Updated version of an article that was first published by Tom Koltai at 01:29AM (EST) on February 4, 2010

Or – The Havenots are becoming the Haves.

Preamble

It’s a well known fact that when placed under restricting circumstances, all animals will look for an escape or release from the restriction.

“The Internet treats censorship as a malfunction and routes around it.” – John Perry Barlow.

The Article

IRC stands for Internet Relay Chat. It’s been around since I was a little boy. OK – It’s been around since 1988.

For those that are not familiar with IRC, it’s the same (in principle) as MSN chat, Yahoo chat, Skype chat – in fact all of those programs allow you to type messages to each other – via the internet – FOR FREE.

In fact in the early nineties, I, with a number of BBS sysops in Australia set-up a chat link called Ozlink and we connected our BBS’es  to other BBS’es all over Australia.

I was connected to the Internet so we found like minded Sysops in other countries like like Florida Frankfurt and Colorado to which we connected the Australian Ozlink chat.

It was fun, chatting to people on the other side of the country or world. (This was BEFORE MSN/YAHOO etc.)

I fell in love with the technology because I saw it as a way for people to communicate with lots of other people, cheaply and as an economist, I just knew that had to be good for the economy.

Fast forward to 1996 and Telstra attempting to defend their voice traffic by attempting to implement a ”B” party charging regime for incoming VOIP calls via the internet.

Well we stopped that one with concerted activism which I believe for the first time in Australia had thousands of consumers sending faxes to their MP’s. (The power of the Net…)

Telecommunications companies in the early days of the Internet were moaning and groaning about losing revenue.

In 1994 I predicted that the Internet would make the current business models of Telcos redundant.

Every one of those groaning, complaining Telco’s, are still with us today, stronger and more profitable than before the internet.

They observed, they learnt, they entered the ring and started boxing… (adapted to the new business model) and it rather looks like they have won the game. In most countries, it is the large Telco’s that control access to most of the internet infrastructure.

That accounts for approximately one fifth of the worlds population, mainly what we like to call the industrialized world.

The other 4.8 billion (the emerging economies) are still hunting with bows and arrows.

Or so I thought until I received an email recently from Tomi Ahonen. It contained the summary of his 2010 Mobile Phone Almanac.

We started this article by discussing messaging programs on the Internet.

What we omitted was the phenomenal growth of the Small Message System (SMS).

To put it another way, in January 2009 the world average is 12 billion SMS text messages sent every day, or 525 million per hour, or 8.7 million per minute, or 146,000 SMS text messages sent every second of every day 365 days of the year. At a global average price of 2.5 cents per SMS, this industry generates a fresh million dollars of new revenues every 4.5 minutes of every day of the year.

Prices for SMS have been reducing steadily since 1998.

According to the 2005 ACMA prepared consumer benefits report (Telcommunications),

“the introduction of capped mobile plans means there has been an effective price reduction stimulating consumption in addition to the continued strong growth in mobile messaging.”

With the majority of plans now offering 100 free SMS per month with subsequent messages being charged for at around 10-15 cents per.

In some countries the cost is as low as 2.5 cents per message.

With consumers now sending an average of 100+ SMS messages per month,

The global mobile messaging revenues grossing at $153 Billion dollars are bigger than radio, Hollywood, video gaming & music industries combined.

Source: Tomi Ahonen Almanac 2010

Sorry folks, I just have to say it again. WOW.

So it is possible to make money out of something priced at a an average unit cost of between 2.5 cents and fifteen cents.

Therefore it would seem as if wider adoption is driven by a lowering of the price and not an increase as per the recent increase by iTunes from $0.99 to $1.29 per track.

And here is the interesting bit, to achieve these remarkable growth figures the telecommunications industry …

• didn’t need to sue their customers for using MSN/Yahoo or IRC.
• didn’t need to turn our courts into their personal employees.
• didn’t need to lobby our politicians for unworkable legislation.

The Telephone companies achieved their 12% revenue increase in the middle of a recession, the old fashion way.

By providing a service at a realistic cost and billing for it.

Let me spell that out in large letters for the folk that don’t quite understand how this works.

If you are a mobile phone consumer and wish to send a message – first you have to be located within a service area, and you need a mobile phone.

If there is no Cell-phone tower within range, the Telephone Company don’t get your business.

