Tag: telecommunications

Europe is providing a steady stream of wrongheaded and counterproductive regulations — good for anecdotes, bad for Europeans.

When Windows Vista, the long-awaited successor to Microsoft’s operating system Windows XP, is released to the general public on January 30, some consumers around the world will have an additional product available. But, if the sales records of Windows XP ‘N’ are any indication, then Vista ‘N’ will be Microsoft’s most unpopular product in a long time.

The ‘N’ series is a special variety of Microsoft’s operating systems designed specifically to comply with antitrust rulings in the EU and in South Korea, which also has aggressive competition laws. In order to do so, XP ‘N’ shipped without Media Player, the free video and audio player which, for users outside these jurisdictions, is bundled with a standard XP installation. Both versions, ‘N’ and the bundled package, were available to European consumers at the same price.

Unsurprisingly, there have been no reported sales of XP ‘N’ to consumers since it was released in mid-2005. It would be hard for a market to reject a product any more entirely.

As has been argued, as long as competition is a download away, the law has done its job. But a steady stream of regulatory intervention and litigation in the computer industry over the last ten years disagrees.

Microsoft has been a staple target of antitrust authorities across the world. In 1998, the US Government sued the software manufacturer for tightly integrating its Internet browser with its operating system. The litigants alleged that their victory in the ‘browser wars’ — a period of vigorous competition between Microsoft’s Internet Explorer (IE) and Netscape Navigator — was due to IE being bundled with XP. Both products were free — but free and bundled can’t compete with free and downloadable, the critics alleged.

Experience suggest otherwise. Mozilla’s Firefox, the heir to Netscape Navigator, is rapidly gaining a share of the browser market. Firefox’s success has largely been due to a perceived lack of security and performance with Microsoft’s bundled product. Consumers are fickle enough to choose between competing products.

Indeed, there is good reason to suggest that the death of Netscape Navigator in the late 1990s was not due to predatory bundling by its powerful competitor, but to consumer disappointment with the software itself. Navigator had undergone a complete rewrite, and was buggy and bloated. When consumers were looking to upgrade their browser for the new features and web specifications becoming available, Internet Explorer was simply the better choice.

In the highly competitive computer industry, technological change makes pronouncements of such-and-such company as ‘anti-competitive’ laughable. IBM is no longer the terrifying anti-competitive monster that prosecutors described it as in the 1970s — in part because of Microsoft’s aggressive marketing of MS-DOS in the first years of the 1980s, and then the Windows 3.1x family of operating systems.

The 2004 competition actions in the European Union against Microsoft were encouraged by organisations such as Real Networks, which publishes a competing product to Windows Media Player. Again, Microsoft’s rivals allege that the competitiveness of their product is harmed by the product bundled with Windows. The EU regulators forced Microsoft to provide European consumers the option of buying XP ‘N’ — without the bundled Media Player. Microsoft wanted to call the package ‘Reduced Media Edition’ until the EU objected.

But again, reality intervenes. While Real Networks may have been disappointed with the popularity of their product, many of Microsoft’s rivals should not be. Apple’s iTunes, for instance, has ridden the popularity of its portable music player, the iPod.

In 2006, before it has been officially released, Windows Vista is under heavy fire from its competitors, and they’re going to the European Union for help. The new operating system includes an array of new features for which, presumably, Microsoft foresees a demand. Producers of anti-virus and security software object to the new low-level enhancements to security—a feature that consumers have desperately sought for a long time. Adobe, which invented the PDF document format, objects to the new document format XPS — a more dynamic format than the now standard PDF.

The EU fined Microsoft €497 million for bundling Media Player with XP, and it has been remarkably vague about Vista’s prospects when it comes before the European regulators. While Microsoft is already obligated to produce the Europe – only Vista ‘N’, the European regulator’s role, the EU argues, is not to give a ‘green light’ before Vista is available to consumers. If Adobe and others have their way, Microsoft could be lumped with another massive fine or have its product crippled for providing new features that consumers demand.

The nineteenth-century French liberal economist Fredric Bastiat divided human activity into two categories: ‘harmonious’ and entrepreneurial, or ‘antagonistic’ and rent-seeking. Unfortunately, as the vibrant, innovative technology industry becomes bogged down in competition litigation, too many are showing themselves to be the latter.

