My first paper is ready for review. Thank you.

It is strongly recommended that you include your outline in the body of your essay by using the outline as section titles. The headings below are there to remind you how section and subsection titles are formatted.

Talk is Cheap…And Getting Cheaper

-- By DonnaAckermann - 05 Nov 2009

The citations to "Article" in my paper refer to the Forbes article that is attached below.

Background

Over the past decades, the local and long-distance phone service industries collapsed. AT&T and Verizon transitioned to the cellular phone industry to find a new market. While AT&T and Verizon managed to survive, the value of their stock decreased about four times more than the market average. Article, 102. And now, the cell phone industry itself faces collapse. Will AT&T, Verizon, Sprint Nextel, and T-Mobile be able to survive the collapse of the cell phone industry, too? Based on the principles of anarchist production that we discussed in class, and after reading the attached Forbes magazine article, I argue that the cell phone oligopoly will be forced to surrender its industry domination and will have to transform yet again.

From my understanding of Professor Moglen’s class, where the marginal cost equals zero, digital functional goods will always be superior if they are produced anarchistically than if they are produced proprietarily. For the cell phone industry, the digital functional goods are cell phone calls. A cell phone call is a functional good because it is a bitstream that “does,” instead of just being a bitstream that “is.” As I see it, the marginal costs of producing a call are zero. Once a consumer has the necessary hardware (the cell phone – a fixed cost), and the company has set up the appropriate infrastructure to handle calls (cell phone towers/antennae – also fixed costs), then it does not cost anyone anything more to have another consumer place an additional call. The competition of cheap new wireless networks guarantees that proprietary production models will fail. It does not matter how long or how often people speak, at what time of day they speak, or to whom they speak.

• No, this analysis is completely wrong. The cell phone call is a service provided over a proprietary network using (in the United States) hardware that is deliberately prevented from employing non-proprietary networks and protocols to implement point-to-point dataflows containing voice conversations. It competes against use of public internet commodity bandwidth to switch voice-over-IP conversations using free software, which can of course occur over both wired and wireless pipes, which (being pipes) are indistinguishable from the network's point of view. The cellphone companies therefore try to price discriminate their data transmission services (because they also own and operate the wholesale data networks that are primary pipes from the public internet) from voice transmission services. Regulators could prevent that altogether, but they don't because the companies are successful enough at doing so to bribe the political systems within which the regulators operate. They do so partly through subsidizing political careers, but more fundamentally as tax farmers: they buy spectrum from government and then provide expensive telecommunications services which government gets paid for up front when spectrum is bought, and then again at the margins through telecomms service taxes. In return, govt used to require that everyone telecommunicate using their services, and nowcontinues at least to passively discourage a transition to voice-over-IP telephony in which everyone would have enough bandwidth (the amount required is trivial) to have free voice communications forever.

• That you didn't figure this all out for yourself is no disgrace: we'll be talking about it more in weeks to come. But you could have read something more than one Forbes' Article, which as usual is pretty much uninformative total bullshit designed to sell a stock tip. Had you done so, including by consulting the readings I have posted already, you would have gotten much more of a head start. So I think the right thing to do is to broaden the reading a little bit and then do another draft on the basis of the new reading. That should help very substantially and make it possible for you to write an excellent essay.

The Obsolete Business Model

Companies established rules to regulate cell phone calls based on the obsolete business model of operators working switchboards, but those rules do not make sense in the cell phone context. For example, it used to cost more to call in the middle of the business day because more operators were needed to address the increased volume. Thus, people used to pay less for a long-distance call placed after 11 p.m. This practice bears a striking resemblance to the restriction on cell phone calls where minutes are "free" after 9 p.m.

Similarly, “despite the lack of any plausible link to their underlying costs,” (Article, 96), phone companies began charging more for text messages to encourage consumers to purchase unlimited texting, which increased profits. I myself am a “victim” of AT&T’s text messaging plans, often exceeding my 200 text plan by 20-30 texts. It is unfeasible for me to expand my plan to avoid the extra charges for going over my allotment, since the next level of flat-rate text messages is 1000 texts, which far exceeds what I need. (Undoubtedly, AT&T knows the habits of its consumers well enough to determine that providing 200 texts and 1000 texts, with no option in between, is the best way to make the most money.)

