Justice Department Says ISPs Are Like The Post Office

The U.S. Justice Department has taken a step toward you getting more charges from your ISP. In comments to the FCC today, the Department said imposing Net neutrality regulations could “could deter broadband Internet providers from upgrading and expanding their networks to reach more Americans.”

Chief amongst their examples was that the one of the oldest data delivery systems, the U.S. Postal Service, charges customers differently based on guarantees and speeds of delivery, ranging from bulk mail to overnight. Similarly, the Department believes ISPs who deliver data packages, should be able to offer different levels of service to spread the costs of improving networks.

Net Neutrality proponents counter with a different analogy, pointing out telephone networks have always been neutral to the data transmitted across their wires.

This is good news for telecoms, like by AT&T Inc., Verizon and Comcast, who argue that high-volume uploaders should pay for part of the cost of upgrading internet infrastructure to handle the new load. It’s bad news for the internet companies (Google, eBay, Yahoo ,Microsoft) ISPs have seen get rich off their networks.

However, Telcos caution that they don’t want to charge for access to public sites, but want to offer private Internet-based services with faster speeds for uses such as downloading movies.

Facebook Takes Further Steps To Curb User Abuse; Change In How Applications Are Measured

Last week Facebook updated their developer platform to restrict some of the more egregious abuses of users by application developers - bait and switch profile advertisements and friend spamming.

Today they announced additional changes. And Facebook also announced that they are changing the way applications are measured to show user engagement instead of just how many users have added an application.

Defending Users Against Abuse

Today they’ve updated the platform again to further restrict questionable behavior. In a blog post on the Facebook developers site, Dave Morin outlines the new rules and says “With the upcoming changes, we hope to shift the balance more in favor of good apps.”

It is now impossible for applications to hide things from profile owners. Previously, applications were showing ads to friends without the owner seeing the ad when looking at his/her own profile.

Facebook has also taken steps to limit invitations sent to friends, and have stopped applications from sending emails to users who’ve added it.

Application Metrics

Morin also says Facebook is going to start giving users more information on which applications are actually being used, as opposed to simply added and forgotten:

This week you’ll see us shift our application directory metrics to a focus on user engagement. This will help inform users as they make decisions on which applications to add as well as shift developer focus to engagement rather than total users. More specifics will be available as we roll out these changes this coming week.

This is a good change. Newer applications with fewer users will now have a way to move up on the charts if users are really engaged with the application. We’ll have to wait and see exactly how they plan on measuring engagement, but overall this is good news for the lesser known but “good” applications that are currently hard to find.

The Quickly Evolving Platform

Facebook is still a young platform, and it’s good that they are taking steps to reduce abuse of the user base. But they don’t seem to be taking any remedial action against past abusers, meaning those applications get to keep the millions of users they’ve racked up using questionable practices.

Since application developers aren’t penalized for finding the weaknesses in the Facebook platform, expect them (and their venture dollars) to continue to focus on finding the next hole to exploit. If Facebook were to slap a few of the worst offenders on the wrist, perhaps others would lose the incentive to engage in bad behavior.

Also, the changes are very cumbersome for even the non-abusers. For example, applications will now need to find another way to contact users since email is out. That creates uncertainty, and reduces the incentive for the good guys to innovate since they don’t know if functionality will disappear.

At the end of the day, it may take more to police this ecosystem than occasional band aids to the platform to stop abuse as it appears. A more subjective reward and punishment system may eventually evolve where Facebook takes an active role in policing the behavior of application developers. It may or may not be a good thing, but it is almost certainly inevitable.

Three Ways Startups Are Providing VOIP

While the consumer “landline replacement” VOIP battles continue to wage (the cable companies now control over 70% of that market, and Vonage is still fighting), a number of nimble software-only startups are experimenting with their own services.

All of them allow users to call normal, non-VOIP telephones at greatly reduced costs. These savings can be captured whether or not the parties to a phone conversation are using VOIP-enabled phones, since transmissions can jump from PSTN to VOIP and vice-versa at certain junctions. For example, a cellular call to your buddy across the country might start on PSTN, quickly jump to VOIP for long distance travel, and jump back to PSTN near its destination.

The key is to use VOIP to strip out some or most of the cost of the call, allowing these startups to offer very low cost calling to consumers. These aren’t free calls, though - any time a normal phone line is used for at least part of the call, particularly the termination, the teleco’s get a toll.

Making sense of all of the new VOIP startups is daunting, so we’re categorizing them by use cases. For a comparison of features, prices, and more companies, check out the chart to the right.

I’m Cheap and I Have a Computer

By far the cheapest way to go with calling is to get a desktop client. VoIP clients on your desktop allow users to make calls from one computer to another across the VoIP network. For an added fee, you can connect to a standard phone on the PSTN phone network for calls to or from your computer. Most of you will know this as Skype-in and Skype-out.

The most well known desktop client has been Skype, with over 100 million users. The big guys - Yahoo, Microsoft, and Google - also have their own VoIP desktop clients. Since the VoIP offerings have been built into their IM clients, combined they comprise a potential market of over 340 million subscribers.