By the end of the year, the number of emails sent worldwide is predicted to reach 136 billion per day. An estimated 64 per cent of these, however, are spam — unsolicited emails sent in bulk, usually of a commercial nature.

The question is how to deal with the spam — should it be left to internet entrepreneurs and innovators, or to government regulators?

Spam is popularly derided for a myriad of reasons.

Like most technological develop-ments in communication, spam marketing has been pioneered by the porn industry. Most people with email addresses will now be intimately familiar with the benefits that Viagra has on ‘performance’, often graphically illustrated.

Spam is said to have a negative impact on productivity. A survey in the US, the 2004 National Technology Readiness Survey, found that workers spend 2.8 minutes per day deleting spam, at a total cost to US businesses of $21.58 billion annually in lost productivity. While the survey’s results, which relied on self-reporting, implied that workers spent more than 9 seconds deleting each spam message they received, the findings reflected a broad social belief that spam does not merely annoy, it harms.

As well as being detrimental to productivity and offensive, spam has also become a tool of the fraudster — Nigerian royalty are looking for investment partners right now. Spam is not restricted to email – spambots (automated robots which crawl the Internet looking for places to put spam, in part to raise their Google rankings) are now a common curse of the comments section on blogs, and a burden on website administration.

In response, governments around the world have stepped in to try to curb the evil of spam. The US CAN-SPAM Act 2003 requires email solicitations to provide details such as opt-out information, warnings about adult content, and a valid physical address of the business.

The Australian Spam Act 2003 goes much further — making it illegal to send ‘unsolicited commercial electronic messages’ that have an Australian link, with the usual exemptions for charities, political parties, and the government. The penalty for doing so can be as high as $1.1 million a day.

Despite the well-publicised efforts outlined above, spam continues to grow in quantity. While the Australian Government may be able to punish businesses with Australian links or physical addresses, there is absolutely nothing they can do to punish Russian — or Nigerian — spammers. While the legislation stops at the border, in a networked world, the spam does not.

Given that the problem is worldwide, it was perhaps inevitable that the United Nations would come to consider spam as a matter of utmost importance. Combating spam has become a central plank in the UN’s push to take over regulation of the internet.

None of these legislative remedies work. In fact, spammers don’t tend to obey laws. No legislation, no matter how draconian or restrictive, would be able to stop spam.

As one of the founders of the internet’s architecture, Vince Cerf, says, ‘if all you have is a hammer, everything looks like a nail. If we are not careful, we may fall into that trap by trying to develop overly simple definitions for what is really a very complex question’.

It is much wiser to leave anti-spam measures to the private sector, to place the responsibility for removing spam from mailboxes on the owners of those mailboxes, rather than a Canberra-based spam taskforce. nti-spam technology is one which the private sector is well equipped to develop. Sensible protection measures on individual machines, as well as responsible handling of spam messages (never respond to spam) reduce vulnerability. Email filters, available at all levels of ISP-user interaction, are able to reduce spam by a variety of methods — searching for commonly used spam words, statistical analysis, authentication, checksum-based filtering, and a whole host of others.

The back and forth between spammers and anti-spam developers has forced spammers to innovate and produce what will likely be remembered as a cultural artefact of the period—replacing ‘viagra’ with ‘|/@g^ra’.

There are clear indications that the anti-spammers are winning. Google’s web-based mail service, Gmail, has a spam filter which is remarkable in its capacity to identify dodgy messages accurately. Existing filters are highly effective in screening for malicious attachments — the only real danger that spam poses.

Do-not-call or do not answer?

Governments’ efforts to protect us from spam are indicative of an approach to modern communications which is expensive, symbolic and useless. Rather than allowing communications technologies to develop at the pace at which the market dictates, governments are intervening whenever it sees a ‘threat’ — even if it is undefined and merely an annoyance.

Does the mere fact that people are annoyed require government action? Is it the government’s role to encourage the productivity of individual workers? These seem to be the rationale behind the Spam Act, and the rationales behind the increasing amount of anti-annoyance legislation.

