Gilder - ILECs are the obstacle to high-definition voice and video calling

On December 3rd, I attended the New Telecoms Summit in New York City. Much of the discussion was focused on policy changes needed to hasten the transition from traditional telephone technology to an all IP network.

The event was organized by Dan Berninger (www.vcxc.org) and led by George Gilder, a noted author and futurist on matters of network technology and telecom regulation. The speakers included telecom policy and regulatory experts such as Ivan Seidenberg, former CEO or Verizon, and former Congressman Thomas Tauke.

Voice over IP (VoIP) technology has been in use for years, but the Incumbent Local Exchange Carriers (ILECs) are driving the regulatory process for more discussion, conjecture and pointless trials to delay an FCC order that requires they open their networks to VoIP interconnection.

After a morning of listening to the ideas of a lot of smart executives and academics, I had lunch with Mark Iannuzzi, founder and president of TelNet Worldwide, Inc., (www.telnetww.com), a competitive facilities-based telecommunications and broadband provider in Michigan. Unlike the presenters I had heard in the morning, Iannuzi is not a former congressman, CEO of a giant telephone company nor Ivy League professor. He is not one to debate all the nuances of possible public policy alternatives. He in an entrepreneur who is making the all IP network a reality now.

From his perspective, all this talk at the FCC about a transition to an all IP network is baloney. The all IP network has been here for years and it is everywhere. Even the ILECs use VoIP technology widely, it is a mature technology.

However, ILECs refuse to allow IP interconnection to their local tandem switches. This is not a technology issue. The ILEC's refuse to allow IP interconnection because it is a monopolistic competitive advantage they can exploit. From Iannuzzi's perpective, FCC discussions and trials of the"IP transition"are an ILEC stalling tactic.

The true focus should be on implementation of the 1996 Federal Telecommunication Act (FTA). That act never mentions technology. Instead, it is rightly focused on creating a competitive telecommunications market. Competitive market forces stimulate innovation and drive down costs to consumers.

Iannuzzi recently testified beforecongress on this matter and I have copied his talking notes here.

The FTA of 1996 was created to open and industry to competition for the betterment of society, the industry and to lighten regulatory oversight via market check/balances. If not for these reasons, what is the law’s purpose and why would amendments, rules or regulation discredit same?

Given the market and infrastructural advantages of the incumbents, a competitive industry requires various guarantees to enable businesses to form and function. At its root, the FTA is a framework to allow for free functioning competitive markets in an industry which had a sanctioned a monopoly. Hence the laws, in both word and spirit, have nothing to do with technology of a given day (e.g. the TDM to IP transition is a direct child of competitive forces, moreover, to not expect technology to advance in a technology industry is ludicrous).

The three key pillars that the compact had to address are:

  • Access to the last mile at marginal cost (frankly copper and fiber)
  • Interconnection of networks at rates, terms and conditions that are just and reasonable, employing the technology of the day.
  • Arbitration and adjudication of interconnection contracts at the PUCs, due to the PUCs subject matter knowledge, duty to the society, and due process in short order (i.e. that the court system is not used to string out resolutions).

Some detractors say we have a lot of competition in the form of wire line, wireless, and cable. Frankly, the wire line and wireless providers are one and the same. And cable is the only other wire line provider.

Competitive services are multifaceted. For example, SMBs are left out of this discussion all together. SMBs create 7 out of 10 new jobs, and benefit directly from the unique touch of competitors to help guide them through a technological maze to well suited solutions and costs. Moreover, while SMBs certainly use cell phones, very, very few could/would function exclusively on cell phones. Finally, as a practical matter, 2/3 of businesses today only have copper to their buildings. Think about it, when you drive down the street do you think that the pharmacy, hardware store, grocer, etc. have fiber connections—no way. It’s the domain of large companies, buildings, or SMBs with very high bandwidth requirements—all of which have to be near the main fiber pathways to be economical. e.g. less than a mile.

The wireless substitute is often described by the ILEC in the form of people abandoning their wire line at home for wireless. While this may be true, the facts are misleading. First, if you compare the subscriber numbers, it’s important to note that it’s not apples to apples. Wireless subscribers are inherently a single user, whereas wire lines are inherently multi-user. to normalize the data one needs to multiple the number of wire line subscriptions by the number of persons in the home or business, by a factor or 4 and 20 respectively. Furthermore, wireless data plans will not service the needs of a home or business wherein speed is the pricing index not amount of data. (e.g. 2 Netflix movies will zap a cell phones data plan allotment today).

The vast amount of investment made by the competitive industry is staggering, which includes the investment made in the customers it serves (over 30% of the business market is serviced by competitors today. The innovation to help bridge the gaps, whether it is in enabling a copper pair of wires to go from 64kbps to 50mbps, or how to reliability transmit faxes over IP, are but speck of examples.

While the government has set a timeline for ILEC to leave the playing field in offering TDM services, they did not first address the continuity of the pillars of the compact listed in item #3 above. Hence, the business plans of competitors are now left with uncertainty in what how these functions will be accomplished in an effective manner.

In addition, the very bottleneck (the last mile) which bar competition are returned to the incumbent. That is, they are not abandoning a market or these resources, rather they can now have them unto themselves.

I’m totally fine that AT&T can decide which products and markets it wants to service, but the rub is that should not be allowed to shirk their duties in the process—less we forget that they have gained much in this process as well e.g. entry into long distance service.

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