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Internet Telephony: February 24, 2009 eNewsLetter
February 24, 2009

Skype Fair Use Shows Long Tail Effects

By Gary Kim, Contributing Editor

Some end users (not most) and many policy advocates frequently find themselves on one end of the "fair use" debate from providers of access and applications. Sometimes the differences are based on legitimate concerns about what is "fair" or "right." In some cases the differences are based more on ideology than fact.

At a high level, though, providers and consumers differ on fair use for reasons having to do with the actual existence of "long tail" behavior. Providers who offer "all you can eat" service know very well that 80 percent of the network load is created by 20 percent of users, with the obvious corollary that lighter users represent virtually all the profits any service or access provider makes in the business, while heavy users actually cause economic losses.
Skype (News - Alert), for example, has a fair use limit of 10,000 minutes of use by any single user in any single month, with a maximum of six hours a day of use. Also, no more than 50 different numbers can be called on a single day.
Business use of Skype as an outbound calling tool seems to be the reason for the policy. Skype now specifically says "Subscriptions are for individual use only. Each subscription is to be used by one person only and is not to be shared with any other user (whether via a PBX (News - Alert), call center, computer or any other means)."
The new elaboration of the Fair Usage policy seems to be driven by businesses using SkypeOut for customer service and customer acquisition activities, and is an example of why providers have fair use policies in the first place.
Call centers are a prime example of the "long tail" or Pareto distribution in action. In fact, it is precisely the existence of "power users" or "heavy users" that confirms the existence of Pareto distributions in virtually any aspect of the communications business.
It is Pareto distributions that drive the search for ways to arbitrage any particular set of rules in the communications business. The only new twist here is that it is Skype imposing the fair use rules, not a regulatory body or a service provider.
Communications always has been a business with network effects and Pareto distributions. As long as that is the case, broad rules that are fair for most users will be unfair for some users at the "head of the tail."
Rules and policies that are rational and logical for whole networks will be seen as unfair by a small number of users whose activity is dramatically different from any "typical" user. In many cases, regulators have accounted for such behavior by establishing common carrier pricing that smooths out such usage differentials by blending high use, moderate use and low use customers.
In competitive markets this does not work at the level of discrete firms who have to cope with real usage costs and relatively small total user populations that do not allow aggregating enough low usage customers to cover high usage customer losses.
The long tail theorem normally gets applied to digital content markets. It actually describes market dynamics in virtually every legacy business as well.

Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.

Edited by Stefania Viscusi


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