I really don’t have any commentary on this deal yet except to say that Wiltel has been pretty quiet lately and Level 3 has been doing an admirable job promoting themselves. By combining networks, Level 3 gets access to more route miles and 50 new markets. This seems like a good move for Level 3 and Wiltel.
My only concern is that there are fewer and fewer companies who own the data pipes left. At the same time there is a proliferation of companies looking to distribute content on these pipes – whether they be voice or video. Take a look at my SBC Goes Trick-Or-Treating article to see why I am concerned.
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Level 3 Acquires WilTel
Purchase Price Consists of 115 Million Shares Of Level 3 Common Stock And $370 Million in Cash
Transaction Includes Multi-Year SBC Contract
Company Will Acquire And Operate Vyvx Subsidiary
BROOMFIELD, Colo., October 31, 2005 - Level 3 Communications, Inc. (Nasdaq: LVLT) today announced that it has signed a definitive agreement with Leucadia National Corporation (NYSE: LUK) under which Level 3 will acquire WilTel Communications Group, LLC. Level 3 will pay 115 million shares of Level 3 common stock and $370 million cash. The agreement provides that Level 3 will not acquire certain assets and liabilities of WilTel. Closing is expected to occur in the first quarter of 2006, subject to customary closing conditions including receipt of state and federal regulatory approvals.
Based in
"There is a unique and compelling fit between WilTel and Level 3," said James Q. Crowe, chief executive officer of Level 3. "Both companies are experienced providers of optical and IP-based services, and both serve similar customer bases.
"We believe this transaction brings together the two premier providers of communications backbone services and that our customers will benefit significantly from that shared institutional excellence. We also believe the combined technical and service capabilities will help support and advance our customers’ transition to IP technology and Voice over IP," said Crowe.
"WilTel has a reputation based on consistent delivery, operational excellence and proven customer satisfaction, and we believe that Level 3 has a similar reputation and shares our vision of the future of IP communications and technology convergence," said Jeff K. Storey, president and chief executive officer of WilTel Communications.
Expected synergies
"We expect to achieve substantial synergies through this transaction," said Kevin O’Hara, president and chief operating officer of Level 3. "We plan to combine and optimize the Level 3 and WilTel networks. The merged network will reach 50 new markets and include 3000 new route miles compared with Level 3’s pre-acquisition facilities. We expect to migrate substantially all of WilTel’s IP, optical and voice transport traffic to the combined network."
SBC contract
The transaction includes the contract between WilTel and its largest customer, SBC. In January 2005, SBC announced its pending merger with AT&T and its intention to migrate the services provided by WilTel to the merged SBC and AT&T network. In anticipation of the successful completion of the SBC and AT&T merger, the contract between WilTel and SBC was amended.
The amended SBC agreement runs through 2009 and provides for a purchase commitment of $600 million from January 2005 through the end of 2007, and $75 million from January 2008 through the end of 2009. Only purchases of on-net services count toward satisfaction of this purchase commitment. Originating and terminating access charges paid to local phone companies are passed through to SBC in accordance with a formula that approximates cost. Additionally, the SBC agreement provides for the payment of $50 million from SBC if certain performance criteria are met.
"SBC is an existing and important customer of Level 3, and we look forward to expanding our relationship with them," said Crowe. "We are committed to working hard to ensure a smooth transition for SBC throughout this process."
"We have had a long and mutually beneficial relationship with WilTel Communications and Leucadia National Corporation and their management teams," said James S. Kahan, senior executive vice president of corporate development for SBC. "We are supportive of the transaction with Level 3 and look forward to working with the Level 3 team as we have on numerous occasions in the past."
Vyvx video business
As a part of the transaction, Level 3 will acquire the WilTel subsidiary, Vyvx, LLC, the industry leader in gathering and distributing broadcast quality live and non-live video for the media and entertainment industry. The company delivers nearly 250,000 fiber and satellite video feeds, and more than 5 million ads and promotional media content around the world each year.
"We recognize the importance of Vyvx’s customers and are committed to ensuring they receive the highest quality service without disruption," said O’Hara.
"We believe that Vyvx’s expertise in transporting video combined with its strong brand and customer relationships may create some additional opportunities for Level 3 as the video transport market evolves."
Vyvx reported $120 million in revenue in 2004 and $59 million in revenue for the first six months of 2005.
Transaction terms
Under the terms of the Level 3-Leucadia agreement:
Level 3 will pay 115 million shares of Level 3 common stock and $370 million in cash subject to certain adjustments as described below.
Level 3 has the right to substitute cash in lieu of delivering common stock.
Leucadia will retain WilTel’s existing $358 million credit facility, its
Level 3's $370 million cash consideration at closing is subject to certain adjustments relating to working capital and time of closing. It is anticipated that Leucadia will retain any cash and marketable securities in excess of $100 million.
