IP Convergence: Beyond VoIP, Beyond Cost Savings

In a decision released July 8, 2008, the U.S. Court of Appeals for the District of Columbia issued a Writ of Mandamus compelling the FCC to finally provide the legal justification for a decision it made 6 YEARS AGO concerning reciprocal compensation for traffic destined to ISPs.
The fact that it took the court so long to take this action is testimony to one of the biggest problems plaguing the telecommunications industry today - process paralysis. The matter at issue is actually one that dates back more than 10 years. During the 1990s, when CLECs succeeded in besting the Bell Companies at their own game of access charges and began collecting enormous sums of revenue for traffic destined to Internet Service Providers, the Bell Companies asked the FCC to eliminate compensation for ISP-bound traffic (rather than compete for the ISP business directly). On February 26, 1999 the FCC released a Declaratory Ruling, which concluded that ISP-bound traffic was "jurisdictionally mixed and largely interstate, and the reciprocal compensation obligations do not apply to this traffic." In March 2000, the District Court vacated and remanded the FCC’s decision for lack of adequate justification. In 2001, the FCC issued a further decision attempting once again to provide legal justification for its 1999 decision and establishing a new compensation regime for ISP-bound traffic.
In May 2002, the District Court remanded the FCC’s decision a second time, but this time without vacating the decision because as the District Court stated, “we thought there was a ‘non-trivial likelihood’ the Commission would be able to state a valid legal basis for its rule.” In issuing the Writ of Mandamus this week, the District Court dismissed the FCC’s continued assurances that it would act by November 5, 2008 on the issue. So basically 9 YEARS AFTER robbing CLECs of inter-carrier compensation with no apparent legal justification, the FCC’s defense was still “trust us, we’ll address the issue.”

This episode, as much as any other, highlights the criticality of reform for the regulatory decision-making process. The issue started as a contract dispute between CLECs and the Bell Companies that in normal commercial practices would have been negotiated out or put before a commercial arbitrator in a matter of weeks or months. But because the Bell Companies invoked the regulatory process they were able to use their political, legal, and regulatory resources to achieve what they would otherwise not have been able to achieve at the bargaining table and drag this process out for 9 years. Worse still, the Bell Companies achieved this victory with no apparent legal basis.

What a different industry it might have been if the FCC refused to take up the dispute and forced the Bell Companies to either live with the bargain they struck or negotiate a new one. The CLEC industry would have been flush with cash to fund their network expansion. The Bell Companies would have been forced to develop more competitive services for ISPs. Who knows what the impact would have been on mergers and acquisitions. Unfortunately, there are multiple examples like the ISP-bound traffic issue that if the FCC had handled differently would have been of enormous benefit to the broader telecommunications industry.

Well, the FCC does have one more opportunity to not only address compensation for ISP-bound traffic, but all traffic. In its May decision capping universal service support, the FCC stated it intended to address comprehensive inter-carrier compensation and in subsequent statements set a target date of November 5, 2008.

Let’s hope that after 9 years the FCC can finally figure this out because the telecommunications industry in the United States is severely handicapped relative to its overseas counterparts by an anachronistic inter-carrier compensation regime that burdens the industry with endless litigation and exorbitant costs. Hopefully come November we won’t still be scratching our heads wondering what it is the FCC has done to this industry.

A new paper from the Organization for Economic Development (”OECD”) recognizes the importance of rights of way to sustainable competition for next generation networks. Some note worthy quotes include:

“The limitations faced by new entrants are significant, especially with respect to the reach of their existing networks and their ability to obtain access to rights of way and ducts. It is thus difficult for new entrants to replicate an NGN access infrastructure.”

“In addition, a large percentage of costs in rolling out new fibre networks are construction costs related to conduits and rights of way. Construction costs could be significantly higher for operators if they do not already have access to rights of way and ducts.”

