Part one of a double issue on VoIP in the context of new developments in Spectrum Policy Reform and P2P

The Enterprise Prepares to Leave the PSTN:

Find out how to order single copy ($270) or group license ($540) for just the January February 2003 issue.


VoIP, Wireless, and P2P Erode Local Loop

Enterprises Begin Migration from PSTN as VoIP Both Matures Outside of Enterprise and Collides with International Tariffs

We Review Wide Range of VoIP Economic & Technical Issues as FCC Chairman Powell Embraces Spectrum Reform pp. 1 - 14

Contents of Complete Jan - Feb issue


This issue of the COOK Report begins a two part exploration of the hollowing out of the PSTN by Voice over IP.

Voice over IP (VoIP) over the past year, has truly come of age. Our interview with Richard Shockey and the follow up discussion with a group of experts show how increasingly large parts of enterprise voice telephony is migrating from the public switched telephone network to the Internet. While many LECs and carriers are themselves jumping on the voice over IP bandwagon in ways that are discussed below, the economic dilemmas that are facing the telcos are such that this action is unlikely to save them from the economic consequences of enterprise economic desertion and the rise of user-owned, asset-based networks.

The Three Roads to Fail Fast

Meanwhile, in this introductory essay, we shall look at the ongoing evolution of the economic and policy climate affecting the industry. The rest of the issue will examination how VoIP will bleed the phone companies. The bleeding will be mainly but not entirely at the level of the LECs due to enterprise adoption of VoIP. Carriers are also being hard hit by black and grey market VoIP disruption of international tariffs. The introduction to the January issue examines how progress in wireless and peer-to-peer infrastructure will each make their own additional contribution to the PSTN blood letting. If we head full stream ahead on all three: VoIP, wireless and peer-to-peer, it is conceivable that the fail fast scenario outlined at could come to pass. But it won't happen without a struggle.

In an edge-controlled Internet shoring up the position of the incumbent telcos will never be easy. The pity is that the dominant political climate and ideology within the United States gives them every reason to try and try. They are fixated on the creation of industrial age re-incarnations of content laden wall-gardens. Determined to control the uncontrollable, they claim to be acting in the name of the free market and private interest. Their rear guard action is helping to keep the industry flat on the back while, at a national level, we begin to devour the very seed corn of the industry we created.


The First Road: A Wireless Revolution at the FCC?

But suddenly and almost inexplicably, a revolution of major importance may have just come to a head at the FCC.


Powell in a remarkable October 30, 2002 speech found at has made the shift into the new wireless paradigm. More about what he said in a text box below. But first, what happened? As the industry tanked last year and this, Commission Chair Powell girded his loins and asserted again and again that there was no need to worry. It was just the free market producing consolidation and cleaning up the mistakes of a period of exuberant over investment in fiber. When WorldCom collapsed due to the now-infamous accounting scandal, Powell replied that, if need be, it could be acquired by a LEC.

The hands-off republican attitude and enormous complexity of the colliding tectonic plates of the old and new forms of telecom caught the FCC unprepared for the storm that struck this year. Consider some of the conflicting forces. The 1996 reform act - which came to be seen by some as bringing on the debacle - required the delivery of ubiquitous broadband. By this year ubiquitous broadband plainly wasn't going to happen via the ILECs - the subterfuge of Tauzin-Dingel not withstanding. Then unprecedented telco failures struck while do-it-yourself Wi-Fi with Pringles can antennas took off. Whether the Pringles cans worked well or not, they caught the public's imagination. Hundreds of companies brought out devices with prices falling from thousands in 1999 to under $100 by 2002. And the ability of these radios to operate in the presence of other radios without significant interference called into question a perceived spectrum shortage in which companies operating under the old spectrum paradigms spent billions for licenses and found, more often than not, themselves with no money left for a rollout of what they had paid so much for licensed permission to deliver. And in the ensuing fracas we are seeing that Congress is becoming ready to interfere with its own laws regardless of technology.


An End Run?

The Spectrum Policy Task Force seems to have gotten results because it was executed quite outside normal FCC channels. A normal Notice of Inquiry (NOI) requires the Commission itself to kick it off. But, even if one assumes that the political, economic and procedural implications underlying all this would not have derailed any action, the commissioners lacked the necessary technical understanding to initiate an NOI.

Dave Hughes has written a worthwhile analysis: "In the face of all kinds of spectrum 'scarcity' pressure (scarcity created as much by the way technical rules were made as by the laws of physics) Powell started learning - from Hatfield [and from Kolodzy - Editor]. Powell was a damned lawyer (and I have yet to meet a lawyer other than Lessig who could grasp why 'unlimited' use of spectrum was technically possible, I thought he might be incapable of learning and translating such learning into alternative policies. But, I was curious from the beginning of his term as to whether his short career as an armored officer in the US Army (where he suffered the accident that ended his active duty career) got him technically educated in ways lawyers never are. Tankers have to master LOTS of advanced radios in Armor."