Closing is subject to customary conditions including receipt of Hart-Scott-Rodino approval, and federal and state regulatory approvals.
As part of the transaction, Leucadia will retain the right to receive a $236 million termination payment from SBC.
Financial overview
Including the SBC master agreement contract, Level 3 expects WilTel to contribute $1.5 to $1.6 billion of revenue in 2006. Based on the expected migration of SBC traffic to merged SBC and AT&T facilities, this amount is expected to decline to approximately $600 million in 2008. Level 3 expects WilTel to contribute approximately $50-90 million in cash flow in 2006, including integration costs, and approximately $125-150 million on an annual basis thereafter. Level 3 expects integration costs to be $100-150 million. Assuming the transaction closes in the first quarter of next year, the majority of integration costs are expected to be incurred in 2006
"These incremental cash flow projections are preliminary, and we expect to refine them and provide more detail as we proceed with the integration planning over the next few months," said Sunit Patel, chief financial officer of Level 3.
Integration
"We anticipate that integration of the network businesses will take approximately 15-18 months as we streamline processes and systems, and migrate IP, optical and voice transport traffic to an optimized Level 3 and WilTel network," said O’Hara. "During the integration process, we will work hard to identify and retain the best employees from both companies in order to create the strongest possible integrated organization."
Transaction Summary
"The transaction will increase the size and scale of Level 3’s transport, IP and voice businesses, and add a market leading video transport business," said Crowe. "It will add high credit quality customers and a group of high quality employees. The transaction will broaden our network capabilities, enabling the company to access new markets and increase capacity on major traffic routes. It will allow the combined operations to benefit from significant synergies resulting from the elimination of duplicative network infrastructure and common resources. And we believe that the transaction will significantly strengthen our financial position."
JPMorgan and Evercore Partners acted as financial advisers to Level 3. Willkie Farr & Gallagher LLP acted as legal counsel to Level 3.
October 2005 Archives
Calysto Communications and Public Relations is a PR company that has perhaps the most customers in the VoIP space and they have a great team of PR people. Their clients are certainly almost all on the telecom "A" list. Since they attend a lot of shows it is worth listening to what they say when they evaluate one show or another. This is what they had to say about last week's Internet Telephony show in
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Internet Telephony Conference & Expo 2005
Los Angeles
Los Angeles
October 24-27, 2005
Attendees: Approximately 6,200
Exhibitors: 139
Media: Approx. 37
Calysto Overview:
The Internet Telephony Conference & Expo came to a close this week with approximately 6,200 attendees.
The session that had the audiences distracted from their Blackberries was former FCC chairman Michael Powell's keynote speech. A standing room crowd of 800 eagerly anticipated Michael's forthcoming opinion on the industry due to this being his first telecom event since he stepped down as FCC chairman.
In his keynote he discussed the power of
Other keynotes included Carly Fiorina, the former CEO of HP, Jim Pickerell of Brand X Internet and Commissioner Susan Kennedy of the California Public Utilities Commission. The common thread among other sessions was VoIP 2.0, regulatory concerns and the future of IP communications.
Publications represented at the conference included: The
The show floor was packed, with many bloggers and exhibitors commenting on the long lines of attendees waiting to talk to exhibitors. Overall, the energy and growth of this conference continues to impress. The combination of educational tracks, quality of attendees and continued growth in attendance puts Internet Telephony Spring 2006 as a show to evaluate for your tradeshow plans.
Calysto Communications and Public Relations is a PR company that has perhaps the most customers in the VoIP space and they have a great team of PR people. Their clients are certainly almost all on the telecom "A" list. Since they attend a lot of shows it is worth listening to what they say when they evaluate one show or another. This is what they had to say about the USTA Telecom 05 and TelecomNext shows.
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USTA TELECOM '05
Venetian Resort & Casino
October 24-26, 2005
Attendees: Approx. 7,000
Exhibitors: Approx. 236
Media: Approx. 90 press/analysts were in attendance
Calysto Overview:
As SUPERCOMM transitioned into GLOBALCOMM 2006, so too goes USTA's TELECOM '05 into TelecomNEXT. What was the experience at this year's event? It depends who you ask.
The best quote we overheard at the show regarding the attendee experience was, "USTA TELECOM '05 has always been a conference which just happens to have exhibits attached. SUPERCOMM traditionally was the opposite."
The aforementioned conference program featured some heavy-hitters, and was not without a bit of controversy. During the "gloves are off" keynote, Cox Communications' CEO Ed Robbins dared telcos to "bring it on." Other less controversial panel discussions included CTOs of RBOCs including Mark Wegleitner of Verizon; Balan Nair of Qwest and Bill Smith of BellSouth where IMS and other next-generation services were the topics "du jour."
