Millennial Perspective: Telecom's Internet Crisis


In Part 1 of a two-part series, Elizabeth Paffenbarger discusses the paradigm shift VoIPs are causing in the telecommunication industry.

In today’s multi-tasking global world, telecommunication has become essential to the health of businesses and society at large. Our “network” of colleagues, friends, and family is constantly expanding with the growth of the technologies that keep us connected. Although rarely acknowledged, the telecommunication industry drives individuals’ hectic lifestyles with social networking, video chats, and text messaging. As businesses increasingly rely on such technologies, they become ever more subject to developments in the telecom industry.

In the 27 years since the first commercial cellular phone service was made available in Chicago, cell phone companies have come to dominate communications in America. Today, six year olds tote cell phones on the school bus and send “text” to neighbors in class. Businesses use telephones to conference with partners in other countries. Society blatantly relies on the cellular industry for entertainment, business and the comforts of life.

Businesses rely on the use of telecommunication for their partnerships and general operations. When interviewed, an owner of the bond insurance company Paffenbarger and Walden had this to say about the effect of telecommunication on his business: “One of the largest costs to any business is the time and money put into telecommunication. The prices I pay in order to contact partners when I am away from the country really takes a toll on my operational expenses.”

According to Mike Gikas, Senior Editor of electronics at Consumer Reports, phone companies make their money three different ways: "One, you pay for minutes you don't use. Two, they make money when you underestimate the number of minutes you use, and you pay extra [for minutes exceeding the contractual allotment]. Three, they make money when you break the contract.” In addition, companies charge high premiums for long distance calls that don’t actually cost much more to connect. With companies charging outrageous roaming fees and creating an oligopoly of cellular services, it is easy to see the control they possess.

Yet new technological developments – on course to disrupt the dominance of cell phone companies – provide hope for small businesses. The internet has forced the reconfiguration of commercial institutions from record companies to newspapers. Mobile and landline phone companies may now enter their own business model crises in the face of Voice over Internet Protocol (VoIP) systems.

VoIPs offer free online communication and international calling at a minimal price. Companies that offer VoIP use three different methods of online communication to satisfy their customers. The first method is PC-to-PC communication, which allows customers to chat, videoconference, and communicate between two separate computers. The second method involves PC to fixed network lines. Through this method users are able to connect with mobile phones or landlines from a PC. The final method that is available to online users is phone-to-phone calls that are implemented through an Internet intermediary. Leading VoIP Skype focuses their business on the use of the first two forms, but other companies specialize in different areas. It will only be a matter of time until major companies switch to VoIP’s affordable strategies.

While there is a fear that the telecommunication industry will suffer against VoIPs and services like Skype there is also the possibility of Skype’s low costs increasing productivity for small and large businesses alike. The new generation is soon to be comprised of telecommuting workers and Internet efficient businesses.

Although VoIP’s future is looking bright in America, other countries have realized the potential threat it poses for local phone services. Traditional phone services’ large profits often line the pockets of local governments who choose to “protect” national companies. Recently congressmen of Russia have begun to draft legislation to ban the use of sites such as Skype that offer free PC to landline calling. VoIP’s cheap prices compete with long-established companies of Russia that are not ready to lose market power. According to the New York Times, business lobbyists want to protect telephone companies from VoIP globalization that would damage the Russian economy. Russia’s reactions have raised questions as to whether the use of VoIPs could negatively affect the world economy. Other countries are watching Russia to observe how its plans to restrict the telecommunication market pan out. Soon, Russia may not stand alone in banning these types of services

The future of telecommunication resembles many other industries that are succumbing to the power of the World Wide Web. Nevertheless, the dwindling prices for communication offered on the Internet do not so much pose a threat to business as they do a possibility for relieving high priced phone bills. It will soon no longer be acceptable for companies to charge the high rates for long distance communication that have become the norm. These excessive charges are unnecessary when long distance calls are not much costlier to provide. As long as government allows the operations of VoIPs, the services have a positive future ahead of them, as well as the businesses that use them.

Part 2 in Paffenberger's series focuses on the success and future of Skype.

Elizabeth Paffenbarger is a student at Chapman University.