“Incumbents have a significant advantage because their historical monopoly position has given them existing rights of way and they usually own the ducts used by copper networks (which often means they do not pay for rights of way). Other utilities, such as electric power companies, also have access to rights of way and ducts. The number of administrative layers (local municipal councils, regional bodies, etc.) often creates difficulties for new entrants in obtaining access to rights of way and ducts. Where municipalities are pro-active in trying to ensure that fibre networks are developed, they often provide access to municipal rights of way and ducts on reasonable terms.”

The OECD goes on to recommend

“The high costs of civil works to construct ducts will impact on new entrants who, in contrast to incumbents, do not have historical access to rights of way and ducts. In order to try and stimulate the rollout of fibre by new entrants it is important for policy makers and communication regulators to examine steps that can be taken to reduce these costs. There are a number of steps that can facilitate new entrants including:
• Reducing barriers associated with obtaining municipal authorisation for access to and use of rights of way.
• Ensuring clarification of jurisdiction for both granting rights of way and settling disputes and coordination among the public authorities involved.
• Harmonising administrative procedures for access to rights of way and ensuring consistency in the application of these procedures across a country.
• Reducing or eliminating any fees associated with using rights of way.
• Ensuring that operators investing in ducts are subject to a minimum set of obligations for remediation and maintenance.
• Encouraging and/or obliging sharing of ducts and other rights of way both by incumbent communication companies, but also by other municipal utilities that have infrastructure.
• Examining the role of public-private partnerships in the deployment of dark fibre and/or third party infrastructure providers for duct sharing.
• Examining the possibility of regulatory measures to impose the pre-wiring of new residences for sharing of in-house wiring.
• Developing policies to construct joint ducts by new entrants.
• Adding inner ducts (duct dividers) into the ducts and canals for increasing the existing capacity.

Delays in rolling out networks can be costly for operators, and can delay the development of competitive markets, so that by preventing delays in the process of rights of way applications, a system of safeguards which ensures that deadlines for decisions concerning permits are respected. Establishing targeted time frames for various steps of the rights of way process helps in providing predictability to the applicant. In order to facilitate competing fibre local loops, reduce costs and reduce multiple excavation and other civil works in municipalities the sharing of existing ducts, both of telecommunication and cable companies, but also of other utilities, is an important policy requirement. Similarly access to buildings and sharing of wiring is important to ensure effective competition in the market.”

One can only hope that policy makers actually read this paper and take action on its recommendation.

With the release of ”Networked Nation: Broadband in America 2007”, the National Telecommunications and Information Administration (“NTIA”) takes credit for largely achieving President Bush’s 2004 goal of “universal, affordable broadband access for all Americans.” Not to be too cynical, but NTIA’s claim is akin to Hank Morgan’s claim that he caused the solar eclipse in Mark Twain’s A Connecticut Yankee in King Arthur’s Court.

First, the methodology by which NTIA reaches its conclusion is spurious at best. But I shouldn’t be too harsh on NTIA since they are simply following the FCC’s methods. You see, NTIA makes it claim because “broadband service was available in 99 percent of the nation’s zip codes, encompassing 99 percent of the nation’s population.” If one person in a zip code has broadband service, the FCC counts the entire zip code as having broadband access. So by this methodology it isn’t too hard to claim success.

Second, increased broadband penetration was inevitable and would have occurred regardless of public policy. Broadband penetration occurred at a rate that surpassed all previous consumer electronics. In a September 2007 survey, Pew Internet found that broadband was adopted by a majority of consumers faster than other technologies. Broadband took 10 years to break 50% adoption, followed by the CD Player at 10.5 years, the VCR at 14 years, cell phones took 15 years, color TVs took 18 years, as did the personal computer.

So was this adoption due to Administration policy or because consumers know a good thing when they see one?

