Business-wise, Skype is a basketcase. But that’s just one of the things that makes it one of the most emblematic companies of our time – a real, Ur-Web 2.0 company.

Like so many internet companies, Skype has millions and millions of users. Like these internet companies, too, it can’t make very much money off all these users. Hello, Facebook! And like these internet pin-ups, it owes a great deal to utopian power fantasies.

But what makes Skype so very of its time is the peculiar relationship it has with incumbent telecomms companies.

Think of Skype as a kind of parasitic virus that threatens to bring the host to its knees – but which can’t survive without a living host. Bloggers and mainstream newspapers are another good example.

How so?

Well, Skype has no network of its own – it’s simply an open protocol (SIP is more than one protocol, but bear with me) wrapped up in some proprietary bits. Apart from a few authentication servers, its only real asset is its “brand” – which isn’t the most concrete or tangible line item to have on your balance sheet.

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More dismal news for the US consumer. After the simultaneous failure of Municipal Wi-Fi projects in three major US cities – something we predicted four years ago – faster, cheaper mobile data looks further away than ever.

So why are Google lobbyists advocating for the next wave of collapsing wireless initiatives – rather than helping things?
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At times you can feel sorry for Nokia. The company is damned when it dares to plan for the future, and it’s damned if it doesn’t.

But that illustrates the depth of its dilemma. Today, Nokia is phenomenally successful in one business – handsets – which generates £27bn ($54bn) a year, with a margin of between 15 to 20 per cent.

However, Nokia relies on a small number of powerful customers as its route to market. This isn’t a problem for every business. If you sell fighter aircraft, you know who your handful of customers are, and can schmooze them directly. If you sell bangles from a market stall, you can choose which market you sell from. Nokia doesn’t have the luxury of either: its channel is its market.

And “getting from here to there” is the problem.

At great expense last week, Nokia began to imagine itself as a very different kind of company: a vertically integrated services business. Mobile users would flock to the company’s new portal, Ovi, for games, music, information and “social” interaction. You might call this a “post-operator” world, but it’s also a “post-Nokia” world, as it presumes that both data and devices are commoditised. It’s a Plan B.

However, the strategy takes today’s complex mobile data eco-system and promises to torch it. Today, there’s room for a Real Networks selling games or ringtones, for example, or an AQA providing an answers service. Nokia’s Ovi portal effectively declares war on all these smaller service providers. That can be considered bad manners (or a business necessity) – but it isn’t fatal to Nokia’s plans. It’s the biggest, would-be service companies who are the most threatened.
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While the CTIA Wireless jamboree took place in Florida this week, European telcos were drawn in a huddle in London at one of the most intriguing events of the telecoms calendar.

The theme at STL’s twice-yearly Telco 2.0 Brainstorm is familiar: “How to making money in an IP-based world”. But it has an added piquancy now.

And there’s plenty at stake. The part of AT&T formerly known as Cingular, the cellular division, makes more revenue than Google and Intel combined each quarter. But as with all mobile network operators, it’s been made from a large, vertically integrated operation, and a fiercely-protected, closed network. The rise of the Internet Protocol stack (IP) changes all that.

IP evangelists can be pretty scathing: IP will destroy the Soviet model; their “Net heads” will triumph over “Bell heads”. At stake, they say, is a battle which pits innovation versus atrophy. Unlike the open internet, telecomms provide a barrier to fledgling service providers or application developers. There’s no common API, and the service companies need to beg permission.

But there are other ways of looking at it.

Mobile telephony – at least in Europe and Asia – is the most successful application of technology since the combustion engine. It’s affordable to the poorest, but it feeds the id of the wealthiest fashion victims. Take up is almost 100 per cent – while internet adoption is stubbornly stalled at around 60 to 70 per cent of the Western population, and is seen as little more than a platform for games in much of the world. While mobile operators take a tax from almost all of us, very few of us (outside the US, at least) seem to resent this. And it’s perceived as reliable. Rich or poor, drunk or sober – when you push a button, the call gets through. When you send a message, you know it gets delivered. Imagine if that simplicity and efficiency was applied to your local tax rebate bureaucracy – or the financial services industry. And mobile telephony gets cheaper and better every year.