One of the long-standing complaints of USTA's exhibitors has been the lack of balance between the strength of the sessions and the traffic on the show floor. USTA attempted to address this by carving out one hour each morning designed to allow conference attendees to visit the booths. However, the show floor still had large blocks of time where other exhibitors were talking to one another - not prospects.
USTA has traditionally promoted the conference as one that attracts decision makers. That may be true from a conference standpoint, but the reviews on the show floor were decidedly mixed. For many, the low attendance on the exhibit floor seemed like the opening act for TelecomNEXT 2006.
Vince Vittore of Telephony articulated this in his show wrap-up: "From the blow-ups of Time magazine's cover of Steve Jobs (ironically, with the headline 'What's Next?') to the password for Wi-Fi access, USTA is doing its best to promote the show after the show."
Well, what's our take on what's next? We predict TelecomNEXT will pick-up where USTA TELECOM '05 left off, with an impressive line-up of speakers and conference agenda but a hit-or-miss show floor.
Best,
Calysto Communications
The one thorn in the side of the RBOCs of course has been AT&T who also has an army of lawyers and lobbyists and is for promoting open networks allowing competition. AT&T was a champion for competition. They had to be as their lives depended on it.
Now of course there is no AT&T. Well there is the AT&T name but it is carried by an RBOC -- namely SBC. You cannot underestimate the loss of an independent AT&T as a political/lobbying power fighting for competition in the marketplace.
From a competitive point of view, losing AT&T is a terrible blow to competition for the VoIP market and IPTV and anything else you may use the Internet for.
Of course I have hinted at this for a long while and it is a sensitive topic so there probably isn't as much discussion about these issues as there should be. The simple concern we should all have is what the few broadband providers left will do to block competition.
Last week at Internet Telephony Conference & Expo in
Until Congress rewrites key portions of the 1996 Telecommunications Act, or until regulators and policymakers are overtaken by technological events, every aspect of Internet telephony will continue to be a battleground.
State regulators will continue to take incremental steps to impose price controls, taxes, fees and consumer protection rules on VoIP on the theory that "a duck is a duck," and believing that "parity" means regulating "up" – in other words, making sure that both the traditional phone service and the new generation of telecom services operate under the same yoke of regulation.
These sentiments were echoed throughout the event. In my opinion the VoIP industry needs to be worried as broadband competitors are shrinking and those companies controlling broadband connections are hinting that they will start to block competition on their pipes.
In an article this past weekend, BusinessWeek.com had an interview with SBC CEO Ed Whitacre and within the article you will find some comments that should scare the living daylights out of any company that thinks the Internet should be open to competition. The question posed was:
How concerned are you about Internet upstarts like Google, MSN, Vonage, and others?
And the answer was as follows:
How do you think they're going to get to customers? Through a broadband pipe. Cable companies have them. We have them. Now what they would like to do is use my pipes free, but I isn't going to let them do that because we have spent this capital and we have to have a return on it. So there's going to have to be some mechanism for these people who use these pipes to pay for the portion they're using. Why should they be allowed to use my pipes?
The Internet can't be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo! or Vonage or anybody to expect to use these pipes [for] free is nuts!
The irony here is the timing. While SBC openly admits the fact they could start restricting use to SBC broadband connections, the
One would imagine that someone in Whitacre's position would actually try to play nice while the regulators are deliberating for fear a regulator might actually read such an article and ask themselves if they are doing the right thing for consumers.
Amazingly this sort of talk comes within the same year the FCC, backed by the Supreme Court have done everything they can to eliminate CLEC competition. From there, they left MCI and AT&T as two of the strongest telecom competitors to the ILECs. These companies too are now gone -- owned now by the very ILECs they used to compete with on some levels. This leaves only cable companies as real competitors. For all the talk of WiMAX and broadband over power lines or BPL these technologies don't really show any promise for the immediate future -- if at all.
I am sure SBC shareholders are thrilled to hear talk like this but what about the shareholders of, eBay, Google and others? What about VoIP providers? How about Apple? Is Whitacre telling us openly he plans on taxing the use of his pipes?
Statements like this are probably the reason why Michael Powell and Carly Fiorina who also keynoted last week's Internet Telephony Conference & explained why the rules need to be overhauled. In Fiorina's case she said we should have light touch regulation with some baseline coverage to protect consumers from fraud. Michael Powell agreed and implied that the telecom rules need to be rewritten. He also said that any attempt to do so will result and great deal of political wrangling.
In reality we may not see the rules overhauled any time soon. This is why I have been thinking long and hard about what Jim Pickrell of Brand X Internet said last week at Internet Telephony Conference & Expo at yet another breakfast keynote. Pickrell said he is concerned that ILECs are putting ATM connections in their networks so they can control the quality of these services they provide. If you put two and two together you see that what seems to be happening here is that broadband will start to come in two varieties... A connection with quality guarantees and one without.
