| Abstract: |
Traditionally, there have been two separate telecommunications networks, one
based on switches, the other based on routers. The switched network basically
carried voice. The packet switched network basically carried data. Now voice
is about to go packet switched too. Ultimately, both networks might merge. If
that were to happen, the governance structure of either of these networks
would have to change fundamentally. Currently, a large amount of packet
switched traffic goes over the public Internet. The Internet is organised as a
club good. There is an access fee, but no further fee for its actual use.
Volume metering is technically feasible, but typically only bandwidth is
controlled. In the switched network, a split price is standard. There is an
access fee, plus a separate fee for each call. In a club good, by definition
each side pays for part of the traffic. On the Internet, the receiver pays
principle is thus applied. In most countries, the switched network is governed
by the caller pays principle. Under that principle, there are termination
charges. Each operator has a local monopoly over its customers. There is thus
the possibility that telephony will in the future be controlled by the same
principles. Actually, in that case the only remaining property right would be
access to the network. In the opposite case, data traffic might be
contaminated by the principles currently governing switched telephony. This
would presuppose that operators succeed in introducing artificial property
rights for the relationship with their customers, maybe even for the
individual instance of communication. Technically, there are two main
opportunities for this. In switched telephony, for technical reasons it is
natural to give out telephone numbers to operators, not to clients. Through
these numbers, they control their customers. Voice over IP operators try to
implement the same scheme for packet switched voice traffic, although here the
domain name system would be natural. Domains are accorded to end users, not to
operators. A second conduit for artificially introducing property rights is
technical standards. They are needed for defining addressees, for the
management of real-time interaction, and for the digital coding of voice
signals. By way of proprietary standards, the operator gains full control.
Competition policy should not only see at the establishment of these
fundamental governance structures. It should also check the potential for
distorting systems competition between switched and packet switched telephony.
Incumbents are having a host of potential strategies for creating new barriers
to entry, and for distorting actual competition. Most critical are bundling
strategies. Diagonally integrated incumbents might offer their clients to
carry their traffic over IP where possible, and through their traditional
network otherwise. That way they could turn their customer base in the
traditional networks into a barrier to entry. Currently, this strategy can
fully work for mobile telephony. In fixed telephony it is more difficult to
implement as long as IP addressees are not earmarked. |
| Keywords: |
property right, club good, network externality, monopolistic competition, systems competition, packet switched telephony, network access, E. 164 numbers vs. IP addresses, caller pays principle vs. receiver pays principle, sip, codecs |