The Do-Not-Call list is another example. Modelled on the US system, the proposed Australian Do-Not-Call list is an opt-in list for those who do not wish to receive commercial telemarketing on their home phone. On the grounds that unsolicited commercial phone calls are intrusive, the do-not-call list would fine companies who called people who had registered. Similar exemptions apply here as with spam: charities, political parties and research institutions — as if these groups do not make intrusive calls seeking money!

With no apparent irony, the Consumer’s Telecommunications Network’s executive director, Teresa Corbin, stated in October that tele-marketing ‘is a huge issue for consumers. It should be dealt with the way spam has been dealt with — effectively and by the Government’.

Although Corbin draws the parallel for the wrong reason, spam and telemarketing are clearly similar — and have similar, free-market solutions.

Individuals are free to hang up the phone, and even to disconnect it when they do not wish to be disturbed. For those who don’t want to miss important calls, using answering machines to screen calls is not exactly a new development. And the market has come up with numerous other technological solutions — various products are available on the market that can screen telemarketers’ calls specifically, detecting the telltale signs of a call centre autodialer and hanging up the call.

Malicious content: spyware and zombies

While telemarketers and (in most cases) spam emails are not malicious, some unsolicited communications material can be. Spyware, roughly understood, is software that installs itself on your computer without your knowledge, desire or approval. Not only can it render the machine unusable if it is allowed to build up, but it can also report private information on it to another party. The challenge of making even a working definition of ‘spyware’ illustrates the haphazard approach any legislative solution to the problem would present.

As the danger of spyware is greater, so is the response from the software community. The anti-spyware market is highly competitive — AdAware and Spybot Search & Destroy, two programs which are considered essential to keep a Windows computer clean, have been joined by a Microsoft anti-spyware system.

Any legislation to tackle spyware would have little effect on the major sources of the problem — the software markets operating out of Russia and Asia which constitute the bulk of nefarious activity. As Andrew Grossman of the Heritage Foundation says, ‘no set of regulations, no matter how finely detailed, would have much of an effect’.

The Australian Communications and Media Authority has recently announced its intention to intervene when computers have been hijacked by spyware or other users and are broadcasting unintentionally over the Internet — a phenomenon known as ‘zombies’. A worthy cause, but again, one in which government’s involvement is unnecessary and ill-advised.

Responsibility for the Internet and the computers connected to it has to remain with those who have a stake in them — that is, users and internet service providers. If, as it seems clear, the government cannot keep up
with the pace of innovation in spam, spyware, and telemarketing, then its input is at best unnecessary and, at worst, counter-productive. A government insisting that it is tackling the problem of spyware would rob users of an understanding that they have to protect their machines themselves.

Depending on who you listen to, the first act of spam occurred either in 1978 or in 1994. The first Spam Act was passed in 2003. The decade-long lag between the invention of spam and the legislation to protect against it
is a perfect illustration of the futility of government action in protecting people against the horrors of the internet.

Police in Warwick, Rhode Island, earlier this year reported that a driver, fed up with being stuck behind another driver who was chatting away on his mobile phone, got out of his car, called the other driver a punk, and promptly punched him in the face.

It’s now undeniably a cliché to proclaim that you can’t stand people using their mobile phones on public transport, or, for that matter, in any public place previously reserved for awkward silence. Mobile phones have inherited the same social baggage that smoking once held — perfectly legal and many people do it, but accompanied with disapproving looks from passers-by. As with smoking, it is greeted with the heavy-handed social regulation and legislation which is increasingly definitive of our relationships with government and each other. Bans on mobile phone use in cars are the most obvious example — the assumption being that making a phone call while driving is more dangerous than Mr Bean getting dressed on the way to work.

Is communication anti-social?

This is how most people approach the vexed question of mobile phone use on aircraft. It is easy to bristle at the possibility of having to sit through a nine-hour flight listening to a one-sided conversation in what seems to be Portuguese. For that matter, any electronic device can be potentially maddening — in the rare moments I take my iPod buds out of my ears, I’m sometimes shocked at how loudly I was listening to the music, and wonder how audible it was to people around me.