Someone of course is going to have to pay for the quality connection and whether it is the consumer or an independent VoIP provider remains to be seen.
There can be no more scary a thought than this for any company that provides any service over the Internet and this sort of talk is probably why companies like Google are looking for alternative ways to reach consumers from BPL to WiFi.
What we all need to do is a keep a key an eye on the ILECs because they will likely start to do things that on the surface seem logical but behind the scenes make life difficult for competitors This statement from Whitacre is the scariest thing I have heard in the VoIP market in a long time and perhaps a day like Halloween is the ideal day for it to all to come out into the open. One thing is for certain. Unless the government decides to make sure there is real competition in the
VoIP 2.0 Application Enablement
Many of us use Citrix Presentation Server but you may not know the company has been building up their access business to allow users to get access to their applications over the web and IP phones. This strategy has been announced for a while now but I wanted to share the news on how the company is making strides.
The company sees the IP telephony application market being the size of the voicemail market. In other words they see the need for applications to be sold with every IP PBX.
In order to facilitate their growth in this space they have launched a Voice Office suite of applications that allow customers to receive information on their devices. If you don't recall, Citrix purchased Net6 a while back and this division is now the Gateway division of Citrix. They have partnered with all the major PBX players and are now promoting the fact that the IP phone can talk to anything on the network. Telecom industry veteran and Citrix spokesman Gordon Payne tells me you need a single Citrix Application Gateway to allow this functionality to take place. With the gateway in place you can aid knowledge workers, allowing them IP phone access to databases or anything else for that matter.
You can do some rally interesting things with this gateway such as zone paging, sending broadcast alerts, having access to an express directory services, visual voicemail and conference management.
"The goal of Citrix Gateways is to not compete with telephone manufactures but to enhance phones and phone systems." according to Payne.
The company has just introduced Smart Agent and click to call is the first application that works with this software. Smart Agent sits on a client PC and silently monitors Microsoft Office and Internet Explorer applications looking for phone numbers. When it finds one, it adds a hyperlink allowing users to click to dial. This is similar to what a company called Teleo showed me in my office a number of months ago. Teleo was acquired by Microsoft a few months back.
The difference between what Citrix does and Teleo is that the latter has a VoIP service while the former uses the enterprise PBX to initiate calls. There is some nice integration going on behind the scenes with Citrix.
Personally I think the killer application here is the CRM/informal contact center market.
Citrix is looking to many of their corporate partners such as SAP in the hopes of telephony enabling their entire suite of applications.
Payne says we will see many more Smart Agent applications in the future.
The company plans on selling vertical solutions and Hospitality Voice Services is one of the first verticals the company now offers. If you recall Net6 sold a customized hospitality system to Wynn Las Vegas in May. Actually Avaya resold the Net6 solution. You may recall, the Wynn system is super-sophisticated allowing detailed views of hotel restaurants and attractions. The web browser interface of the screen becomes a perfect mechanism for checking out hotel services.
In order to sell this concept to other hotels Citrix has developed a gold and silver package. Silver allows the screen to have soft keys and a screen saver displaying advertising. You touch the screen to be connected directly with the advertised service. Hotels can sell these as ads if they like.
The gold package adds custom guest greetings allowing you to see "Welcome
I saw a great deal of synergy between Citrix and Net6 when I heard about the acquisition and I am happy to see the merger bearing fruits for both companies. Applications are at the heart of VoIP 2.0 and I must say I am impressed at how Citrix is enabling the next generation of IP Communications applications to take shape.
Here is the text of Commissioner Susan Kennedy’s speech at Internet Telephony Conference & Expo from last week in
Here is the transcript of the speech:
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Commissioner Susan P. Kennedy
Internet Telephony Conference
October 24, 2005
Los Angeles
VoIP:
A Consumer’s Dream; A Regulator’s Nightmare
Good morning. I’m sure that many of you looked at the program and wondered why on Earth you’re being asked to listen to a member of the Public Utilities Commission before your coffee has kicked in. At 7:30 in the morning, believe me, I’m wondering what I’m doing here myself.
Most of you in this room don’t know me, and if you have good kharma in this life, you never will. I’m a regulator. That means: I’m from the government and I’m here to help. I regulate electric utilities, gas companies, water utilities and telephone companies. In fact, public utility commissioners are among the most powerful regulators in any state, and depending on your position in the regulatory food chain, you either love me, hate me, need me, or fear me.
If you are a company that offers traditional phone service like SBC or Verizon you love me – because I strongly believe that the 130-year-old web of legacy regulations attached to voice telephony should be dismantled in favor of competition. Not tinkered with; Not updated – taken out and burned.