The New Business Model

MetroPCS? has a different attitude about the cell phone industry. This company functions more like a service provider and less like a service dictator: it offers consumers unlimited talk for a flat rate of $40/month instead of locking a consumer in for a specified time period and restricting what the consumer can do during that time. See Article, 99-100. According to MetroPCS? ’s model, a customer pays to gain access to the cellular network, and then once on the network, he can do whatever he wants.

MetroPCS? seeks to “turn cell phone calls into just another cheap digital commodity.” Article, 94. By providing the service for less money, it makes the service more accessible, which will attract more customers; while the profit margin will be lower, the volume is so much higher that MetroPCS? will make more money. MetroPCS? is already the fifth largest cell phone network behind AT&T, Verizon, Sprint Nextel, and T-Mobile—a distant fifth but gaining quickly. Article, 92.

Faced with this competition, the oligopoly of the giant four have all followed suit to some extent, issuing unlimited, no-contract plans (except for T-Mobile who is expected to do so in the near future). Article, 100. This step turns the cell phone oligopoly into mere service providers who provide access and no longer dictate the terms of that access. Limitations on using the network (whom you can call when and for how long) will no longer work. Companies will be forced to cut their prices for service because of competition from the Big Four, and from smaller companies like MetroPCS? . Eventually, however, it is the competition from the internet itself that will doom the Big Four and other proprietary models.

What the Future Holds

Whereas in the past, cell networks were built to process cell phone calls and other data separately, the 4G network treats phone calls as just another kind of data to be moved around. Article, 101. Despite the Big Four’s resistance, the market will not allow them to keep VoIP? applications like Skype from operating on the cell phone network, especially as 4G will treat a Skype phone call the same as any other data communicated over the phone. Instead of making the cell phone call a cheap digital commodity, anarchist production – routing calls over the internet – will entirely eliminate the commodity of a cell phone call. Just as the Big Four had to recreate themselves after the collapse of traditional local and long-distance phone service, so too will they have to find another way to survive and profit. Consumers are discovering that all of their cell phone calls can be covered by paying for a monthly data plan (as with mobile internet), as opposed to MetroPCS? ’s unlimited talk plan which does not include internet. As the Big Four already provide data services for laptops, in time a cell phone plan will not distinguish between talk and data capabilities, and a single monthly rate will allow access to talk or surf the web.

• No, this is technical nonsense. In the first place, whether to provide "fake Internet" or actual all-ports, all-protocols services is not intrinsic to the spectrum bundle providing the wirleless access over a net segment, it's a software-determined property of the not-public proprietary network provider you've signed up with, no matter which of the so-called "choices" for taking the real Net away from yourself you've been conned into making. Second, the idea of being charged $10/month for what in the wholesale market would be $0.000000001 worth of bandwidth for all your voice conversations is not exactly attractive. That it's not the price at which the guys who bribe politics to make five times as much from you and twelve times as much from older people with stupid habits are currently charging is hardly important. The right retail price under current circumstances for the quality of bandwidth service you receive in your university dorm room (which you would find, if the music and movie bullshit companies would stop artificially criminalizing you, is enough to bring any HD movie into your room from a standing start in ten or twenty minutes, and an ordinary DVD in four or five, thus making Netflix and all the streaming services worthless) plus all the wireless voice and data services iPhone users are currently really unable to get from AT&T when you are out and around, should be about what you currently pay Columbia for the Ethernet jack in your dorm, which amounts to about $5/mo. If the US reorganized the regulatory and political framework around giving Americans even just the quality of service and price level currently available to absolutely everyone in South Korea or France, rather than your forecast, which is essentially about how wonderful it would be to put everyone in a high-priced Japanese-style telecomms jail, you'd still be able to get everything I'm talking about, with real as opposed to fake network services, home and away, for $40 or so. You need to take a little more look at the international situation, instead of believing the nonsense you find in American business magazines. What they write about telecomms is even more obviously false and corrupt than what they write about health care, which is saying something.

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• Forbes_Article.pdf: Forbes Magazine Article: "The $10 Phone Bill"