Beyond Telecom
From Telecom to Connectivity
We have a communications infrastructure that based on the assumption that telephony and television are fundamental services. The Internet has demonstrated that they are both applications built upon packet-based connectivity. The marketplace has been unable to make this transition because we are locked into a complex regulatory structure defined by regulation.30-Oct-2001

Please send comments and feedback to Bob Frankston".

Preface

Creating a Free Market

The crux of the problem is that those who are most supportive of an open marketplace confuse the removal of regulations with the creation of such a marketplace. By defining the "marketplace" in terms of telephony and television we have actually prevented a real free market because it cedes control over the key resource (connectivity) to those who strongest incentive to restrain trade. Naively "deregulating" without addressing this structural issue is little more than government-mandated restraint of trade.

By framing the problem as telecommunications defined by telephony and television and then legislating this model we have stymied the marketplace. Just removing regulation is not enough if it fails the anti-trust test. As long as the first mile of connectivity is a limited resource those who have an interest in using it to prevent competition in services/content must not given the ability to control it. A bifurcated marketplace of connectivity vs services/content is necessary remedy in order to enable a real market.

Such a remedy would allow true deregulation. Anything less is a sham.

The challenge in writing this essay and the presentation is to find a path between the getting lost in the complexities of telecommunications issues and vilifying the incumbents.

More challenging is getting the reader to understand that the points are indeed very simple. In fact, it is this very simplicity that is behind the triumph of the Internet. But it is difficult for those enmeshed in the details of telecommunications policy and that is the crux of the problem.

When computer companies attempt to get involved they fall into the trap of hiring "DC Regulatory Lawyers". This is unfortunate because they are ceding their fate to those least capable of understanding the real problem.

It is as if instead of developing the Internet ourselves we asked ATT to do it for us even after they explicitly said that they were not going to be a party to creating an alternative to their network!

From Telecommunications to Connectivity

Click to see the presentation

On October 1st, 2001, I gave a talk at the Pulver Telecom Summit policy conference. Because the audience was drawn primarily from the world of telecommunications regulation I chose to try to explain a very simple idea � the need to reexamine premises that underlie the current telecommunications industry and its regulation.

The Internet has demonstrated that telecommunications services, which includes both telephone and television distribution, are based on a more fundamental resource, connectivity.

By shifting the focus to providing connectivity rather than telephony and television, it becomes obvious that there is a conflict of interest between the current service (and content) providers and connectivity providers.

As long as we allow the incumbents to use their control over both connectivity and services/content to thwart competition in services/content, we will suffer economically. And we will also have a system that is fails to enhance our security because traditional systems are brittle rather than resilient.

The good news is that there is a simple solution that requires little regulation. By separating the connectivity business from the service/content business we set in motion the virtuous cycle that has been frustrated � unfettered connectivity (AKA Internet access) begets applications that drive the demand and the demand allows investment and innovation that increases supply of both connectivity and services/content while driving down the price.

Telecommunications regulation is a very complicated topic and there is a vast industry sustained by this complexity. It is the Regulatorium and it is a vital component of the current telecommunications industry. A small change in a regulation is likely to have a far larger impact on the bottom line of the participants than any technical innovation.

As Ed Markey, D-MA, explained to an industry gathering a number of years ago, we of the computer industry ignore the political implications of the regulatorium at our peril. And he is right; being naive about the importance of the regulatorium and the attendant politics is foolish.

But it is just as foolish to become enmeshed in the Regulatorium and accept their premises. The Internet rose as an alternative to the traditional model of telecommunications and was so simple that it was dismissed as a toy because it didn't provide all the complicated services that a telecommunications system was supposed to. That observation was correct but it missed the far more important point that these services were not fundamental and could be achieved better by allowing the users at the end of the network to create their own services including traditional communications services plus a lot more.

Understanding the regulatorium does not mean accepting its premises. In creating the Internet we didn't need courage. In fact, we just had to find a way to work around the phone network. Now that we have become the dominant industry the onus is on the regulatorium to establish its relevance.

Therefore, I will first jump to a conclusion and then answer questions. You can also look at the presentation for more background.

Conclusion

See the slides and read the rest of this essay for more background. But for those who are ready�

The New Rules

We must recognize that the rules have changed and that telephony and television are simply services built on connectivity. The Internet has been an effective proof of concept � that pure connectivity (such as the Internet) is robust and can support a multitude of services transported through that connectivity, be they telephone, email, TV or website. What is more important is that it allows any of us to create new and unanticipated services.

