Itemised bills for fixed lines and big mobile phone charges could soon be consigned to history, but our future communications will still come at a price, reports Peter Warren.
In days gone by, the telephone was a thing of awe: an object admired for its usefulness but feared for its apparently limitless ability to cost money. Bosses put up notices urging staff to delay calls until the 1pm deadline when the morning peak rate – during which calls were 50% higher – had passed. Parents zealously controlled children’s access to it in case they bankrupted the family while chatting to friends. In 1984, a one-hour phone call in the afternoon to someone up to 56km (30 miles) away cost £4.56. (Further away than that, and you were making a “national” call.)
The tariff structure was almost impenetrable: was your call before noon, over a trunk line, to someone more than 56km away, operator-connected, from a payphone? Each element attracted a different price. Looking at the tariffs, which covered pages, it is easy to see why getting accurate computerised billing was one of BT’s biggest headaches in the 1980s. Today, that hour-long call costs 5.5p on a BT line. The only puzzle is choosing which “call bundle” to pick; but the prices are far easier to understand.
And there is better to come. Soon, the tyranny of the itemised bill will be a thing of the past. BT has told the Guardian that household phone bills for fixed lines will be consigned to the technological dustbin. “Within five years … people will not pay for phone calls,” says Matt Bross, BT’s chief technology officer.
Industry statistics tell their own story: according to the IT analysis group Gartner Research, in 2004 the number of calls made on landlines fell by 10%; this year it is expected to fall by 20%. By 2010 the revenue from landline calls is expected to fall to just 50% or 60% of its present value. The main beneficiary will be the mobile – though 36% of those calls already lost to landlines have migrated to the internet, using VoIP (Voice over Internet Protocol).
Gartner further predicts that by 2009, one third of Europeans and Americans will have ditched their fixed phone lines, and be using mobile and internet telephony instead. In a report, it also suggests that by 2009, 70% of voice connections around the world will be wireless.
A communications revolution
Colin Duffy, the chief executive of Voipfone, a telecommunications company that specialises in providing low-cost voice lines to small businesses, says such figures herald a revolution in our approach to communications. “Voice [calling] has just become another piece of data on a network the customer is already paying for. It is the new companies who are going to grow around that network and who will produce the new phone companies.”
The demise of fixed-line phone bills is something Sir Bryan Carsberg, who at BT’s privatisation in 1984 was the first director of Oftel – the telecommunications regulator now folded into the communications regulator OfCom – views with fascination. “It’s a far cry from the days when my father used the phone,” he says. “He regarded it as something to be abrupt on, to avoid expense, so he was very practical about how he used it.”
Now chairman of council at Loughborough University and recently appointed to serve a second term as the chairman of the Pensions Compensation Board, Carsberg recalls: “Then, the phone was in the hall and guarded as to its use.” However, he says the initial aim of introducing competition in 1984 was not so much to reduce prices but to increase capacity.
“The government was very keen on the liberalisation of the financial services industry. Because of that expansion there was suddenly a demand for a huge amount of phone lines – and BT was unable to meet that demand, and there was a backlog of 250,000 lines that were needed. And that was holding up the development of a important strategic industry.” (Indeed, that squeeze on supply meant that, against the pattern of history, call prices rose between 1981 and 1984.)
“The government became very keen on the idea [of competition] because in the 1980s there was a lot concern about trade union power and BT was a monopoly and the government were particularly worried about union power in a monopoly. That led to the idea that Mercury, which was the company that had developed from the City shortfall, could become a second communications provider.”
Carsberg, who also oversaw the arrival of mobile telephones, says the arriviste mobile phone companies helped transform the telecommunications industry.
“Mobile started up in 1985 and I was on the panel that advised on the choice of competitor for the BT mobile arm, Cellnet. At the time we recommended a little-known company called Racal Vodafone which everyone virtually wrote off.” Vodafone split from Racal Electronics to become an independent company in September 1991.
“At the time of its creation, the expectation was there would only ever be around 100,000 customers and the usage would be a niche market for a small number of customers – mainly because the phones cost over £2,000. Competition has drastically changed that. In the late 1980s I was working on models that presumed 10m customers by the end of the 90s and everyone said I was way out. What’s the number of mobiles in the country today? I think it’s around 50m.”