But there is a clear demand to use these devices. The flight between Melbourne and Sydney would be a decidedly different experience if the regular commuters were permitted to continue their business, rather than having that 51-minute quiet time. And as flying entails the diminution of a number of personal freedoms — food, sleep, even bathroom breaks are regulated — being able to communicate with family, friends or colleagues would be a reassertion of personal liberty.

And why shouldn’t they be allowed to?

Just as there are more dangerous activities to do while driving, there are more annoying things on airplane travel than a fellow traveller phoning home. If you don’t believe this, then you can’t remember John Candy in Trains, Planes and Automobiles, or Brad Pitt explaining to a bemused Edward Norton how to turn soap into explosives in Fight Club. But the quickest way to put the lie to the argument that mobile phones cause ‘air-rage’ (road-rage for the jet-lagged class), and should therefore be banned, is the mere existence of the expensive, back-of-seat telephones.

A recent survey of 702 air travellers showed that 63 per cent of flyers wanted to keep existing mobile phone restrictions on aircraft; only 23 per cent wanted to lift the ban. But as economist Bryan Caplan notes,

current opinion probably suffers from a large status quo bias. It wouldn’t take long before people started to enjoy the freedom to use their phones, and quit fretting so much about other people using theirs.

Would planes fall out of the sky?

Contrary to the impression created by the regular and hyperbolic instructions to turn off anything more powerful than a clockwork Happy Meal toy, it is not clear that electronic devices and mobile phones do interfere with aircraft electronics.

The history of regulation of personal electronic devices (PEDs) on aircraft, whether 2-way (‘intentional transmitters’) such as mobile phones, pagers and radios, or ‘non-intentional’ such as iPods, laptops and Game-Boys, has been one of apprehension. The initial ban on electronic devices on aircraft came after a 1963 study by the American Radio Technical Commission for Aeronautics (RTCA), which looked at reports that PEDs had possibly interfered with aircrafts’ onboard electronic equipment. Further studies by the RTCA, one in the mid-1980s, and another ten years later, found that such a risk was extremely low, but was highest at critical phases during the flight, particularly take-off and landing.

In addition to these three studies, the British Civil Aviation Authority (CAA) looked specifically at mobile phone devices which showed that, theoretically, they could interfere with avionics, in particular with systems which had been certified to pre-1984 standards. Following these findings, the CAA recommended that the ban be upheld.

NASA keeps a record of nearly 70,000 anonymously reported aviation incidents and flight problems. But in only 52 of these — in other words, 0.08 per cent — did the crew suspect that the interference was caused by any personal electronic device. (As a side-note, 23 cases of ‘air rage’ were listed as caused by the use of PEDs.)

Looking at a number of examples contained in the NASA Aviation Safety Reporting Systems database is instructive.

• In May of 1995, the electric compass indicators of the first officer of a Boeing 737 gave erratic readings. After a sweep of the cabin was made for portable electronic devices, which resulted in flight attendants asking a passenger to turn off a compact disc player, the first officer’s instruments returned to normal working order.
• In March of 1997, a Cessna 340/A pilot experienced erroneous readings when attempting to determine his location because of a passenger using a cellular phone. After the passenger turned off the phone, the pilot was able to locate his position and continue on with no problems.

But, as a 2000 US Congressional Hearing made clear, ‘neither the RTCA nor the CAA were able to duplicate under controlled conditions the interference from a PED that their studies indicate[d] could theoretically occur’. As shown above, the only examples of interference have been anecdotal — no firm link has been established between PED use and disruption to avionic systems. No incident has been able to be replicated. In one case, Boeing, struggling with the PED question, purchased a passenger’s laptop that a pilot claimed had triggered an autopilot error. Flying the same route, with the same laptop in the same seat, Boeing was unable to duplicate the incident.

In the absence of any corroborating examples, it is highly possible that in many of the 52 cases in the NASA database, the existence of a PED onboard was used as a convenient explanation for an otherwise undiagnosed incident. And how likely is it that only 52 illicit PEDs have been used on aircraft since the NASA reporting system began?

Regardless of the uncertain effects of PEDs on avionics, aviation regulators around the world have resolutely banned mobile telephones on aircraft, and placed heavy restrictions on nonintentional transmitters. These regulations are backed up by airline-specific rules about what can be used when.