The Price We Are Paying

Our Economy

Telephony and Television are complete services that leave little room for others to add value. In fact, their purveyors are threatened by the Internet since it allows others to create alternative services.

Telephone companies provide a minor service compared with the richness possible when we can explore new ways to communicate. The television companies deprive millions of us of the ability to provide our own "content" to others. Why can't I watch my son's crew team in action even if I'm the only viewer? The whole notion that the television distribution companies choose what one can view and when is very offensive.

By controlling both the distribution method and the services/content distributed, thus depriving us of abundant connectivity, the incumbents not only prevent competition, they prevent the creation of new economic value, the kind we have come to expect from the "Internet Economy". This is not the fantasy that propelled foolish investments; it is the ability to rethink just about everything now that we are liberated from the accidents of topology

We have become so accepting of the limitations that they seem natural. Even something when doing something as mundane as rearranging furniture we accept the idea that we can't move our light switches. But once we separate the control signal from the power, there is no reason for such limitations. There is so much more that is possible once we can connect anything with anything else anywhere.

Our economy is limited by the ability to create new industries and services. Our PCs are isolated at the far end of very thing wires.

Our Security

This has become a very important issue in the wake of Sept 11th. As the telephone companies scramble to splice their system together wire by wire by wire by wire by wire, we can fix the few outages in the Internet by just adding connectivity any way that is available. But with multiple paths already available the outages are less likely.

Abundant connectivity makes redundancy and continuous backup easier without the limitations of geography.

But the Internet philosophy is also important. Ironically, a remark intended to disparage the Internet by noting that Internet outages are simply inconveniences. But this is an important point. The end-to-end architecture does put responsibility upon the users of the network to handle outages. In practice by sharing the responsibility we create more opportunities to create resilient systems rather than making each wire critical.

Our best defense is resilience. It is hard to defeat us if we can absorb attacks and continue to function.

This doesn't mean the Internet is perfect, but we learn from each trauma and we have many ways to quickly repair damage. The phone system is fragile and dependent upon very simplistic security models.

As it becomes increasing vital to participate in the international arena open communications enabled unfettered connectivity is also our best means (and our best weapon).

Countries that keep their citizens uninformed provide a breeding ground for deep misunderstandings. Pervasive connectivity liberates people from imposed blindness.

Framing the problem

The Regulatorium maintains its position by framing the program in its terms:

  • Broadband. This is a term that makes the Internet seem to be just another television channel. Wired Magazine had a cover story that took this stance and I felt obliged to write a response. We need Connectivity.
  • The Last Mile. This is another offensive term. It presumes that we are simply consumers rather than participants. We are all contributors and the billions of people around the world have more to contribute than a handful of networks. It is The First Mile of our connection to the rest of the world.
  • Deregulation. This is a term that is meaningless out of context. What we need is an effective marketplace. The bifurcated marketplace obviates most of any need for regulation rather than just removing the oversight of those already taking advantage of the rules to restrain the growth of connectivity.
  • Open Access. It is unclear what this term means. Typically it is a Hobson's Choice in that you can choose among a small number of designated providers of, well, of what? A better term may be Unimpeded and Unbiased Connectivity in that the provider of connectivity doesn't limit the kind of traffic nor favor some services over others. If, for example, I am on MediaOne (now ATT Broadband) and my neighbor is on RCN, we should still be able to have full capacity connection between our systems.

Action!

Connectivity is fundamental

The Regulatorium seeks to assure that there is competition in television and telephony. This is pointless since they are just minor services. Worse, it assures that we leave our connectivity under the control of the companies most threatened by increased availability!

If it weren't for the delusions of the Regulatorium, this would a restraint of trade situation that is in obvious and dire need of antitrust enforcement. Such a situation is rightly anathema to those who believe in the marketplace. The point of anti-trust is to enable marketplaces not to punish participants. We cannot have an effective marketplace as long as the fox is in charge of the henhouse. The goal is to create a viable marketplace.

The Bifurcated Marketplace

Just as the FCC required that television networks divest themselves of the production companies we need a period during which the connectivity business and the services/content business are distinct. This is a separation that is also good business practice for the current companies since the operation of a network and the support of services requires very different business structures. If one business is more profitable and subsidizes the other we have a dysfunctional company. At this point the major reason for keeping the companies whole is to give them the ability to prevent competition. Thus the shareholders are also penalized by having companies that are focused on preserving their advantage than competing.

The Connectivity Business is focused on simply providing a commodity � connectivity. If customers want more connectivity, then the goal is to find a way to provide it. This is in sharp contrast to the current situation in DSL in which the focus is on qualifying or, more to the point, disqualifying customers. Not only is there no incentive to innovate, doing so would allow for competition.