Mobile also under threat
With that historical perspective, some even predict large mobile phone bills may also soon be a thing of the past.
Mobile phone companies are vulnerable because the development of phones with Wi-Fi capability and instant messaging services on PDAs enables people to make VoIP calls via public wireless access points. A new company called FON is trying to develop a free worldwide wireless network by encouraging people to share their Wi-Fi bandwidth for a small fee.
The emergence of WiMax technology, which offers wireless broadband speeds over distances of some miles, may make it not just possible, but economic to avoid the mobile networks and route mobile calls through a comprehensive wireless internet connection. Some believe WiMax might even threaten 3G, and the £22.5bn spent on licences by mobile networks.
Companies such as the computer giant Siemens are developing what is known as an intelligent mobile phone. Tim Bishop, the company’s head of strategy, said: “We are now intersted in developing intelligent phones that will be combined GSM, 3G and Wi-Fi devices underpinned by VoIP technology. The phones will be intelligent and just seek out the cheapest service.”
Indeed, at BT, Bross predicts that all mobile calls could also eventually be free. “We can see those people who make a lot of mobile phone calls will do so from the web and because of that we are aiming to put more services into data devices.”
Even broadband, which for most people was the first step into “unmetered” communications use, could become free – at least as part of a package. Robert McKinnon, who works for the Korean phone manufacturer ZyXel, says many companies in the telecoms market are working towards a model where both phone calls and broadband will be free, unlike Carphone Warehouse’s recently announced “free” model, where consumers still pay monthly charges of £11 for line rental and £9.99 for all their phone calls.
Of course, consumers will naturally be delighted at the possibility of free broadband and unmetered fixed and mobile phone calls. But there is one small potential snag: if everything is free, who pays to keep the internet running?
Katja Ruud, Gartner Telecoms Group’s research director, says that though the traditional telecoms companies were slow to tackle the question of losing customers from their voice networks, the question is now preoccupying the entire industry.
“Nothing is free,” she says. “The incumbents are looking at bundled revenue models that will let them offer subscription packages made up of voice, mobile, internet and video for the consumer and mobile desktop and applications for the business user. If anyone tries to break those models then things will follow the Nordic model – and the innovator will be bought by the incumbents.”
Professor Martin Cave, a telecoms expert at the University of Warwick Business School, also suggests that the notion of free broadband and telephones may be an illusion. “What people are going to pay for is the transmission of bits over the network – and they will have no choice in that,” he says. “Put very crudely, you’ll pay for content, so if you want to watch a film you’ll pay for its transmission. That film will have to be separated from the transmission mechanism for other data but you will still pay for the data you use.”
At the moment, he says, people seem to prefer their telecoms services via lump-sum payments rather than on demand. But this payment model could change as the network gets clogged with the latest blockbuster films. “With broadband the offerings are tiered in terms of speed. In future it may be tiered in terms of data use. The standard UK model is that you pay for your speed and then download as much as you want. But once people routinely start to move Hollywood movies, that will put a huge stress on the network and there will be a need to expand the network. That will have to be paid for.”
Cave also warns about the prospects of firms offering cheap or free telephony services.
“Services like Skype [which uses a peer-to-peer VoIP model] are freeloading off the excess capacity in the network, but as that capacity is taken up it will be interesting to see how that will affect the quality of service it provides.”
BT and NTL Telewest have started to respond to this new-look world. BT is spending £10bn on its “21st-century network” – effectively turning the telephone network into a dedicated internet – while NTL Telewest will roll out a full multimedia package giving customers internet presence, video and TV, instant messaging, file sharing and features to manage time and availability.
BSkyB, too, intends to become a major player in the so-called converged broadband/TV market, a move signalled by its purchase last year of the Easynet ISP.
Yet Carl Ford, vice president of community and content for Pulvermedia, the company started by Jeff Pulver, the man widely acclaimed as the pioneer of VoIP technology, points to what may be the only workable business model for the broadband industry in the future.
“People will have to come up with new ways of making money – trying to charge for access is old thinking. Google are making money because they are offering direct access to people who want something to people who want to sell something. That could be the future.”
One thing is certain, though: the telephone’s presence as a money-sucking instrument in the front hall is over.
Printed in The Guardian 27th of April, 2006 under headline ‘Calling Time on Phone Calls’