Third, this Administration considers bandwidth speeds of 200 kbs to constitute “broadband.” 200 kbs may be “Rubenesque” among narrowband speeds, but it hardly counts as broadband, especially when you consider the speeds available around the world. And when you look at actual speeds that U.S. consumers enjoy, the picture is even grimmer. The Communications Workers of America (an obviously self-interested source) produced a report last year showing the median download speed in the United States is 1.9 Mbps, compared with 61 Mbps in Japan, 45 Mbps in South Korea, 21 Mbps in Finland, 18 Mbps in Sweden, and 7.6 Mbps in Canada. And of course U.S. consumers pay far more per megabit than residents in these other countries. According to the OECD, the average price per advertised Mbit/s of connectivity in the OECD is USD $18. Japan, France, Sweden, Korea and Finland have the least expensive offers per Mbit/s
o Japan: USD $0.13
o France : USD $0.33
o Sweden: USD $0.35
o Korea: USD $0.38
o Finland: USD $0.42

So what exactly is there for this Administration to take credit for? Did their policies stimulate broadband penetration, increase broadband speeds, and reduce broadband prices or like Hank Morgan are they simply taking credit for a phenomenon that was already happening over which they had no influence?

2008 holds the potential to be a landmark year for telecommunications regulation – if the FCC is willing to take action on the issues before it. A quick look shows the FCC has a lot on its plate. There are the long-standing issues of inter-carrier compensation (yes this docket was initiated in April 2001 and there is still no resolution to it) and special access reform (yes this docket was initiated in October 2002 and there is still no resolution to it either). Both of these issues take on a new urgency with the competing Petitions for Forbearance filed by Feature Group IP and Embarq regarding the application of access to charges to IP services and the coming expiration of Verizon’s merger commitments on special access. Then there are the dual petitions from Vuze and Free Press on traffic management and peer-to-peer traffic that the FCC just put out on public notice. Finally, there is the Joint Board proposal on universal service reform (an issue that has been around since the 1913 Kingsbury Commitment and was supposed to be addressed immediately following passage of the Telecommunications Act of 1996).

If the FCC wanted to, it could address all of these issues in 2008 and redefine the telecommunications landscape for the next several decades. I realize that is wishful thinking and unrealistic under the best of circumstances, but at some point someone needs to recognize that the FCC regulates an industry that generates a trillion dollars in economic activity, directly employs one million people, and is responsible for deploying and operating the infrastructure that will support so much of the future global economy. Is it too much to ask for the government to address critical policy issues impacting this industry in less than ten years? Think of the costs of inaction to the economy.

At a time when so many politicians are calling for “change”, a welcome change would be for the FCC to take the action this industry so urgently needs to move forward.

The fallout from Comcast’s alleged traffic management practices continues with the filing of a petition by Vuze, Inc., an Internet distributor of high definition content. This petition follows on the heels of the complaint filed by a coalition of consumer groups.

The Vuze petition asks the FCC to “adopt reasonable rules that would prevent the network operators from engaging in practices that discriminate against particular Internet applications, content or technologies.” Vuze says that it does not object to “traffic management” practices, but asks the FCC to ensure that such practices meet the following conditions –

1. The network operators’ network management practices should be based on actual impact on the network, rather than targeting or disproportionately impacting specific services or technologies;

2. Network management practices should be transparent and publicly disclosed, providing consumers, content providers, applications developers, and service
providers greater certainty that their preferred technology and services are acceptable and not subject to interference on broadband networks; and

3. Network management practices should not used as a pretext for discriminating against particular types of content or services that the network operators may view as unacceptable or potential sources of competition.

While I certainly can appreciate Vuze’s interest in establishing such rules, I again have to ask, as I have throughout this entire “net neutrality” debate, why otherwise entrepreneurial people would run to the government for help with what is essentially a problem in their distribution chain? Who is advising these companies to seek redress before the FCC and why are they being listened to? Even a cursory review of the FCC’s record would show that they are a terrible forum for these types of disputes.

More broadly, why is everyone trying to invite the FCC to regulate the Internet? Has the FCC done such a great job regulating telecommunications, cable, and broadcasting that we want them now to regulate the Internet? Think through what jurisdiction over the Internet could encompass. Network operators, ISPs, content providers, equipment manufacturers, software developers, hardware manufacturers, service providers, the list is endless. By the time all is said and done, the FCC would have jurisdiction over an enormous segment of the economy. Is this what we want? If ever there was a sure way to retard our technological progress and innovation, this is it. I said it before and I will say it again, the cure (FCC regulation) in this case is likely far worse than the disease (alleged discrimination).