By having a company that focuses on connectivity we set in place the virtuous cycle that we have seen in computing and, for that matter, in the rest of the Internet. Local connectivity is an anomaly in its ability to frustrate Moore's law-style progress. This alone is strong evidence of that something is very wrong!

The Service/Content Business. Rather than having telephone companies whose only purpose is to create a billable item, the phone call, they will need to create new services. Such a transition is very difficult but only becomes more difficult as we postpone the inevitable day of reckoning.

The television networks also need to face a world in which they are no longer the only ones who can choose what we watch and who can provide content. Companies like AOL are already trying to create new services. Such activities become even more important. Perhaps we will see a reversal of the situation in the 1950's with the studios being having the upper hand in creating new programming.

Rather than focusing on businesses that have overstayed their welcome we should focus on the many new opportunities and the much larger economic value that the new opportunities can bring. We are all capable of producing "content" for others or just our friends. Communities are no longer limited by geography. Rather than having just a Golf Channel, we can have a Soccer channel in the US and the British can watch American football. But we can also have the Chess Channel, and the Philosophy Channel. In any event, the whole notion of a channel is outdated and is nothing more than a term, like dialing a telephone, which recalls long forgotten technologies.

The concept of marketplace architecture is not new and gives us an understanding of why some marketplaces work and some don't. We need a marketplace that provides us with abundant connectivity, not one that preserves the outdated models of telephony and television.

Transition

How do we get there from here? We will not make progress by operating within the rules of the Regulatorium. We will not make progress asking for more broadband.

I'm not advocating a specific approach here. But we can consider some possibilities:

  • Requiring only that the connectivity and server/content companies are distinct with no cross-ownership for a period of time. The companies can choose their own process.
  • Removal of regulatory protection so that normal antitrust procedures may be applied. The companies would have to hurry to create a competitive environment to avoid the court imposing a solution.
  • A purchase of the connectivity assets at a market price and creation of new companies.
  • Governmental (local or national) ownership of connectivity as a basic utility. This makes it easier to just provide a lot of dark fiber to all points in a city.

The exact procedure will take some more thought. The goal is to create the opportunity for a marketplace but not over-engineer it. Simply removing the protection afforded by the "natural monopoly" assumption might accelerate the process since there is an inherent conflict of interest between the service/content providers and the ownership of the limited right-of-way over which the services/content are provided.

The good news is that the operational aspects of the physical network require that the network be run separately from the service part of the business. This should make the process of disgorging local access far simpler and less disruptive than the break up ATT in the 1980's. That split required an arbitrary division of similar functions. Not only is separating the physical plant simpler, it creates more efficient businesses that can be run on their own terms instead of having disparate kinds of business attempting to act is if they are the same.

Questions and Answers

Can we really replace the phone system with the Internet?

Qwest seems to think so and they have announced that they are moving to route all their voice calls over IP. The issue is one of capacity. As long as the performance in the first mile is artificially constrained the Internet's performance suffers. But the limitations are artificial.

What about QOS?

There are many myths to explain why the Internet cannot provide the same services as the PSTN. The Qwest decision puts this to a test and shows that the only issue is the artificial limitations of the first mile. Fibers which can carry a trillion bits per second obviate the need for QOS (Quality of Service) and MPLS (recreation of circuits) requirements. In fact, these attempts to resurrect old ideas only make performance worse.

The purpose of QoS is to divvy up a scarce resource. This seems so natural that few people question this assumption. This is good for the incumbents who simply raise the prices instead of creating more capacity. Economically, this is a zero sum policy � it creates no new value! In fact, it is a negative sum game since enforcing QoS comes at a price in complexity and resources.

It makes far more sense to create new value instead of sharing unnecessary pain. With the price/performance gains we've seen already, a focus on QoS seems foolish.

QoS and MPLS algorithms are complex and it is very difficult to make them work through a series of routers, especially when the paths are dynamic. Trying to make them work exacts a performance and complexity penalty that are unjustified. It is far simpler, cheaper and more effective to have sufficient capacity.

The generic answer is "Big Fat Pipes. This is the same lesson we have learned with computers � writing tight code is very expensive. It is far less expensive to buy hardware than skilled people.

IP vs Dark Fiber

This essay has been written with the implicit assumption that we want to replace the phone network, the PSTN, with the Internet.

This is an oversimplification. In fact, a better approach might be to provide "dark fiber" without any assumption as to how it will be used. This allows people to not only buy connectivity capacity but also choose how they want to be connected to the backbone of the Internet.

