Voice is an Application, but Telephony is a Service

I realize that by using the word "telephony" in the title, I've immediately categorized myself as a bellhead. A curmudgeon. An anachronism.

But it struck me the other day, when seeing an ad for one of the many cable voice services for only $30/month, or $35/month, or whatever - why are people willing to pay $30/month, or $35/month, or whatever for telephone service?

Because it works. Because it's easy to set up and use. Because it does what you need, and very little that you don't need. Because you don't have to configure it, administer it, upgrade it, manage it, or figure out how to make it work with anything else.

Because all that stuff is taken care of behind the scenes. The service providers provide a service - which includes configuration, management, upgrades, interworking, reliability, quality, and all the other "non-functional" requirements that you need for something to just work.

The "functional requirements" - codec, transmission, addressing, directories, and the like - can be met by an application. But ask any systems engineer - the functional requirements are the easy part.

Martin has "gone cold" on VoIP - because, basically, it's inconsistent and it's a pain. I'd posit, though, that it's not VoIP per se he's gone cold on - it's that he's trying to use an application where he's accustomed to using a service. And where he needs a service. And, therefore, where he's willing to pay for a service.

There is certainly a place for "VoIP applications". Just as there's a place for accounting applications, architectural design applications, and financial planning applications. But just as accounting applications, architectural design applications, and financial planning applications haven't resulted in massive unemployment for accountants, architects, or financial planners, the existence of VoIP applications doesn't mean there's no longer a need - or a willingness to pay - for voice services.

The key is to focus not on the "VoIP" part - but on the "service" part.

Blogger Dates and Times

A couple of weeks ago, I created a draft post in Blogger on fixed-mobile convergence - really, only a title and a couple of sentence fragments, to remind me what I wanted to write about when I had time.

Then today I saw Andrew Schmitt's post on cableco fixed line service, and cannibalized this draft post to write a reply.

Alas, Blogger uses the original create time and date of the post to time- and date-stamp it, not the publish time and date.

So, while it looks like I wrote the reply to Andrew's post about three weeks before he actually wrote the post itself, that's just Blogger's quirkiness at work...

Rumors of Fixed Line's Death are Somewhat Exaggerated

This was originally a comment at Andrew Schmitt's excellent Nyquist Capital blog, but it got kind of long and unwieldy.

In a post titled "Someone Tell the Cablecos Fixed Line is Dead", Andrew writes:

"Everyone agrees fixed line is a dying, low margin business. Yet Cablecos like Comcast (CMCSA), Cablevision (CVC), Shaw (SJR), and Time Warner (TWX) are feverishly trying to capture market share in this business. Why?"

I have a few reasons. Actually, about 70 billion reasons.

There are 175M fixed lines in the US. At $35/month (the going rate for voice over cable), that's over $70B of annual revenue. The number of lines is declining, but it's only down 9.1% over the peak (192.5M lines in 2000) - even at the highest reported annual rate of decrease (-3.5% 2003-2004), there would still be over 120M fixed lines ten years from now. For the MSOs to not go after this market, and instead to rely on a fixed-mobile convergence play (which is likely to be several years away) would be leaving a ton of money on the table (worse: leaving a ton of money in the hands of their primary competitors).

(By the way, the second major driver of POTS line decreases - aside from cellular substitution - is substitution of high-speed internet service for second phone lines used for dialup access.)

Sure, the PacketCable EMTA is useless when the MSO transitions to a SIP-based fixed-mobile convergence offer, but it's so cheap that Cablevision (for one) is shipping all their new Optimum Online customers cable modems with EMTAs whether or not they subscribe to Optimum Voice. So for maybe $10 per HSI sub in incremental capex (I don't know the actual cost difference between a cable modem without an EMTA and with an EMTA - $10 is a guess), you capture about $18/month in incremental revenue (over 50% of Cablevision's HSI customers purchase OV, at $35/month - the take rate is lower for other MSOs, but Cablevision shows that 50% is an achievable target) - and you deprive your main competitor of about $50/month in revenue for each customer you capture (since cable voice customers tend to be disproportionately high-paying voice customers).

When a SIP-based FMC solution is available, the MSOs will start shipping their cable modems with built-in 802.11n hubs, and the handsets for their "mobile" service will be dual-mode 11n/cellular. By that time, the cost of the embedded 11n hub will be low enough that they can throw it in just like they throw in the EMTA now; it'll give the customers the home networking capabilities and the platform for the dual-mode handset at home. In the meantime, they'll have captured a thousand dollars or so of revenue away from the ILECs per customer. And there will still be probably 150M-160M fixed lines sitting out there to be plucked...

Just as importantly, the MSOs will have established credibility as voice providers, established a base of voice customers, and built IP-based voice networks which (if they play their cards right and make smart equipment choices) will be largely re-usable in a converged fixed/mobile network.

