OECD: Telcos Overcharging By Five Orders Of Magnitude

Infopolicy: A little-noticed report by the OECD sheds light on why the telco industry so forcefully prevents more and better internet connectivity to Europe’s entrepreneurs and households: the telcos are currently overcharging by five orders of magnitude by forcing people to use the telco network rather than the Internet.

An OECD report, referenced by Glyn Moody, describes how vastly more efficient the bottom-up Internet is compared to the old telco industry’s top-down model, and notes that in 99.5% of connection agreements on the Internet, there’s not even any written agreement signed. (In the telco industry, by contrast, you can’t even become an individual subscriber without signing written agreements.) The report uses this observation as a base to state that the telco industry has no business meddling with the net in its upcoming ITU meeting, just like the European Parliament declared in a resolution recently.

But the report also highlighted something else: the Internet provides a large superset of the services of the telco industry, at a cost five order of magnitudes less for the same service. In other words, the telco industry is currently overcharging for voice service by five orders of magnitude – that is, overcharging by a factor of 100,000 compared to market price for net connectivity. (This ties well in with our previous observations that the future sales value of voice and storage is exactly zero, but the OECD is arguably a much heavier voice than this site.) The telcos’ ability to do this – to prevent the net’s utility, the public interest, and economic growth – is entirely due to a gatekeeper position that comes from having strategically bought all the small ISPs in the infancy of the net’s commoditization. It is now completely against the telco industry’s interest to roll out internet connectivity at the pace of the public interest, so it doesn’t happen.

This gatekeeper position is not just used to prevent rollout of more connectivity – it is also used to prevent the existing connectivity from threatening the current ridiculous levels of overcharging (think voice apps on mobile phones, and how many telcos actively sabotage traffic from Skype and Viber, for instance).

It can be hard to digest this enormous discrepancy – an overcharge of five orders of magnitude – so let’s break it down into a household example.

If your phone bill was 500 euros last year, it should have been half a cent, according to the OECD:

The performance of the Internet market model contrasts sharply with that of traditional regulated forms of voice traffic exchange. If the price of Internet transit were stated in the form of an equivalent voice minute rate, it would be about USD 0.0000008 per minute – five orders of magnitude lower than typical voice rates.

We’ve posted about this before, about the ridiculousness of paying by the minute for a 9.6-kilobit connection that can only be used for a voice application, when we have 100 general-purpose megabits at a flat rate in the wall.

So where does all the money from this overcharging go? The telcos aren’t posting record profits. Most of the money from this overcharging goes to maintaining the old obsolete telco network, which is now being used to prevent the rollout of the Internet, which is vastly more efficient and isn’t top-down-controlled. A further lot of it goes to maintaining staff who haven’t changed to a net-centric way of thinking – unofficial but reliable sources tell us that Deutsche Telekom alone has a surplus of at least 100,000 employees.

But it is not in the public interest to safeguard jobs that don’t provide value to society (if it were, we’d still be plowing the fields by hand and destroying Spinning Jennies). If we were able to align the telco industry with the public interest, the telco industry would be decimated in size, but next-generation entrepreneurs would be enabled, as would economic growth in new sectors. That’s in everybody’s interest.

Well, everybody’s interest except the telco industry’s. Until this situation changes – and it probably has to be changed politically, starting with net neutrality and continuing with net rollout by other actors than the telco industry – we will keep having this kind of overcharging, and the net’s rollout will remain prevented, stalled, and delayed.