advertisement
advertisement

Telecom Transformation

Jeff Blumenfeld is a partner in Crowell and Moring. Jeff Ganek works as CEO for Neustar. Mike McCue co-founded Tellme Networks. James Seng serves as assistant director for the Infocomm Development Authority of Singapore.

Jeff Blumenfeld is a partner in Crowell and Moring. Jeff Ganek works as CEO for Neustar. Mike McCue co-founded Tellme Networks. James Seng serves as assistant director for the Infocomm Development Authority of Singapore. And Niklas Zennstrom is CEO and co-founder of Skype. What follows is a partial transcript of their Supernova panel discussion:

advertisement

James Seng: The telcos are coming to a climax and a point of dramatic changes. Who thinks that this is a duck? If it looks like a duck, walks like a duck, and quacks like a duck, it’s a duck. There is a shift of paradigm. In China, telecom is basically divided into two firms. The value-added services are small. Now we see a shift of balance. We’re beginning to see revenue growth in value-added services. Regulation is no longer about the last mile or the company. You want regulation that allows everyone to access the network horizontally as well as vertically.

The best network is the one that just moves the bits. It’s also the one that is hardest to make money. Revenue can go up while voice goes down. Voice as a fundamental service will become free. That’s a problem for the provider. In the past, you knew 80% of your revenue would come from voice. Now you don’t know where your revenue will come from. We need to make money other ways. We will make money through service differentiation.

One of the things we need to consider is power as a role model. Power and phone were invented around the same time. Why is the number of devices I can plug into a phone outlet different than the number I can plug into a power outlet?

Jeff Ganek: For a number of years, I’ve heard a lot about voice over IP. Frankly, the concepts that are described are startling and very compelling. They’ve also been very conceptual until just recently. A revolution is about to occur; it’s no longer just an idea.

First of all, today in North America, the transport capacity among the network providers — the on-peak capacity — is three times the capacity of their voice network. Virtually every operator is changing the technology on the backbone, and IP technology will transform capacity in the next few years. It’s quicker, better, and faster. What’s happening closer to the edge? For the first time, the sales of new IP PDX’s has surpassed in sales the market share traditional PDX’s. They’re aggressively moving IP services. On the consumer side, companies are rolling out IP services to the home, and will offer VoIP to end users very quickly.

I’m a user of Skype, and the large providers are being forced to respond to the marketplace. Being at Neustar gives me a slightly different perspective on voice over IP. Neustar manages all of the telephone numbers in North America. Providers need a copy of our database for calls to get routed. We exist to facilitate interoperability among thousands of networks that exchange trillions of transactions annually to connect the calls that go through them. The best way to do that was to establish a trusted directory provider we could rely upon. That’s what Neustar does. We’ve got more than 100 million records in the database. It’s a critical piece of the infrastructure.

advertisement

We operate that infrastructure on the trust model. We’re not a competing provider of services. We’re trusted by all of the providers. They need a place to go to know where to route a message. The destination of the message is not on the network. It’s elsewhere.

There are a couple of problems with VoIP that haven’t been solved. They have to do with interoperability. Today it’s almost impossible to get a VoIP call somewhere that’s not on the Net. In order to get it across the street, we dump calls onto the public network, which hands it off to another IP network. We lose all the benefits. There’s no directory for numbers on other IP networks. That’s a problem.

There’s a similar problem with cell phones. If you’re going to send a photo from one cell phone to another, it’s an IP message to a device that’s a 10-digit number address. Your server provider needs to be able to translate that to deliver the photo. That’s a particularly difficult problem if you’re sending a photo to a cellular service provider that’s different than the one that provides your service.

What’s required is more attention to the interoperability issues. There’s a broader array of services and products that need to be connected. The challenge of interoperability is greater. And we’re only starting to see how providers will handle that.

Jeff Blumenfeld: I want to react to something Niklas said. There’s something that has the potential to spoil the voice over IP possibility. We tend to be cheerful about this. The reality is that Niklas’ presentation did not come to us over voice over IP. It was not robust enough to support it. Everything that is exciting that is going on in our world is going on at high levels. But it’s all dependent on those pesky lower layers.

For the very first time, the proponents and opponents of the new technology agree on most of the facts. While they agree on the facts and the predictions, they disagree on whether it’s a good idea. Unfortunately, the opponents own most of the infrastructure. It’s hard to innovate when we don’t have an open model at the lower layers of the stack. Thats what the FCC is grappling with — and is the duck issue James talked about.

advertisement

Ultimately, the value will not be in the transport. That industry made money over the years by controlling the infrastructure and the right to have access to that infrastructure. They priced on the scarcity model. That’s being threatened right now, but do not underestimate the power of the infrastructure providers to spoil the party.

The voice over IP world that is emerging has an incentive of its own and seems unstoppable. It is so user and technology driven and will drive more innovation. It’s not just about cheap long distance, though. It can be integrated into other services we haven’t seen before. Perhaps you’ve been involved in teleconferences that involve presentations. There are several connections going on. Thats a model left over from the last century. The new model is that you’re collaborating and participating, all running over IP protocol seamlessly — and seen by the network as data.

That’s the real power of voice over IP. One of the important things about that model is that your voice over IP identity is the identity of a user. The old telephone system had the identity as a location. You should be able to be reached without the caller knowing where you are. We don’t need to know where things are located. Voice over IP has the opportunity to increase the value of that convergence.

Before we get too excited about that, let’s look at number portability. All we’ve achieved in the now is service provider portability. Those technologies were delayed at least a decade by the infrastructure owners because of their concerns about the threats posed to their business models.

Mike McCue: Voice over IP is only half the story. The other half has to do with the applications. Think about the Internet if it were just TCP/IP. Without HTML, we’d be nowhere. Any time you have an industry revolution, the natural tendency is to think about things in ways you think about today. Voice over IP, what’s that going to do? Cheaper phone calls? What is it really going to do?

The industry is changing in every regard. Look at directory assistance. It’s a fascinating voice application on the network. It’s not connected to other applications, but it’s used billions of times a year. When you do a search on the Internet, you get 3 million results. It’s a free search, and people pay to be found. With directory assistance, it costs you a dollar, you get a 10-digit result, and nobody is paying to be found.

advertisement

What happens when those collide. What if I could use 411 to access my friends and friends of friends? That’s not possible right now but will be possible. If all you do is VoIP, yeah, it’ll be easier to provide more cheaper. But that’s not going to inherently improve the experience. What you need is a standard people can use to develop better applications that can hook into other applications. That’s a great opportunity. DA is a multi-million dollar industry. There’s a move to make it more efficient, but it’s a fascinating question to see how Google and Internet search will intersect with 411 over time. It’s about the applications.