Having a fixed component to the service - a "landline" - is important not because of the whiz-bang features like single number and integrated address book and all that - it's important because spectrum is a scarce and expensive resource. So when a customer uses their dual-mode handset at home, the traffic avoids the scarce, expensive licensed spectrum and hops on the abundant, cheap home WiFi network with its good in-home coverage and its DOCSIS connection back to the MSO servers.

Internet Telephone

No, not that kind of internet telephone. The internet version of the party game where everyone sits in a circle, one person whispers a sentence to the person next to him, he whispers it to the next person in the circle, and so on around the circle until it comes back, radically different, to the original person.

Let's start at the end. Techdirt has an article about proposed US data retention laws, which also includes a statement that

the FCC has (surprise, surprise) authorized new taxes on ISPs to pay for the mandatory wiretap access on broadband and VoIP services.

Wow. The FCC has authorized new taxes on ISPs. Let's follow the link and see exactly what CNET news.com said.

The Federal Communications Commission voted unanimously to levy what likely will amount to wiretapping taxes on companies, municipalities and universities, saying it would create an incentive for them to keep costs down and that it was necessary to fight the war on terror.

Hmm. "... to levy what likely will amount to wiretapping taxes on companies." Perhaps we should see exactly what the FCC said.

The R&O isn't available yet, but the release (PDF) says:

...the Order concludes that carriers are responsible for CALEA development and implementation costs for post-January 1, 1995 equipment and facilities, and declines to adopt a national surcharge to recover CALEA costs.

Wait a minute. The FCC said it's not going to authorize, levy, or impose new taxes to recover the cost of "facilities-based broadband Internet access providers and interconnected voice over Internet protocol (VOIP) providers" implementing CALEA. In only two hops and about 12 hours, that changed 180 degrees into "the FCC has authorized new taxes on ISPs."

If you want to be outraged about the civil liberty implications of requiring ISPs and VoIP providers to support CALEA, fine. If you want to castigate the FCC for appearing to extend CALEA obligations that were always intended for public networks (the term in the statute is "telecommunicatons carrier", which includes in its definition "common carrier for hire") to private network providers such as universities, go right ahead. If you want to bemoan the FCC's apparent intent to define ISPs as "information services" when it suits one policy goal but as "telecommunications providers" when it suits another, be my guest. You can even rail against the unfairness of the FCC providing $500M for ILECs to implement CALEA but providing nothing for the ISP or VoIP industry if you'd like.

But if you don't even get the facts right, your arguments lose a lot of their credibility.

Everything Old is New Again

Mr. Blog writes on "Net Neutrality, 1996", with his thesis being that 10 years ago, the Internet took off due to the ubiquity of dialup access; the telco raked in significant money by providing dumb transport (second phone lines) with no knowledge of or control over the content (V.34, anyone?). "Neutrality" at its finest.

I'd extend this thesis to say that the Internet took off due to the ubiquity of flat-rate dialing for dialup internet access. In the rest of the world, where metered usage was far more prevalent than in the US, the widespread use of the Internet grew a lot more slowly.

Now if anyone thinks back to those bucolic days of yesteryear, they may remember constant rumors called the "modem tax". The rumor was that telcos would monitor the phone conversations for modem traffic, and charge modem calls differently than voice calls -- charging per-minute or capping the minutes that could be used on the flat rate line.

Substitute "perform deep packet inspection" for "monitor the phone conversations for modem traffic", "guaranteed QOS" for "modem calls", "charging based on QOS" for "charging per-minute", "capping the downloads" for "capping the minutes", and "broadband access" for "flat rate line", and that paragraph could have been written about the current situation. Except then, the telcos universally denied any intention to take such action. Now, they're advocating it.

Ripoff or Reasonable?

Tom Evslin is irate that AT&T is charging soldiers 21 cents a minute for calling card calls from Iraq to the US, and doesn't permit access to other phone card providers' access numbers. Jack Decker is even irater.

According to the article in the Prepaid Press that Tom cites, AT&T charges 21 cents per minute for calls from Iraq. This price, the meme goes, is outrageous.

You can buy prepaid cards almost anywhere in the world to call the US for less than two cents a minute.

Also outrageous, the meme goes, is that the soldiers are denied the chance to use a less-expensive calling card.

But when a company appears to be abusing their monopoly position to pick the pockets of people who have no other choices, I get upset.

Disclaimer: I, like Tom, used to work for AT&T. I wasn't anywhere near Carpetland. I did go there for a meeting. Once. They didn't invite me back. But one boss of mine was in the same part of the building as some of the Labs folks who were responsible for establishing the calling centers in Iraq and Afghanistan, and they were rather proud of what they had done - there aren't many places in the Labs where people hang pictures of their projects on their doors, but that was one of them. So I got curious. Is AT&T taking unfair advantage of their position in Iraq to gouge the soldiers?