A younger startup, the Gizmo Project, launched in July of last year. They have a reported 2 million downloads of their application. The application functions like Skype, supporting IM and VoIP calls. The Gizmo Project has the unique distinction of not only offering IM and VoIP calls, but also free calls to the standard phone network if you promote their product to a friend and stay an “active user“.

Hullo and Nimbuzz are other desktop VOIP application we’ve covered.

I like WiFi and Saving Money

If the idea of holding a laptop up to your ear to talk to your friends doesn’t sound appealing, Nokia’s WiFi phones may be for you. The Nokia N800 is a great example and takes advantage of the free in network calling of the desktop applications. Fring, which gives Skype-like functionality over 3G/GPRS and WiFi, is very Nokia friendly and just moved on to Windows Mobile. However, you still need to pay for calling standard phone lines and buy a real phone number so your friends on those dated PSTN phones can call you back. They recently raised another round of $12 million and have received a lot of praise from us in the past.

I Have a Social Life WiFi Can’t Contain

If you’re not in WiFi heaven (Mountain View) or perpetually hanging out at WiFi hotspots, there are some other semi VoIP solutions that can still save you some money, at least on long distance calls. Mobile VoIP providers don’t throw out the PSTN lines, but instead save customers money by bridging the connection between two calls the caller and callee make to local numbers with cheaper VoIP lines. However, these solutions work best for long distance where bridging local calls makes sense and still cost minutes on you mobile plan. The main advantage is that it works on that hot new phone you picked up after reading a CrunchGear review.

There are quite a few players in this category, including desktop VOIP client Skype’s own player, iSkoot. iSkoot is the mobile version of Skype, which allows you to place calls to your Skype contacts by calling their Skype servers to route the calls. Shape Services recently hacked together an iPhone version of Skype, but reports are that is suffers from AT&T’s low transfer rates. Another startup, EQO was competing in that category until they stepped out on their own with a VOIP, IM, and messaging mobile application that we’ve written about earlier.

The biggest kids on the block, with $28 million and $24.5 million in financing respectively, are Jajah and Truphone. The two startups allow you to easily make calls from your mobile phones. However, Jajah uses VOIP to bridge two standard phone lines, while Truphone can make truly free calls if your phone has a fast enough data connection. Their relationship has been further complicated with T-Mobile, a Jajah investor, kicking Truphone off their network. T-Mobile made their own venture into WiFi calling with “Hot Spot at Home“, which lets you add unlimited calling from your WiFi network for $9.95 extra a month.

Who’s Winning

While Skype is apparently making money for eBay, no other startups are profitable as far as we know. But the communications industry itself is hurting. There’s a shift is afoot particularly in the mobile industry as voice revenues drop from $51 a month in 2000 to $43 a month last year, carriers are looking for a ways to set themselves apart in the $118 billion U.S. cell-phone market. Data plans are widely heralded as the future for increasing telco annual revenue per user (ARPU).

However, this doesn’t mean an easy path for VOIP. VOIP on your mobile phone is facing quite a few challenges. The most basic problem is just distributing your application on the plethora of mobile platforms. Mobile carriers aren’t helping because they’re still reluctant to hasten the demise of their voice and content services. Verizon and their variety of subscription services (VCast, maps) are perfect example of the latter.

We’ve expressed a lot of dissatisfaction over the usability of a lot of these applications too. After it’s on your phone, VOIP services can add another rats nest of differing call rates and can sometimes only save you money on long distance calls while still costing minutes. With national long distance included in a lot of U.S cell plans, it may not make sense for a lot of users. Even still, that leaves dozens of VOIP carriers (just check our chart) competing to push down calling rates.

Then there’s the bandwidth requirements. Mobile data networks are generally not fast enough to ensure a high enough quality of service. The best way to deliver VOIP, over WiFi, still isn’t everywhere, no matter how hard Google tries. 3G provides better coverage and sufficient bandwidth, but is still controlled by carriers, who can throttle the upstream bandwidth to affect VOIP’s quality. Verizon reportedly plans to offer VOIP over 3G, but hasn’t come through on the promise since 2005.

Consequently, VOIP remains fragmented across the landline, desktop, and mobile platforms.

The crux of the matter is that winners in the this category will have to play nice with the carriers. Even startups that work purely off of data plans or your desktop need the carriers to provide the mobile networking infrastructure. Jajah is in the best position to work with carriers, by offering cheaper long distance calling while still using calling minutes that are carriers bread and butter. Services that operate over data networks, like Fring and the Gizmo Project may offer consumers better deals by circumventing the carrier’s voice plans over increasingly speedier data networks, but are directly competitive with the carriers. Undercutting the profits of these incumbents will eventually cause them to butt heads as TruPhone did with T-Mobile or some carriers have by disabling VOIP on N95s. Short of these startups changing their revolutionary rhetoric, it looks like an uphill battle.