Yet this success story is under direct attack from a very American model of how business should work. This is a model which values abstractions over outcome.

To give you an example of what I mean, this week, I heard more than one person seriously endorse the idea that mobile phones should have two ’send buttons’ (that’s the green button ‘call’ on every handset) so we could engage in “dynamic differential pricing”. This would delight American economists, but I found myself thinking how I could explain this innovation to a new user down the pub.
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My presentation to the Westminster eForum on Net Neutrality. I’ll turn this into an embeddable slide show eventually, honest.

For now, see The Register for transcript and slides.

The first significant Net Neutrality debate to take place in the UK was held today at Westminster. Chaired by former trade minister Alun Michael and the Conservative shadow trade minister Charles Hendry, the event attracted the chief Telecoms regulator and ministry policy chief, a clutch of industry representatives, and a sprinkling of members of both houses.

What emerged from the sessions is that ‘Neutrality’ is one of those incomprehensible American phenomenons, from which we’ve mercifully escaped. Your reporter was one of those invited to give a briefing – having reported on the issue from both sides of the pond – and said as much. But in the expectation that this would be the heretic view, rather than the near unanimous consensus opinion.

Summing up, Michael described the clamour for pre-emptive technical legislation as “extreme… unattractive and impractical”.

It was, he said, “an answer to problems we don’t have, using a philosophy we don’t share”.

That wasn’t the only surprise.

Google strop

Interestingly, the event was snubbed by Google, which in the USA has done so much to stoke the “Neutrality” crusade. Google has thrown lobbying money and muscle at Congress, but at Westminster, declined an invitation to speak. It sent a representative who told a fellow attendee that the panel was “biased”.

Stranger still, and this should cause conspiracy theorists some confusion – the Forum was sponsored by AT&T. That’s the AT&T that Neutralists insist doesn’t want to talk about its nefarious plans to sabotage the internet. Well, here it was. Maybe AT&T never had any intention of doing what the Neutralists claimed it wanted to do – and it was all a huge misdirection. But Occam’s Razor is never sufficient for conspiracy theorists, who simply create a new, and more elaborate narrative.

Overall, the debate was on another plane of technical and economic literacy to the hysteria served before Congress.

That doesn’t mean the UK regulator is oblivious to sensitivities. OFCOM regards the markets as essentially different. There’s more access competition here, and the UK doesn’t have such as ancient cruft as the US distinction between an information provider and a telephony provider. Greater competition means a regulator can do what a regular should do, believes OFCOM, and let the market sort it out.

OFCOM’s Douglas Scott reiterated that policy today. He said, however, he believed Neutrality wasn’t a US-only debate. Neutrality issues were being pushed up the agenda by the emergence of time-critical applications (such as video), and the ability of equipment vendors to deliver a smarter network. He then demolished most of the reasons why OFCOM needed to get involved.

In the USA, “all bits is equal” is a mainstream view, in Europe, it isn’t. The European framework permits ISP to prioritize packets by application, which the UK regulator regards as fine. A grey area, he suggested, was when an ISP offered MySpace a preferential Quality of Service deal, for a fee. Should the regulator constrain the fee?

Hand-off hands off

concerns about T-Mobile’s contract blocking VoIP calls last year. OFCOM was aware that rival network operators were striking deals with VoIP operators (3 UK now offers a packaging including Skype for £5 a month) and declined to intervene. T-Mobile has now responded with a VoIP tariff.

(It’s largely irrelevant, but still worth noting, that T-Mobile has yet to block a VoIP call made by your reporter, which suggests that while it wants to discourage VoIP calls it can’t afford to prevent them).

In that example, said Scott, OFCOM would probably have stepped in if all the operators were blocking VoIP.

Scott concluded by saying neutrality wasn’t an issue, so long as customers could migrate to an alternative provider quickly and easily.

Speaker after speaker described the difficulty of painting the phantom called Neutrality. Most characterized it as a US-centric debate. Most were wary of prescriptive regulation, which had to be technical by nature, when no harm had been caused and the problem couldn’t be described.