I went looking for the international prepaid calling cards that allow you to call the US from Iraq for less than two cents a minute. Perhaps AT&T's biggest LD rival, MCI (now Verizon Business), would have a better rate. Doing some searching, I found three MCI international prepaid cards that show rates from Iraq to the US (Not sure all the deeplinks will work):

Branded as MCI ConnectHome: 45 cents per minute
Branded as AbsoluteGlobal, sold through ZapTel: 45 cents per minute
Branded as MCI World Traveler Phone Card: 56.3 cents per minute

Hmm. Maybe the other of the Big Three, Sprint: Nope. Not available.

OK, obviously the Big Three are all thinking the same way. But the Prepaid industry is ultra-competitive, and there are a lot of small companies that have extremely low prepaid card rates. So let's look on Google for "international calling card" and see what we can find:

WorldTraveler Card (PhoneCardSavers): 56.25 cents per minute - good to see that it's the same rate that MCI /VZB uses. Although Calling Card Plus has the same card with a rate of 45 cents per minute.
iDPhoneCard.com: Not available
PhoneShark.com: No cards available for service from Iraq.
OneSuite.com: Not available

There were a number of sites that had rates for PC to phone or callback cards, but I was unable to find any calling cards with rates from Iraq to the US that were less than 45 cents per minute - more than twice what AT&T is charging.

Other than anecdotal evidence, is anyone able to document phone-to-phone calling cards with a rate for calls from Iraq to the Continental US less than what AT&T is charging?

Would it be preferable for AT&T to allow callers to use other companies' calling cards? Sure. Would it help the soldiers? Doesn't look like it.

WiMath

Intel demos a WiMAX-enabled laptop on a scooter that is delivering speeds of 2 Mb/s.

"Support of data rates up to 75 Mb/s" is a widely-bandied-about figure.

I've even seen some people claim 150 Mb/s.

Alas, Shannon-Hartley's not just a good idea, it's the law.

WiMAX supports a number of modulation types and coding rates; the best is 64QAM 3/4, which provides a raw data rate of 4.5 bits per baud, or 4.5 bps/Hz. Let's be generous and assume that a hypothetical WiMAX network has such a dense forest of base stations that everywhere Sean Maloney rides his scooter in San Francisco, his WiMAX card is operating at 64QAM 3/4.

The 2.3 GHz WCS band licenses in the US are for 5 MHz channels; 2.5 GHz BRS/EBS licenses are for 6 MHz channels. So with that 6 MHz channel, the maximum theoretical data rate for WiMAX is 27 Mb/s. Hang Sean's scooter from a crane right in front of the base station antenna, and he won't get any better than 27 Mb/s raw channel capacity.

That's raw bits, though. You have to then factor in the WiMAX PHY overhead (about 15%), MAC overhead (about 20%), and MAC convergence sublayer overhead (about 10%). Now you're down to about 16.2 Mb/s user payload throughput. Remember, we're still talking best case - 6 MHz BRS/EBS channels, and enough base stations that you've got 100% coverage with 64QAM 3/4.

Well, OK, 16 Mb/s is still pretty fast, right? But remember, this is a shared medium, and that 16 Mb/s is combined upstream/downstream. How many WiMAX cards does Intel hope to sell? Because even with only a 256 kb/s upstream, that's only about 7 simultaneous users at 2 Mb/s.

150 Mb/s? Not hardly.

75 Mb/s? Not even close.

2 Mb/s? Sure, if a carrier builds a dense forest of base stations, because you need small cells both to get as much 64QAM coverage as possible and you need a lot of them to provide the capacity needed.

AT&T-BLS Merger

Over/Under on the number of Star Wars Episode 6: Return of the Jedi/"rebuilt Deathstar" references among the blogniscenti: 12.

Verizon VCast Music Service to Launch in January

While getting a new phone at the local Verizon Wireless store yesterday, I saw on the back of the counter a piece of paper with sales and customer service information for a Verizon VCast Music Service, showing a launch date of January, 2006. Details are sketchy in my mind (I'm willing to look at something sitting in plain sight; snatching it up would have been a bit tacky), and there was no information on pricing or content sources, but I do recall that four phones would be supported - two LGs, "The V" and the VX8100, and a Samsung, all of which would require an "upgrade package", and one yet-to-be-released phone the maker of which I can't recall.

Google Betas and Stock Price

Mark Evans compares Google's stock price with its launch of new Betas and official products, and Om Malik notes it.

Now, I suspect that Mark was half kidding, but his "analysis" also "inspired" me to look a little deeper.

Of the ten days that Mark notes new product or Beta introductions, Google went up 6 and down 4. On the six up days it gained $17.57; on the four down days, it lost $15.24.

So in other words, on the 10 days Google introduced new products or betas, it had a net gain of $2.33, or $0.23/day. On the 307 days Google didn't introduce new products or betas, it had a net gain of $300.21, or $0.97/day.

Which just goes to show that given five minutes with a spreadsheet and daily stock prices, you can prove just about anything you want.