Monday, September 12, 2005 - The Progress & Freedom Foundation Blog

To Be or Not to Be: EBay as Phone Company?

EBay's decision to acquire Skype highlights (again) the evaporation of market boundaries between historically distinct services, as well as the need for pioneering companies to exercise caution in crossing such boundaries.

By all accounts, EBay wants to complement its own auction-based e-commerce offerings with Skype's voice offerings, global presence, tech-savvy customers and revenue growth potential. In attempting to leverage its core competencies by adding voice capabilities, EBay follows similar moves by companies such as Google and Yahoo. And like those earlier announcements, EBay takes this bold strategic step without expressing any significant worry about "regulatory overhang," especially to the extent these voice offerings begin to resemble "plain old telephone service."

As demonstrated in the context of Internet voice and other broadband services, regulators' principles and platitudes about encouraging these services by freeing them from regulation extend only to rate-setting, physical unbundling and other forms of "economic regulation." Most policymakers assume that many voice services will be subjected to various "social obligations," such as those concerning "dial 911" emergency communications, wiretapping for law enforcement, access by persons with disabilities and support for universal service.

Who gets to honor these costly obligations remains murky but turns primarily on how much a voice capability begins to resemble a traditional phone call. The rationale (also a bit murky, or at least circular) is that consumers expect and thus depend on certain capabilities in phone service, such as the ability to dial 911. Thus, anything consumers might take to be phone service (because it looks like phone service) must be required to provide the phone service features -- often even if consumers would subscribe to services without those features, or if companies would provide those features voluntarily. Put another way, regulators insist that if a service looks like a duck (i.e., traditional phone service), it must quack like one, too.

Like its predecessors, EBay appears prepared to use Skype to provide voice capabilities that allow users to reach a vast number of EBay and Skype customers, or anyone else on the ubiquitous public phone network, for a fee. If the merged company takes that route, it may find it difficult to distinguish its offerings from services that have been regulated (and hard) for generations.

All of which raises the question: as EBay and others continue to pursue growth by adding voice features and other indicia of telephone service, do they really want to be phone companies and, if so, are they prepared to quack for regulators?

posted by Kyle Dixon @ 3:00 PM | Broadband , Cable , Communications , Innovation , Internet , The FCC , Universal Service , VoIP , Wireline