If you are a traditional consumer advocate you hate me for the same reason – because I strongly believe that the power of choice in the hands of a consumer is a much more effective way to protect consumers than regulation. I believe most traditional regulation today actually hurts innovative competitors and hurts consumers.
If you are a competitive voice service provider that relies on interconnection with the legacy network you need me – because for the foreseeable future you need regulation to ensure access to the PSTN, non-discriminatory interconnection rates, and fair arbitration of disputes with network owners.
And if you are a VoIP provider, you should fear me – because you are the single biggest threat to the regulatory regime upon which my whole world is based.
VoIP changes everything. It revolutionizes communication as we know it. It liberates consumers by freeing every medium – whether it’s copper, cable, fiber or radiowave – from the silos in which communication is limited, trapped and then fed to consumers by those who own the network. And it is shifting control of the consumer experience away from the central office and out to the edges – irreversibly placing market power into the hands of consumers.
VoIP also erases everything we know about regulation.
For the last 100 years, the entire regulatory world has been organized around the length of a pair of copper wires; the location of a central office; where a call originates or terminates; and whether a signal was in the form of an analog wave carrying a human voice or a digitized packet carrying data.
Our jurisdiction is based on the physical lines that tell us where a local call ends and a long-distance call begins; the technical definition that separates telecommunication services from information services. These lines serve as our operating manual – they tell us who to regulate, who pays taxes & fees, who pays access charges or reciprocal compensation, who provides 911 emergency services, 411 information, and who’s subject to the Commission’s service quality standards, financial auditing and customer protection rules.
These lines are source of our power. And VoIP erases them all. With a few strings of computer code – you’ve upended 130 years of regulatory certainty. And what you have to fear from this uncertainty is fear itself. Because nothing motivates people quite the way fear does:
Regulators fear losing jurisdiction
Legislators fear loss of funding for social programs like universal service or tax dollars
Big incumbent telcos fear loss of access charges
And rural telcos fear loss of massive subsidies and they fear a low-cost competitor that will eat their lunch.
This fear is well-placed.
VoIP disrupts the tax base. Estimates are that telecommunications companies and their customers pay an average effective tax rate that is 250% higher than the tax rate for all other industries with the exception of electric utilities. In some local jurisdictions the total taxes paid by telecom consumers is more than 25% of the customer’s bill.
The Multi-State Tax Commission issued a report during the Congressional debate over extension of the ban on Internet taxes estimating that if the telecommunications industry migrates its services to the Internet, and the ban on telecom taxes migrates with it, the revenue loss to state and local governments would be upwards of $22 billion. That’s a lot of tax revenue. Even more ominous than that – organizations that advocate for public services are calculating the impact of tax preemption on IP- telephony in terms of the number of teachers, policemen and firefighters that will be laid off if VoIP remains tax-exempt.
VoIP disrupts universal service funding. In 2003, my Commission issued a report to the California Legislature indicating that the migration to IP-telephony (if left unregulated) will lead to a 40% reduction in funding for universal service programs, including high-cost funds and deaf and disabled programs, by 2008. Understand something - to policymakers - those are fighting words.
VoIP disrupts the regulatory detente that has governed relations between states and the federal government for decades. States like
I managed to open a proceeding to investigate the jurisdictional questions this raised, which postponed any enforcement actions in California long enough to let the FCC step in and preempt states from regulating VoIP. And the FCC did take the very important step of preempting most state regulation of VoIP in the Vonage decision. But that was just the first battle in this IP insurgency.
Until Congress rewrites key portions of the 1996 Telecommunications Act, or until regulators and policymakers are overtaken by technological events, every aspect of Internet telephony will continue to be a battleground.
State regulators will continue to take incremental steps to impose price controls, taxes, fees and consumer protection rules on VoIP on the theory that “a duck is a duck,” and believing that “parity” means regulating “up” – in other words, making sure that both the traditional phone service and the new generation of telecom services operate under the same yoke of regulation.
Here in
After a huge battle, we suspended those rules when Governor Schwarzenegger’s new appointees joined the Commission this year, but the battle is not over.
Another example of old crashing into new is the FCC’s order for VoIP providers to meet a sharp deadline to provide E911 services. As well-intended as the FCC’s decision is – and I can’t say that if I was in Chairman Martin’s shoes that I could have done anything different – the practical result is that we’re forcing VoIP technologies to gerry-rig a system in order to operate within the old legacy network, instead of building a new architecture based on newer, more efficient IP-based services.
The messiest collision on the horizon, though, is intercarrier compensation. Until the FCC finishes a major overhaul of the way carriers compensate each other for connecting calls – and deals with the inevitable impact on rural carriers who rely on massive subsidies through access charges and universal service funding – IP telephony will likely get saddled with many of the same costs and fees that traditional phone providers pay to support the PSTN in rural areas.
