Chris Barton: No such thing as a 'free' lunch

The word "free" has many uses that we deem good - free speech, free country and, depending on your point of view, free market.

Similar to the 60s' "free love" and the affectionate "free spirit" the meaning suggested here is largely unfettered - by political, moral, social or regulatory constraints.

But the other meaning of free, no cost, we tend to view as bad.

We know there is no such thing as a free lunch. But ever since the beginning of the internet the "bad" definition of free - as in free music, free internet, free software, and more recently free spectrum - has made its presence felt.

It began with free information. Almost overnight, vast libraries of information - news, research, rants, trivia and trash - were on the web for the taking.

Free? It certainly felt that way - if you wanted to you didn't ever have to buy a newspaper or magazine again.

But there is a cost - about $3000 for a computer and between $15 and $65 per month for access.

The cost of access is often forgotten in the free argument - costs that help keep telcos, internet providers, computer manufacturers, and those who make and run the net's plumbing, in business. So while traditional content providers suffered, others benefited.

The same is true with free music.

Thanks to the file swapping phenomenon a lot of people don't pay for music any more, but while many in the music industry are now missing out, business is booming in burnable CD discs and MP3 players. Not to mention the lawyers who will be employed for years chasing the file swappers.

Free is not what it seems. And what free takes with one hand it gives with the other.

But free is certainly a market force to be reckoned with.

Telecom felt its power in 2000 when there was a period of free internet in New Zealand.

Local company i4free exploited Telecom's exorbitant interconnect charges to provide free dial-up connections to thousands of people. An outraged Telecom cut off i4free's lines. I4free got an injunction.

But then Telecom did a deal with Clear which was supplying i4free with the interconnecting network, and a slice of the interconnection fees.

I4free's revenue stream was cut off and free internet dried up.

But i4free - an offshoot of CallPlus - may yet have the last laugh. Its case against Telecom for anti-competitive behaviour in which it's seeking about $18 million in damages is still making its way through our legal system.

Microsoft too is no stranger to the power of free. It used the tactic in the 90s' browser wars to win back market share from Netscape.

By giving away its web browser with its operating system, the software giant was able to claw back a market it was late to recognise.

It also faced costly anti-competitive legal action that has not yet been fully resolved. Its recent payment of US$750 million ($1.3 billion) to AOL, which bought Netscape in 1999, is the latest episode in the saga.

Today Microsoft faces its own free onslaught - from the open source software movement, and especially Linux.

Microsoft chief executive Steve Ballmer says much is at stake: "Non-commercial software products in general and Linux in particular present a competitive challenge for us and for our entire industry, and they require our concentrated focus and attention."

Ironically, the tendency towards free signals that a free market is operating.

In the high-tech sector it's a potent weapon against monopoly power. Which is why regulators must be careful about laws which rather than promoting competition, stifle innovation and favour the status quo.

But balancing the demands of the old world with the new is a difficult tightrope for regulators and businesses to walk.

Take the vexed world of copyright law. In a recent discussion paper the Government recognises a need to allow "format shifting" - changing legally purchased music from a CD to computer or MP3 files and vice versa.

The recording industry is against it - seeing this as opening the floodgates to ever more illegally downloaded music.

This puts Telecom in a difficult position.

On the one hand it doesn't want to condone illegally downloaded music and actually slows down broadband users if they're using file-sharing networks.

On the other, Telecom doesn't want to annoy its online customers because downloading music is the number-one pastime among its residential users.

A similar hypocrisy exists with companies such as Sony, which is behind the current legal battle against file swappers, but also makes money from selling CD burners, and MP3 and other format-shifting players.

A dilemma also faces the Government in its plans to privatise New Zealand's radio spectrum.

By selling it off to the highest bidder it risks stifling fledgling technologies and industries that need "open spectrum" to flourish.

A small piece of free-range spectrum in the 2.4Ghz and 5GHz bands, already set aside for use without a radio licence, has enabled new wireless technologies including Wi-Fi to successfully operate. But more is needed - especially for fledgling technologies such as those which operate by hopping across multiple frequency bands.

In its rush to create a "free market" on the airwaves, the Government has forgotten that free spectrum is a key component ensuring the market operates competitively. It's also forgetting a key social issue - that unfettered airwaves are an essential domain for free speech.

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