So of course, Telephone companies build infrastructure to make sure that there’s a cellphone tower close by, in case you want to send an SMS.

If you cant afford to buy an expensive handset, they offer you whichever handset you want on a pay by the month plan; just to ensure that they have your business.

SMS messaging in Australia started in 1995. Billing for the messages commenced in 1996 at $0.25 per message.

Now the cost of SMS varies between three cents and eight cents (at the wholesale level) and twelve cents to twenty cents at the retail level.

According to Tomi’s data, 3.6 billion people used messaging services of whom 2 billion were from emerging nations. )(OK so bows and arrows and cell phones….)

So now persons in emerging nations are able to afford to send a message to others for a few pennies/cents.

Obviously low cost messaging with availability of service equals windfall revenues for the carriers.

Can those emerging nations afford to buy a Blu-Ray copy of this years movie? – Nope.

Can they buy it from Amazon if they don’t live in the USA? – Nope.

Is there any legal affordable manner for them to obtain the content legally ? – Nope.

What choice do they have?

They can download it from the Net or not watch it.

That’s not a choice, it’s a Technical Meme waiting for some software to make it happen.

Oh, the software for mobile phone P2P downloads already exists?

Sure has done since 2004.

But only for people from the industrial countries surely.

Nope, its available to anyone with a data connection.

And as can be seen from Tomi’s connectivity data, the communication crossover between industrialized and emerging has occurred.

DIGITAL DIVIDE per capita	Industrialized World		Emerging World		Total
Banking account unique holders	950,000,000	(79%)	1,250,000,000	(22%)	2.2 B
Internet users inc PC, shared & mobile	775,000,000	(63%)	925,000,000	(17%)	1.7 B
Mobile phone subscriptions	1,600,000,000	(225%)	3,000,000,000	(21%)	4.6 B

There are now more people connected from the emerging nations than the industrialized nations.

The moral of the story is that the industry that provides the ability for it’s customers to :

a) Acquire the content (get connected)

b) Use the content (send/receive a billable message)

c) Economically (cheaply)

Appears to be leaping ahead of the industry that makes the content

a) hard to get – if you happen to live in the wrong country.

b) too expensive

c) encrypted and too hard to use

d) self destroying DRM rental overnight digital copies

e) sues their customers

f)  wastes money lobbying Government to enact prehistoric legislation.

g) When it does make the content available – it is usually not in a timely manner.

In other words what would happen if when you wanted to send an SMS, the Telephone company operator came on the line and said – I’m sorry sir, but SMS service to your destination party will be delayed for three to six months from the time you send the message.

When you ask why…..

The operator replies….

Well our boss is on the board of Warner Bros Studios and it’s a new thing they’re trialing. Three month Delayed SMS. Do you think it will catch on?

The Telco’s with their aggressive and supportive marketing plans have made a success of harvesting increasing revenues from countries who it seems only last decade, were on our foreign aid recipient list.

We wonder if the content industry can learn to do the same.

After all, look at the money they made out of a lousy billion people. How much could they make our of selling that catalogue to five billion more?

Hint – A Blue-ray video that sells for $25.00 on Amazon is not going to sell too well in Burundi where the average income is $120.00 per annum.

(Of course I’m assuming that unlike Australians, Burundians will be able to purchase Video content from Amazon and not be told – I’m sorry the country of your IP address is not yet authorized to purchase that content…..) AAaaaaargh!

In closing, I need to comment on the ability of users to lower their SMS costs even further by utilising IM over GPRS resulting in a dramatic discount rate of over 400%.

Most elect to not take this route as SMS is just the accepted easy method.

Viz: iTunes versus the technology capability required for effective file-sharing.

Disclosure:

I have purchased Tomi Ahonens 2009 and 2010 Almanac. I have no other connection with Tomi or his products. I do however happen to like the way he presents his data and findings.

References:

Tomi Ahonen “Tomi Ahonen Almanac 2010″

[Tomi Ahonen presentation and slides on The Next 4 Billion]

http://fora.tv/2009/09/24/Mobile_Phones_The_Next_4_Billion_with_Tomi_Ahonen

A study of mobile termination charges

http://www.moc.gov.il/new/documents/about/analisis_10.2.05.pdf

Consumer benefits report (ACMA) 2004-2005

http://www.acma.gov.au/WEB/STANDARD/pc=PC_100209