Nomadic VoIP providers will be difficult to saddle. For example a customer with a 310 phone number (in the Los Angeles area code) could be living in New York and make a VoIP call from their 310 number to another 310 number while sitting in their apartment in Manhattan. From a technology perspective, that’s a non-issue.
But for a regulator, it’s a nightmare. Is that a local call or a long distance call? Do they pay “recip comp” or access charges? Whose customer is it –
These are not the kind of problems that lend themselves to piecemeal or incremental solutions – because when you pull on one string, the fabric comes undone.
I would like to see a complete overhaul of the 1996 Act, but I will settle for a narrow approach that walls off IP telephony from state regulation and gives the FCC the time and, most importantly, the authority to sort these issues out.
I’m afraid an overall solution designed for a new world will not come from Congress anytime soon, because these issues are simply too sticky. There are too many constituents with vested interests in preserving some piece of the status quo to allow meaningful reform to make it through the legislative process.
But we don’t have much time. When these mergers are done and the big companies have time to focus on the competitive landscape, and when enough traffic migrates to IP platforms to impact the revenue streams of the large network owners – these compensation and interconnection disputes will become more serious.
Additionally, as more and more traffic migrates to IP platforms and away from the PSTN, more costs will be loaded on those services that do pay into the universal service fund – which will raise costs even more for consumers using those services. This will, in turn, drive even more customers to lower cost alternatives like VoIP – which will in turn put even more pressure on the remaining services to financially support the PSTN.
This is a malignant cycle that hurts customers, hurts competition and hurts any service that uses the PSTN. It is imperative that the FCC change the funding mechanism to one that is technology and platform neutral. I believe the only mechanism for the foreseeable future, at least as a transition, is one that places a small monthly fee on all numbers from the North American Numbering Plan.
I know some ask what the purpose of the Universal Service Fund today, with so many low cost alternatives out there. But don’t kid yourself. Congress will not allow the Universal Service Fund to whither away. That’s not going to happen. So you had better get behind a solution you can live with before you end up like the wireless industry – they are just about the largest contributors to the fund, passing enormous costs onto their customers, yet few are able to receive funds in return.
The real regulatory battle for the future of Internet telephony will be on the issue of “Net neutrality.” Regulators are in a tough spot on this one. I have to tell you, I am a strong believer in using all the regulatory tools at my disposal to ensure customers have access to the services of their choice. But for the better part of this year now I have been asking everyone I come across to tell me how to write it. No one seems to know how to do it without being dangerously vague or rigid.
I moderated a panel at VON in
Network operators do have legitimate issues concerning bandwidth management, traffic flow and network security that could easily be considered discrimination by some definitions. For example, blocking access to websites that are advertised in spam messages would be a form of discrimination; Asymmetrical bandwidth flows are by default a form of discrimination; Differential pricing, bundling and co-marketing agreements all favor some customers and products while others pay more.
There is no “one-size-fits-all.” But, more importantly, it is very, very difficult – if not impossible – to write a regulation that allows for some types of discrimination but prohibits others – because any regulation that by definition involves making a judgment call (“this type of discrimination is ok”), at best becomes unenforceable and at worst becomes a maze of endless litigation. This is coming from a regulator who strongly supports the principle of Net neutrality, but who could not find a way to write it into regulation without causing much more harm than good.
That’s very different from what I would consider blatantly anti-competitive acts such as port-blocking, or the use of filtering technologies designed to block Internet phone services without the users knowledge or consent. The FCC demonstrated in the
It’s a little harder to intercede where contract provisions are involved. The Wall Street Journal had an article just last week about Verizon Wireless and Vodafone subscription contracts that bar the use of their high-speed EvDO networks for Internet calling. I’m a Verizon wireless customer and I found that very disturbing.
But you know what? I don’t have to stay a Verizon customer. Cingular provides the same service where I live in the
Cable companies had these exact same types of provisions a few years ago preventing customers from using home servers and attaching certain devices to their home network. Market forces made those provisions bad for business a lot faster than it would have take to remove them a regulation.
I have come to believe that we have to approach the issue of Net neutrality like we do the right to free speech or privacy. What constitutes speech or privacy is not necessarily defined in statute – these are principles that are enforced on a case by case basis and codified in a dynamic and robust body of case law.
I believe the FCC should address this issue on a case by case basis until a problem materializes that consumers cannot fix on their own through the power of choice in a free market.
On the other hand, where customer choices are being limited by blatantly anti-competitive actions, regulators should be fearless about stepping in.
My commission released its proposed decisions in both the SBC and Verizon mergers last week, and in those decisions – which approve both mergers – you will find a condition that requires both companies to end the practice of forcing customers to buy traditional voice service from them as a condition of accessing DSL. I pushed for this because I believe competitive VoIP providers are at a distinct and artificial disadvantage if a customer who wants to use their service is forced to pay twice for the privilege.