But as well as being illustrative of the natural timidity of government regulators on safety issues, these regulations help airlines restrict any onboard communications to the expensive back-of-seat phones. If the regulation were lifted — the lack of replicable evidence suggests it could be — airlines may well err on the side of caution and retain their restrictions. But if one airline then decided that the safety regulations had been historically over-cautious, it could offer its customers the comfort of their own personal communications devices.

The decision about what PEDs to allow in the cabin could be firmly left in the care of the markets — there is no firm reason to require extra government regulation.

Airlines have recognized that communication can be a selling point. Late last year, progress was made by the FCC towards allocating spectrum for wireless broadband in aircraft. Lufthansa has already started offering unlimited Internet access on international flights for just under US$30. All that is needed is a laptop with a standard wireless card common to newly purchased machines.

Debate over the validity of regulations restricting PED use in aircraft have to face these developments. There is a growing demand for communications in the air, and with the upsurge in voice-over-IP services (even Google is getting into the market) wireless broadband will allow passengers to make calls online.

Not only this, but it is also likely that within the next twelve to eighteen months combination mobile phones, which use both the traditional GSM or CDMA network and the wi-fi 802.11 standard will come on the market. Will a wi-fi enabled mobile phone be used on aircraft while the regulations stand (assuming that the GSM or CDMA connection can be disabled)?

If wi-fi voice communication is allowed, be it on a laptop or off a standalone phone, the argument that mobile phones cause unnecessary ‘air-rage’ will be irrelevant. As is the norm in the communications and technology field, innovation threatens the already fragile justification for government regulation of personal electronic devices.

Although a strong telecommunications policy was not judged by any political party to be a powerful electoral strategy, the resounding Coalition victory has put Telstra strongly back into the spotlight. The privatization of Telstra, for so long a backburner issue, has suddenly become not just a possibility, but almost a certainty.

The Productivity Commission recently released a draft of its Review of National Competition Policy Reforms which, in part, advocates an enormous structural change to the carrier and to the Australian telecommunications industry.

The copper wire network in Australia is based on an open access regulatory system. Telstra owns and is responsible for the network, while the ACCC forces the carrier to rent the network out to the other carriers. This system is akin to forcing the owner of a property to take boarders, with the cost of rent subject to centralized price controls — similar to the rent control system in New York City.

Needless to say, this process is highly inefficient. Wholesale price changes are not controlled by market forces, but by a slow and time-consuming process of bureaucratic review, and often legal proceedings. It can also be used by some companies as a weapon to wield against competitors — by claiming that another carrier is acting anti-competitively, companies can stifle others’ business. Still, at the time of the original sale of Telstra, when nearly all telecommunications was conducted through the same copper wires, such an open access system may have seemed attractive.

The proposal of the Productivity Commission is, therefore, to split Telstra in two, to create a clean separation between its retail and wholesale functions.

Passing ownership of the network to a separate entity would compel Telstra to petition and deal with this new entity on the same footing as all the other 100-plus Australian carriers. The loss of market dominance by Telstra would surely follow, as would the repeated cries of ‘Telstra is a bully!’ As the Productivity Commission argues, the entity that arises from the vertical separation of the network would improve its relations with the other carriers. No longer would the owner of the network also be a competitor, but more a neutral arbiter of the industry.

Would the entity be a private company or a further government bureaucracy? The restrictions placed on private ownership would be non-trivial. For instance, such a firm would be forbidden to offer any cut-rate services to businesses or consumers because to do so would make the separation from Telstra meaningless.

This private entity would be trapped between the ACCC and the telcos as the regulators try to micro-manage the industry — an unenviable position in which to be, and a prospect which would excite few firms.

The other option is to leave the government in charge. At least, by this method, the ACCC would be less busy. There would be no need for the tedious legal back-and-forth that frustrates our telecommunications innovation cycle. By essentially integrating the regulators with the regulated, the ACCC would have no worries about promoting ‘competition and fair trade’ for the ‘consumers, business and the community’.