The Head of UK Telecoms Policy at the Department of Trade and Industry, Claire Hobson, said Neutrality was in danger of being an issue that’s “flogged to death”. She described the position as “relaxed but not comatose”, and reiterated Douglas Scott’s view that so long as people knew what deal they were getting, and could switch easily, “Neutrality” wasn’t an issue.

And Americans characterize Europeans as regulation-happy?

Networks need to get smarter, says PacketExchange’s Kieron O’Brien, in a sharp counterpoint to the “Net Neutrality” hysteria.

PacketExchange bypasses the congestion of the internet by offering its customers a private end-to-end network. Some of its customers, such as Nokia, Microsoft, and cable ISP Telewest (now owned by Virgin) aren’t so surprising. But last week it added social networking site Bebo to its client list.

But look at what Bebo does, O’Brien told us. You’ll see why it wanted to bypass the net too.

For most internet users at home uploads are far from optimal – and Bebo users like to upload stuff, like photos and clips. They’re very model “Web 2.0 citizens”, if you like.

Which is where it runs into today’s network – and trouble.

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A Voice over IP service was to blame for a man in Massachusetts bursting into flames at the weekend.

The man, David Reed, held an executive position at Lotus in the early 1980s, and was a Fellow at HP Labs. He is said to be recovering from the spontaneous human combustion at MIT Media Lab, where he’s on the faculty – and where, we hope, the presence of alarm clocks that run away from people shouldn’t hinder his recovery.

We’re speaking figuratively, of course.

Reed was responding to a discussion on David Farber’s IP list that prompted by last week’s publicity stunt by Skype. We reported this here, but to summarize: Skype, notorious as a closed system, asked the FCC to open its networks to so any device can be attached (which it already can), and create a new standards body so it could nobble the cellular operators’ own standards bodies, and tell them what to do. A fine case of the pot calling the kettle black, we suggested.

But the discussion rapidly turned into a conflagration.

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eBay’s proprietary VoIP service Skype wants the Federal Communications Commission to change its rules on how cellular networks operate.

It’s demanding that the US regulator extend a 1968 legal decision, which permitted any device to be attached to the AT&T network, to apply to mobile operators. It also wants a new industry body to decide the standards for the networks, and ensure they comply: effectively bypassing the 3GPP (http://www.3gpp.org/), 3GPP2 (http://www.3gpp2.org/) and IETF standards bodies.

“After you”, the operators may well say.

For Skype is a closed system itself, using a proprietary signalling protocol, in contrast to the open SIP (Session Initiation Protocol) family of industry standards. In addition, the Skype client is closed proprietary software – in contrast to the software libre WengoPhone (http://www.openwengo.org/) project, and in contrast to much of the core infrastructure used by VoIP service providers, which is often based on Asterisk (http://www.asterisk.org/), which is available under GPL.

But is the claim justified?
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Google’s TV chief has admitted the internet is crap for TV. Speaking to the Cable Europe Congress in Amsterdam, Vincent Dureau told attendees:

“The web infrastructure, and even Google’s [infrastructure]…doesn’t scale. It’s not going to offer the quality of service that consumers expect.”

Dureau, is head of TV technology at the ad giant. He candidly admitted that his own YouTube video service was part of the problem.

Engineers point to two different problems with today’s internet. The bandwidth is too low, but more acutely, latency and “jitter” mean the quality of the viewing experience is severely compromised. If an email program, or even one of Google’s YouTube’s Flash-based movies is forced to wait for a second, no one notices. But if a movie keeps hiccuping, no one will use the service again.

Adding to the dilemma is the question of who will invest to fix these problems – and who will end up paying for that investment?

Deloitte and Touche’s recently-published Telecoms Predictions report for 2007 contains a gloomy prediction that escaped almost everyone’s attention. Deloitte’s authors touch on the economics of the “net neutrality” debate, with respect to investment, advising partisans to calm down.

“Clearly, something has to change in the economics of internet access, such that network operators and ISPs can continue to invest in new infrastructure and maintain service quality, and consumers can continue to enjoy the internet as they know it today.”

That caught the attention of pundits. The conclusion, however, didn’t.

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