I can make the argument that a customer can simply switch to cable broadband if they want to use a competitive VoIP service, but many states like California are in the middle of trying to eliminate most economic regulation on traditional voice services – and I’m simply not willing to do that as long as these companies make it harder for consumers to go to their competition.
And we’re not trying to regulate naked DSL. Let me repeat that. We’re not trying to regulate DSL. SBC and Verizon don’t have to comply with our request, just like we don’t have to approve the mergers within any reasonable period of time. And we don’t have to give them relief from legacy regulation any time soon.
Verizon’s already said they are planning to offer it – before we made it a merger condition – and I believe SBC will follow. Because a competitive market forced them to do it – not regulators. We’re just helping to move them along.
That’s how regulators can actually help Internet telephony thrive – by knowing when to step in and when to lie in wait. There’s an old prayer I’ve started using to guide me.
God, grant me the serenity to accept the things I cannot fix through regulation; The Courage to step in when I need to; and the Wisdom to know who’s paying for it.
I will leave you with that. Thank you very much.
I am here in the airport on the way back from ITEXPO in
The theme of the show was definitely VoIP 2.0 and everyone feels we are just at the tip of the iceberg. Others told me the future is IP Communications and they told me they love what we are doing with Intel on our IP Communications.com super-portal.
Some trends I noticed are that video is playing a bigger part of the show. In fact the triple-play and IPTV sessions had loads of traffic. We were surprised at how many service providers came to this year's event. Many exhibitors told me this was the best show they have done all year and I was surprised at how many new companies have come into the space.
There was a time back in 1996 that I knew every VoIP company that emerged. Over the years, the pace of new entrants has increased to a point where I can't keep up and ITEXPO is the place where I learn about the new companies in VoIP.
Carly Fiorina, Michael Powell, Niklas Zennstrom and Mark Spencer wowed the crowd and the surprise keynote was Commissioner Susan Kennedy of the California PUC who was funny and engaging and is a real person. She is not a politician protecting turf but someone who realizes the telecom laws need overhauling to deal with VoIP. The sentiment was echoed by Powell and Fiorina.
So where are we headed? Everyone agrees that VoIP 2.0 is coming or is here. This depends on your perspective and definition. My concept of Just in Time Communications seems to be embodied by Microsoft beyond my wildest dreams. The company calls their vision real-time communications and while this is a valid term for the concept we don't want real-time communications we really need Just in Time Communications. Why? Because when we are on vacation we don't want to take calls from the office unless they are urgent. That is Just in Time Communications in a nutshell. It allows us to take control of communications and it reduces latency in doing so. It includes polite rejection which I believe is the most important factor in enabling rapid adoption of next generation communications.
Perhaps what surprised me most this week was the lack of dissent among keynoters. Everyone seems to agree we are headed to VoIP 2.0. It is unanimous. Certainly this journey must bring along Web 2.0 and must also integrate with IM, video and e-mail.
If there are any hurdles our industry faces it has to be the threat of regulation. This threat can come from a federal level or even a state level. Rural telephone companies do not want to lose their USF subsidies and these companies know how to lobby. Telephone companies are excellent lobbyists. They know how to work with government to exert influence.
For the most part the VoIP industry does not have this lobbying power and there is just not enough money in the VoIP space to allow us to effectively fight ILECS and rural telephone companies who could really influence politicians to place an undue burden on our market.
The problem for regulators is that we have really unbundled telephony from physical networks and it will be impossible to police and regulate the next generation of VoIP services that don't touch the PSTN or use a numbering plan based in the US
The same thing was predicted and happened when Napster was shut down. If anything, peer to peer file sharing allowed even more efficient music sharing than Napster! The music industry and government was probably better off when Napster had a monopoly as they could have controlled the market and slowly found a way to extract revenue from music sharing. Now with the genie out of the bottle it is difficult to stop p2p network sharing.
So perhaps in the long term there is no need to worry. I still hope the government makes some quick decisions on what they will do with VoIP. There is a cloud of uncertainty. Not a huge one but there is the threat of inclement weather.
We are gearing up for VoIP 2.0's next visit in the in Ft. Lauderdale, Florida where I expect the pace of innovation to continue unabated. Who knows what new products and services are in store just 88 days from today.
Mark Spencer gave a riveting keynote today where he discussed his poor experiences in international travel and tied it into how open source communications will allow customers to solve their own problems. Open source is most valuable for consumers as open source developers need to earn the business every day. Spencer addressed a lunchtime crowd of hundreds of domestic and international executives in a standing room only ballroom at Internet Telephony Conference & Expo in the
Mark went on to say that it would be great to apply open source principles to airline travel so instead of having to wait in line to change a cancelled a flight and subsequently missing other flights, you can make the changes yourself.
