Now things get really interesting.
Well, they do to me, anyway. I’m odd.
This is at best wildly simplified, and at worst completely inaccurate, but pay attention anyway – you’ll need to know this to understand a lot of headlines in the next few years.
Look at the wall plate where the phone is plugged in your office. There are two cables, right? One for the phone, one for the computer. That’s important.
Until recently, when you talked on the phone, your voice would travel along copper wires and fiber cables that connected to equipment run by big telephone companies, on circuits that were walled off – there were completely separate paths for voice traffic and Internet data traffic. As a result, your telephone company could set its voice rates without much competition – it had the only wires that could carry your voice, and there was only one company in town. They held onto that monopoly for a while even when data traffic traveled on literally the same wires and cables as the voice traffic – for example, when DSL connections arrived on the same copper wire as your voice phone line.
Voices traveling over a wire are just electrical signals. Bits. It’s all just data.
Internet speeds increased, smart people worked hard. It became possible to deliver voices over the Internet pretty reliably, bypassing the voice circuits.
Companies began to develop VOIP systems, where calls travel on the Internet for as long as possible before hooking into the conventional telephone system. The telcos don’t have a way to charge traditional long distance rates for that kind of system. They looked around nervously.
Skype came along with a consumer-friendly program that lets you have a reasonably clear conversation using Skype on your computer, talking to another Skype user on their computer anywhere in the world, completely free. Your voice is translated into bits of data and travels the whole way on the Internet. It never has to transfer over to the telcos’ walled voice circuits.
The telcos have dragged their feet and put up barriers and sought regulatory help and bought legislators and raised a fuss about quality of service.
But the walls are now crumbling.
Skype added cheap subscriptions to make outgoing calls and receive incoming calls, with quality that is good enough. The idea is to have the voices travel on the Internet as far as possible so that the eventual connection into the telco circuits appears to the telcos to be a local call. You can sit at your computer and make unlimited calls anywhere in the US and Canada for $2.95/month. There are various plans to make international calls for almost nothing, a few cents a minute or a few dollars a month.
And it works the other direction – you can pay a few dollars a month to get a phone number that other people can dial on their phones to ring Skype on your computer. Now think about that again!
- You pay Skype a few dollars a month for a local number in Switzerland.
- Your relatives in Geneva sit at their desk and make a local call with their regular phone.
- Your computer will bong to receive that call, no matter where you are in the world.
Get it? AT&T and the other telcos certainly get it – and they hate it.
For a while the cell phone carriers felt safe because they had a similar division of their world into voice traffic billed at per minute rates, and data traffic for a flat monthly fee.
Now people are buying smartphones that can run programs over fast Internet connections. Why, heck, I hear you say – if you could run Skype on your smartphone, you could make unlimited calls for $2.95/month anywhere in the US and Canada, right?
Repeat that slowly.
If you could run Skype on your smartphone over an unlimited data connection, you could make unlimited calls for $2.95/month anywhere in the US and Canada.
From the perspective of the telcos and the cell phone carriers, that is the whole enchilada, the death of their business model, the explosive change in everything they’ve built, blowing up in their face.
Skype is pressuring the cell phone carriers to let that happen. You’d potentially be able to drop your expensive per-minute plan.
Google is pressuring the cell phone carriers to allow you to use Google Voice to make calls on your data connection.
Competitors are right behind them.
The carriers are going nuts. Consumers are demanding faster and better broadband connections, the carriers are spending piles of money to put up more towers, and it’s all going to destroy their lucrative business of selling voice minutes.
Examine everything that happens in the phone world with this in mind.
- AT&T held out against Skype until it had put a cap on the “unlimited” data plans for smartphones. Now you can use Skype on the iPhone to make calls that do not use your voice minutes, but you’ll quickly run through the cap on data and start incurring big charges anyway. From AT&T’s perspective, it can’t wait for Skype to add video on the iPhone because that will use up your data plan and put you into expensive data overtime much more quickly.
- Verizon and Sprint will introduce caps on their data plans before long, and only then will you see a similar Skype program for Android phones. You can run a Skype program now on Android but you can’t bypass the carriers completely, at least not yet.
- I think this is part of the reason that the carriers are fighting against net neutrality. They want to be able to charge extra for your voice calls even when the calls are just part of your Internet stream. There will be persuasive arguments that your Internet voice calls will be guaranteed to be high quality, if the poor carriers can just bill you extra, pretty please.
- Google has Google Voice in a position to take over voice traffic just like Skype but perhaps with even more clout. Hopefully you understand that there are huge, mind-boggling sums of money at stake in the change that’s underway. Google wants to be one of the big new players in the enormous world of telecommunications, and there’s enough money for the big players to share. I think that’s why Google stood with Verizon a few weeks ago and sponsored the idea that net neutrality is swell as long as an exception is made for the entire world of wireless data connections and “additional or differentiated services” offered by an ISP. AT&T quickly agreed. My guess is that the game is afoot and the carriers have in mind to identify and charge for all the bits carrying our voices, using some theory or another.
There will be rapid changes in the world of Internet telephone calls. Like so many things, the important battles are being fought by the colossal companies about vast sums of money. If anything benefits us as consumers, that is coincidence, or a side effect of the jockeying for position going on over our heads. Keep an eye on the stories about Skype, Google Voice, the carriers and the phones, the changes in voice plans and data plans – but don’t make the mistake of thinking that any of it will be easy, or that any of the players care about you!
Next: more details about how Google Voice routes calls from mobile phones, and through the Skype system.