IP (Internet Protocol) services do have the advantage of not presuming any given physical layer and thus making it easier to repurpose existing facilities.

Companies in the business of just providing connectivity are likely to adopt a transitional strategy of starting with IP-based services and later, when the fiber is available, providing direct access to the fiber for those who choose to use it.

That First Mile

This discussion assumes that the first mile is indeed a scarce resource. This is true as long as we have to have a special wire for each purpose. Not only does this limit the capacity of the network to the presumed allocations of wires, it creates opportunities for local regulators to impose their own rules. By shifting to a commodity service, be it IP or fiber, the control over the use of the facilities decreases.

In fact, we may see that the right of way becomes more available because it is just a matter of adding more capacity. Many municipalities will simply provide fiber in the same way they provide water

Customer Support � a Smoking Gun?

Telephone companies have problematic customer support. Typically the business office is only open weekdays. This doesn't seem like a company that is providing a vital utility.

But customer support for telephone service is wonderful compared with cable modem service. My experience is with ATT Broadband (formerly MediaOne) which seems to be one of the better services. But the customer support people are not permitted to speak to the operations staff and are left to provide meaning superstitious theories. Some are better than others and can figure out that if neither my modem nor my neighbor's is working then it is a system problem. For the most part they just offer to roll a truck in a few days or so because the cable modem is "broken". For those of us who work with computer networks this is absurd. It would be in their interests to monitor and manage the network and identify problems even before I'm aware of them. Instead, they provide very poor service in the most expensive way they can. Something is very very wrong.

Does Anyone Want High Speed Access?

Even when "high speed" connectivity (Broadband) is available, most customers to not buy it. We shouldn't consider this an indication that there is no value in the technology. In fact, just the opposite, as long as we position the new services as a faster version of current technologies there is not compelling value to those who have adapted to browsing a web and services designed for dial-up usage.

The real value of connectivity is in our ability to create new services and new value. We need:

  • Higher speed. 100mbps should be the norm after 5 years at normal telecom growth rates with 1gbps available soon. At those speeds, video becomes readily available over the Internet just like we now can listen to radio at full fidelity.
  • Effective Peering and Low Latency. Speed alone is not enough; we need to assure sufficient connectivity with the rest of the Internet to allow the rapid turnaround necessary for highly interactive applications.
  • Symmetry. As long as the speed from the premises is much slower than that to the premises we are not giving people the ability to create new services or simply use the net as a social medium.
  • Reliability and Availability. The strength of the Internet is that it can tolerate failure but that doesn't mean that it should have to endure unnecessary failure. While phone service and television are highly available, Internet services delivered over the same wires is distinctly less reliable. Treating Internet services as second-class makes it difficult to build services that take advantage of availability. It's not just about speed, it's about connectivity and even low speed connectivity creates many opportunities for new services.
  • Coverage. As a better-than-dial-up user, being able to buy a high speed connection is wonderful. But for a business that must be able to deliver to all users, it isn't safe to depend on high speed or 24x7 availability. The lack of such an advantage leaves the users with fewer compelling reasons to adopt the new technologies.

It takes a long time for society to embrace a new technology and take it from a novelty to a requirement. As vital as high-speed connectivity is, it is difficult for most people to conceptualize the value. Being able to dial into the Internet is still so wonderful that it seems difficult to realize that there is something far better.

The problems are compounded when the providers of such services do not understand the value themselves since they have to create the fiction that their base telephony and video services justify a separate charge that is higher than the cost of the Internet service while delivering less value.

We must not let the grudging availability of connectivity serve as a benchmark for its value. Nor must we let the lack of connectivity between the premises and the Internet backbone be blamed on a glut of capacity when we are really starving the backbone by denying it traffic.

Wireless?

The focus in this discussion has been on wired access. Despite the excitement over wireless access, I expect to see wireless mainly used for local access and high capacity fibers will be used for distance traffic.

A number of people are trying to create alternatives to the limitations of the wired network by using technologies ranging from "Wireless Cable" (an oxymoron for microwave links) to composing 802.11 networks. But it is difficult to compete with the high capacity of optical fibers.

Much more interesting to look further ahead. Just as the assumptions that underlie telecommunications turn out to be flawed upon examination, the whole assumption that the radio spectrum is a limited resource that needs to be allocated to exclusive holders of "frequency" is also very wrong and a major economic blunder. Addressing that issue is beyond the scope of this essay but you can look at David Reed's site for more on this topic.

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