Parties should try working these issues out amongst themselves before asking the FCC to get involved. No where in Vuze’s petition do they say that they tried to work it out directly with Comcast. Perhaps if they did, they would find a mutually beneficial solution. Perhaps not. But that doesn’t mean “there ought to be a rule.” As I said the other day, there are a host of relationships that need to reach equilibrium before the Internet matures. It would be a shame to freeze some of these relationships in place just to grease the squeaky wheel.

A number of bloggers have been blogging about on Google's mobile plans for the better part of the year.

Recently I blogged  as to how Google may be able to take their may ad revenue  business model into the mobile space.

Well today, Google made it very clear with their mobile alliance announcements .

The interesting part of the discussion revolves around Verizon. Specifically, Verizon may be in talks with google in joining Sprint and T-Mobile as part of Google's plans.

But is this the same Verizon that sued the FCC after the FCC adopted Google's open access  motions?

Yes it is the same Verizon.

It may be that Verizon needs to be involved and not get blindsided as they did when they choose not to support Apple's iPhone, and lost a tremendous branding opportunity.

Or, it may be that Verizon needs to be involved to make sure it's part of the disruption as mobile business models change.

Another score for the open source business model and for the public as we should see innovation at as faster velocity.

Time will tell!

This weekend I read a commentary by PC Magazine’s  editor and Chief Lance Ulanoff “Don’t Give Google 700Mhz”

I posted  a response at their website and I am still bothered by the position he has taken.

“ The position that 700Mhz digital data services may require antennas as broadcast analog TV is totally off base.  An analog broadcast !=  (not equal to) digital data, broadcast TV is just that a broadcast signal without any protocol between the receiver and transmitter, whereas digital data receiver and transmitter have defined protocols that optimize reception given the available data rate e.g. WiFi, GPRS etc …

Some  of the biggest advantages of wireless digital data at 700Mhz is not needing line of site ,  not prone to moisture (water in leaves) and a huge chunk of to be available spectrum.

The position that Verizon, Sprint and ATT know the business and can do better for the American public is weak at best.

“The Federal Communications Commission (FCC) is an independent United States government agency, directly responsible to Congress. The FCC was established by the Communications Act of 1934 and is charged with regulating interstate and international communications by radio, television, wire, satellite and cable. The FCC's jurisdiction covers the 50 states, the District of Columbia, and U.S. possessions.”

The FCC’s job is to manage American spectrum for the country , e.g. the people.

When was the last time Verizon, Sprint and ATT acted on behalf of the people?  Checkout your Verizon RZAR and you’ll find out they feature lock Motorola’s features (like local access to Bluetooth to transfer files), whereas T-mobile does not.

Google is acting to further itself , but there’s a difference here.  Google’s advocacy on Open Access to Spectrum is disruptive   and will create innovation in the wireless industry that will benefit the people.

Google’s greatest strength is their  success, their greatest challenge is maturing as a regulatory influencer against the incumbents who have decades of experience on playing the game.”

I had to rewrite the post several times just to get my emotions out.

Google has and will change the wireless industry.  The position they have taken on open access on spectrum will create innovate  environment , which will open the markets to more companies that develop hardware, software or services (content).

The big three will need to be competitive to protect their base, this is no different than the FCC open market position in the 90’s that opened local markets which benefited users with more choices and lowered costs.

On August 30, 2007, the FCC moved to sunset the requirement for AT&T, Verizon, and Qwest to provide long distance services through a separate affiliate.  In issuing its decision, the FCC touted the benefits to the companies and the additional consumer protections agreed to by the companies.  
Unfortunately, the FCC failed to take the necessary parallel action which would have made this a truly meaningful milestone for more than just those three carriers.  Finding that AT&T, Verizon and Qwest are non-dominant in the long distance market was only half the story.  The FCC should have gone further and concluded that distance is irrelevant for purposes of inter-carrier compensation and that rates for termination of traffic therefore must be uniform, regardless of the originating point of the traffic.  Failing to take this step leaves a critical gap in the FCC’s policy and provides AT&T, Verizon and Qwest with a cost advantage in what remains of the long-distance market.  Unaffiliated carriers still have to pay AT&T, Verizon and Qwest access charges for the termination of long distance traffic.  And while AT&T, Verizon and Qwest still have to pay those charges as well, historically the majority of long distance traffic originates and terminates in-region for each of these carriers so they are simply paying themselves for the majority of the traffic.  Not so with unaffiliated carriers and thus the problem.  Unaffiliated carriers continue to be handicapped by artificial access charges while AT&T, Verizon and Qwest are not.  Unless the FCC remedies this problem, the sun will surely set on the competitive long distance market sooner rather than later. 