By this method the government could continue to fix wholesale prices at whatever it feels are in the best interest of the community. Not only that, but it could use its new power over the industry to regulate consumer prices — refusing to rent lines to companies which charge more than 22 cents for local calls, for instance. Instead of removing the government from the business operations of telecommunications firms, ownership of the copper wire gives them far more capacity to manage the industry as they see fit, without the pesky corporate lawyers trying valiantly to defend the competitiveness of their firms.

There is a term for this, of course—‘infrastructure socialism’. It is not intended as a compliment. This would give them the entire copper wire network in Australia, and control of the entire industry, not just the occasional oversight that the ACCC now affords them.

It is an understatement to say that government is not the most effective manager of the telecommunications industry — Telstra was partly privatized in 1996 for a reason. For instance, installing a basic copper wire phone service in some rural and regional areas used to take up to 30 months; it is now less than three. Exposing the telecommunications industry to competition has increased the quality and decreased the price of services across the board — an illustration of the stunning inefficiencies of socialized communications.

Considering both options, it is clear that selling the wholesale side of Telstra to a private company is far preferable to leaving it in the hands of a government bureaucracy. But what is not clear is why slicing Telstra across the middle is actually necessary.

The revolution in telecommunications

Telstra may have a monopoly over the copper wire system, but that doesn’t mean that Telstra has a monopoly over the means of communications. Not any more.

It is often argued that the successor to the industrial revolution of the eighteenth and nineteenth centuries has been the revolution in computing of the last two decades. This is not without truth, but it is becoming clearer and clearer that the revolution is not that of ‘computing’ but of ‘communications’. Since the first e-mail message in 1971, the most powerful and the most useful of all the myriad functions that computers can fulfil has been that of communication. There is nothing computers like to do more than talk to each other. And we just suck it up.

It is estimated that, by 2005, over 35 billion e-mails will be sent … each day.

Of course, innovation doesn’t stop at e-mail. Developments in user-to-user software have all but broken any social restraint on breaking copyright in music and movies. Similarly, a new system, Voice over Internet Protocol [VoIP], promises to do the same for the copper wire network. Simply put, VoIP is a method of making a call to a traditional copper-wired phone from a computer through an Internet connection. The quality can far surpass that of traditional phone calls, depending on the individual preferences of the users. (Like most computer programs,
VoIP software is highly customizable.)

As long as one is connected to the Internet, the outward call bypasses the copper wire network — and, by doing so, bypasses Telstra’s monopoly. The 22 cent phone call which is the norm around the country drops suddenly to a fraction of that. If, however, one makes calls between two VoIP services, they become effectively free. And VoIP is not just idle experimentation. Skype, the most popular program, boasts that it has already been downloaded 33 million times.

To use VoIP services, you still need an Internet connection, preferably a broadband one. In Australia, one of the most common methods of broadband access is still through the copper wire networks, a system called ADSL. ADSL is subject to the same forced access regime that traditional voice services are — Telstra owns the lines and is forced to sell access to its competitors by the ACCC.

The telecommunications revolution, however, is breaking this mo- nopoly as well. Many Australians are connected to the Internet via their pay-television cable lines. Around the world, companies are starting to lay fibre-optic cables. The capacity of this technology is incredible. In principle, optic cables can carry up to 25 trillion bits per second — enough, in a single cable, to carry all of the conversations in Australia and the United States at any one time, and still leave room to provide broadband Internet.

Innovation isn’t limited to laying cables. Wireless broadband is steadily becoming more common in homes and businesses, and smaller ISPs are experimenting with full wireless services. Exetel is providing wireless services to metropolitan Sydney for prices comparable with normal ADSL connections.

When you combine the extraordinarily fast Internet connections being developed and installed around the world with the monopoly-breaking Voice over IP, it is clear that we are undergoing a revolution in telecommunications.

But the Productivity Commission proposals appear ignorant of these momentous changes. The benefits of splitting Telstra in two will, at best, last for a few years, and will then benullified by technological progress.

The Productivity Commission’s proposal is akin to reforming a water-canal transport network after the invention of the car. Considering the massive cost, the legal nightmare, and the damage to Telstra’s share-holders’ investment, splitting the company is just not worth it. The benefits are both marginal and temporary.