A price war used to mean two gas stations on opposite sides of a street would go nuts and give their product away until they had exhausted themselves. But today, a price war means telecommunications giants slashing the price of their service, with no signs of exhaustion yet. And rather than an aberration, the current price war in the long distance market may prove to be the rule.
While every telecommunications provider has fees, bells, and whistles, the actual price of long-distance calling has dropped to the region of five to seven cents a minute. And it's not done yet. The biggest component of long-distance telephone costs is the charge that the Federal Communications Commission — the government's traffic cop in the communications market — makes long-distance providers pay to local phone companies in exchange for the locals keeping your home hooked into the system.
But that cost is declining, as are all the others. Telephony is a good example of big systems with large fixed costs at the get-go and then very little in the way of added costs once they start providing service — the actual cost imposed by an added phone call, so long as there's capacity, is virtually nil. And as we head towards a more competitive telecommunications world, that's where the price will be headed, too.
The current long-distance price war, moreover, illustrates a fundamental reality of economics in the information age. There's a big difference between companies in the business of carrying signal and the companies that provide that signal.
The ability to carry a signal — be it a telephone call, an Internet hook-up, an e-mail, data in whatever form — is a commodity, like number two winter wheat. It's all fundamentally the same. The winners in the competition to provide that carriage will be those who provide that commodity most cheaply. Internet service providers may now fetch a premium price for providing you with access, but sooner or later, the price of access will fall, just like the price of long-distance calling.
The real question is — what are the signal carriers going to carry? Right now, the Internet looks like the telephone system, only with nice graphics and souped-up presentation. Instead of calling the store, we double-click it. Instead of a phone call, we e-mail. Instead of talking to each other, we go to chat rooms. Just as in the telephone system, we are the content on the Internet.
It won't be that way forever. The Holy Grail of the Information Age is the search for that special content for which people will pay a premium price. And it's a search with some signs of life. Last Spring, for example, “mp3" — the technology that lets people go “streaming” for video and audio entertainment — replaced “sex” as the most searched-for word on the Internet. Unlike the two corner gas stations, signal carriers may yet come up with something new to sell.
The Triumph of Signal
A price war used to mean two gas stations on opposite sides of a street would go nuts and give their product away until they had exhausted themselves. But today, a price war means telecommunications giants slashing the price of their service, with no signs of exhaustion yet. And rather than an aberration, the current price war in the long distance market may prove to be the rule.
While every telecommunications provider has fees, bells, and whistles, the actual price of long-distance calling has dropped to the region of five to seven cents a minute. And it's not done yet. The biggest component of long-distance telephone costs is the charge that the Federal Communications Commission — the government's traffic cop in the communications market — makes long-distance providers pay to local phone companies in exchange for the locals keeping your home hooked into the system.
But that cost is declining, as are all the others. Telephony is a good example of big systems with large fixed costs at the get-go and then very little in the way of added costs once they start providing service — the actual cost imposed by an added phone call, so long as there's capacity, is virtually nil. And as we head towards a more competitive telecommunications world, that's where the price will be headed, too.
The current long-distance price war, moreover, illustrates a fundamental reality of economics in the information age. There's a big difference between companies in the business of carrying signal and the companies that provide that signal.
The ability to carry a signal — be it a telephone call, an Internet hook-up, an e-mail, data in whatever form — is a commodity, like number two winter wheat. It's all fundamentally the same. The winners in the competition to provide that carriage will be those who provide that commodity most cheaply. Internet service providers may now fetch a premium price for providing you with access, but sooner or later, the price of access will fall, just like the price of long-distance calling.
The real question is — what are the signal carriers going to carry? Right now, the Internet looks like the telephone system, only with nice graphics and souped-up presentation. Instead of calling the store, we double-click it. Instead of a phone call, we e-mail. Instead of talking to each other, we go to chat rooms. Just as in the telephone system, we are the content on the Internet.
It won't be that way forever. The Holy Grail of the Information Age is the search for that special content for which people will pay a premium price. And it's a search with some signs of life. Last Spring, for example, “mp3" — the technology that lets people go “streaming” for video and audio entertainment — replaced “sex” as the most searched-for word on the Internet. Unlike the two corner gas stations, signal carriers may yet come up with something new to sell.