Every now and again government takes some action that really brings out the skeptic in you.  At the Federal Communications Commission, one example of this was its handling of Verizon’s “forbearance” petition.  Filed at the end of 2004, Verizon asked the FCC to forbear from applying traditional common carrier regulations to its “broadband” services.  It was such a sweeping request because “broadband” was left undefined and applied to a huge range of Verizon’s services, both residential and commercial. 

So what did the FCC do with Verizon’s petition?  As any good government agency would do when faced with such a critical decision, they ducked.  The FCC let the statutory deadline for action pass without taking any action which meant that Verizon’s petition would be deemed granted.  Rather than proactively address the conditions under which it would forbear from regulation, the FCC instead did nothing.  Basically, when it came time for the FCC to put its money where it mouth is when it comes to deregulation, they didn’t have the intellectual capacity to justify their approach to regulation.  I mean if ever there was an opportunity to explain their governing philosophy, this was it. 

Thankfully, some CLECs are trying to force the FCC’s hand and make them issue a written order either denying the Verizon petition or explaining what it is they did approve.  The FCC is accepting comments on the CLEC petition until August 13th.  If for no other reason, parties should urge the FCC to issue a written order so that the FCC can explain its approach to regulation, or deregulation as the case may be.  I think the industry would be well served by a clear statement of FCC policy in this regard.  It certainly is preferable to the FCC’s current approach which appears to be “forbear and forget”.

According to Wikipedia Deep Packet Inspection is “a form of computer network packet filtering that examines the data part of a through-passing packet, searching for non-protocol compliance or predefined criteria to decide if the packet can pass. This is in contrast to shallow packet inspection (usually called just packet inspection) which just checks the header portion of a packet.”

First off, this is a very real technology.  A quick search via google brought the company Bivio Networks to my attention. (* Disclaimer: I have no interest, financial or otherwise with this company.)  Bivio’s  7000 series claims that
“when fully configured, the 7000's application processing subsystem offers 45,000 MIPS -- enough to run "any IP network service" at wire speeds up to 10Gbps -- including IDS/IDP, firewalling, VPN, network surveillance, lawful interception, and application traffic management. Developers can use any of the standard Linux components (such as iptables) as part of their deep packet processing applications.

Now let’s look at some of the implications of DPI.  A very interesting article on here from ars technica puts things in an interesting light:

“Imagine a device that sits inline in a major ISP's network and can throttle P2P traffic at differing levels depending on the time of day. Imagine a device that allows one user access only to e-mail and the Web while allowing a higher-paying user to use VoIP and BitTorrent. Imagine a device that protects against distributed denial of service (DDoS) attacks, scans for viruses passing across the network, and siphons off requested traffic for law enforcement analysis. Imagine all of this being done in real time, for 900,000 simultaneous users, and you get a sense of the power of deep packet inspection (DPI) network appliances.
Although the technology isn't yet common knowledge among consumers, DPI already gives network neutrality backers nightmares and enables American ISPs to comply with CALEA (government-ordered Internet wiretaps) reporting requirements. It also just might save the Internet (depending on who you believe). “
The power of this technology is simply awesome, and the impacts it can have are serious.  The current state of government mandated network monitoring forces some network operators to consider implementing this.  One word jumps to my mind, and that’s SCARY – and I am not referring to my driver’s license picture either!

By the way, did I mention that the above Bivio 7000 is listed at $10,000!