice. 

Nothing more.

Don’t be fooled by the rhetoric.

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