"Powell obviously got a technical tutorial - and it never was from the incessant open Hearings where the Commission normally sits and makes decisions. It became clear to me, from the circumstances of Powell's October 30 speech at the University of Colorado where Hatfield had returned and re-joined academia, when, in that speech, Powell credits Hatfield with teaching him some important things about spectrum and processors, that Hatfield was the key person to open Powell's politically conservative (also known as 'business has all the answers') mind and remarkably to propose a radical new approach to spectrum management policy."


The Operational Context

COOK Report: Unless one has been following the public presentations made as a part of the Spectrum Policy Task Force process, the profound significance of Powell's endorsement is easy to miss. Powell certainly seems to be running way out in front of everyone in gathering momentum for what can be major change. If the rules are changed in the way that Powell is suggesting to regulate the devices more than the spectrum, it seems certain that wireless in a couple of years can begin to replace the wireline local loop. Succeeding in this would have the most profound economic impact imaginable for the entire economy.


We are not yet home free. Powell has put himself in a very interesting position. We can no longer berate him as a bumbling idiot and free market ideologue who is deaf to all reasonable technological issues. He seems to have done - in the spectrum arena at least - the right thing. Yet the Commission is not yet behind him. We are just at the NOI phase. The entrenched interests will now wake up and scream that the end of their world is nigh. We will find out in 2003 what Michael Powell is really made of. Will he fight for the conclusions of the SPTF and fight to make them reality and in doing so help bring the industry crash to an end of will he cave before industry political and economic pressure and let the life blood continue to drain from the global telecom and information technology industry?

An insider who knows what is going on far better than we summed it up very well "I think that people who are interested in broadband local loop are thinking that Powell should somehow force companies to do whatever is their particular hobbyhorse. In some ways, by doing almost nothing, Powell is supporting the "fail fast" idea." [But] I'm not ready to go on record as supporting Powell unequivocally, because I don't know him well enough. It's hard to decode the motion of the tectonic plates in the SPTF report - some I don't like, some I do, and some I don't understand very well. But the key good thing is that the plates are sliding, rather than being locked."


Is American Broadband Infrastructure a Useless White Elephant?

COOK Report: It increasingly looks like the so-called broadband networks of the Cable companies and the DSL-bearing telcos are not what consumers want. They may well be multi hundred billion dollar white elephants. Consider for a moment one of the new technologies rising to challenge them. An Internet "oldtimer" called our attention to Dmitris Vyzovitis at the MIT Media Lab. "I've read his thesis, and he has a very interesting demo that shows how his system can provide essentially an edge-based distributed 'TiVo' with all programs available all the time to all clients while dynamically sharing resources among all the edge machines to minimize bandwidth."

We sent a draft of this write up to Dr. Andrew Lippman, who is supervising Dmitris' work. Andrew responded on December 3. "I wouldn't say that a broadband infrastructure is a white elephant. I would prefer that the infrastructure have a symmetric architecture where all nodes can originate as well as consume bits. Current broadband systems seem to model broadcast networks rather than the Internet: fast data down, clicks up."

"It is not clear that this is architecturally hard to change, but opening the network may not be a high priority for a cable system. Also, the appropriate network interfaces have not been developed. The Wang net in the 1980's was better in this regard."

"The idea of a realtime peer-peer protocol is that you can share the channel and thereby scale the network. Information that is used in common need not require a dedicated channel per consumer. Basically, it is an open multicast environment where machines can easily and automatically discover what information is flowing on all the channels and what information is stored in other caches distributed throughout the region."

"We also have the ability to aggregate channels. This means that bits from various machines can be combined to make a larger or higher quality distribution."

"But -- it scales because of channel sharing, and it does require a way to communicate between members of a network. This scaling will not necessarily help in a broadband infrastructure where the bits emanating from a single machine are constricted, and that is a problem with those kinds of architectures. It [this kind of architecture] is also not consonant with the intention of the Internet."

COOK Report: Perhaps we need to be more specific in our assessment of the telco cable-co broadband infrastructure. The white elephant is the architecture not the infrastructure. Change the architecture and perhaps you can then give your customers what they want. This of course is no small proposition. We hope to be able to explore it in the near future.


This cable company foolishness [complaints about p2p and bandwidth hogs] looks in part like the outcome of the FCC's ill advised intention to declare broadband as an information service and therefore something that need not be regulated. One can only hope that the technology companies are coming to understand that under the conditions that the FCC is allowing to emerge, consumers will no longer buy their new products. Why should they when they are restricted to a web that the media and tv/telcos have done their best to turn into television? These companies would seem to want only a tool for selling to and controlling the user. Something the user does not want. This is a betrayal of the promise of an edge-controlled Internet. Undoubtedly 2003 will prove to be an interesting year.