Spencer focused on the strengths of open source and mentioned that the community of developers and the resellers can improve upon their product if they like. For example, IBM has a version of Asterisk that is designed for extremely high availability.
Questions from the audience directed Mark to address what he thinks of router based Asterisk implementations. Spencer said he is thrilled to see Asterisk showing up in places he wasn't even aware of.
He received a question about DUNDi which Mark answered by explaining how phone systems will be federated allowing the various servers to be redundant to one another. An extension in one place becomes an extension on the network. DUNDi will allow various directory services to interoperate without giving out too much personal information Spencer said. The VPF or Voice Peering Fabric can use this concept to allow free directory services so you aren't forced to use paid services he mentioned.
In all, Spencer was at his best and the audience loved his presentation as evidenced by the questions after the session.
"14,000 IP phones a day is what Cisco ships," is what Cisco's Rick Moran mentioned to the audience as why he thinks the VoIP market is here and now. Moran says there is value in being the phone guy or gal. He mentioned this in his keynote at ITEXPO in
As he discussed the VoIP market in general Moran said "We need to remove the "cuss" from customer service Rick." He went on to show how VoIP helps us provide better service levels.
"We have turned into human middleware Moran told the audience. We take things from one calendar and import it into another." "This does not seem logical." he continued.
The application and the network need to work together better and it doesn't make sense that cell phones ring at 3:00 am local time when you travel as the phone and network realize what time it is.
SIP, SIMPLE, SOAP and other standards are making it easier for these things to happen. Moran says there are challenges in working with a converged network and we need to monitor it. The network is alive and management is important. "This is a continual cycle," he exclaimed.
Here are some concise bullets on his closing statements
* Presence is crucial.
* Networks are IP Applications and networks need to work seamlessly together
* Managing across the enterprise is important. We need to think of communities of interest and not individual buildings.
*We must think differently
*Let's eliminate human middleware
*The future is about multitasking -- Rick mentioned that today's kids are incredible multitaskers
*Don't wait to deploy as technology will always get better
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We cover the most exciting technologies in the world and if you are a great writer and enjoy writing about communications and technology, you need to send me your resume to rtehrani@tmcnet.com.
If you don't live in
Here is a great article on Michael Powell's presentation at ITEXPO this week. Everyone I spoke with at this show tell me Powell's speech was the best of any other one they ever heard. He was finally free to talk about anything he wanted to... Most importantly he did speak his mind. Thanks to The Honorable Michael Powell for being part of Internet Telephony Conference & Expo.
This morning at breakfast Time Warner's Cable's Deane Leavenworth spoke about how he sees the future of telecom being limitless. He spoke for 20 minutes to a large group of conferees who came from as far away as
Anoop Gupta from Microsoft then kicked off the keynotes and wowed the crowd with his vision for the future of technology and collaboration. Gupta thinks telephone numbers are like IP addresses and we don't want to remember these numbers. Communications needs to be people-centric in his opinion. There are 800 directories at Microsoft that correspond to various PBXs and Gupta says they don't need to be there.
Gupta says we need to find a way to work together to get people communicating across technologies and across corporate directories. He then touched on how his company is working with Yahoo! and others to integrate IM platforms.
Gupta says we need to use the right modality and use the information in a shared manner The applications need to know who your friends and business associates are to ensure that the right people know your presence at the right times.
There are many communications modalities and voice, e-mail and IM are crucial. The latter is especially important for the younger market. Video too is coming soon.
Presence needs to be embedded in communications processes and CRM applications.
Another crucial comment is that we need a subject to come with incoming phone calls and this is exactly what I have mentioned before is needed for my vision of Just in Time Communications.
According to Gupta developers still are confused about what platforms they need to develop for. There needs to be simplification.
Technologies that are shipping today in Gupta's opinion are going to give us a glimpse of the next generation connected communications world. He showed portals containing the presence of colleagues and an Outlook screen with the ability to see incoming phone calls. Gupta used the term "federation" across companies and across disparate messaging systems. When this happens "The presence becomes richer," he exclaimed.
Out of office information comes too late in Gupta's opinion and it should be given to you at the start of the message, not after it is sent.
Overall Gupta kept the audience focused on what he was saying and the attention level was very high. The people at ITEXPO were very hungry for what he had to say and soaked up the presentation like sponges. I am looking forward to the rest of the day and can't wait for our next ITEXPO which will take place in Ft. Lauderdale, FL in about 85 days!
If there is a single word I have heard over and over today about ITEXPO is that the show is a madhouse. There is a frenzy of buying activity on the floor and it extends into the meeting rooms and the hallways. It is organized pandemonium and mass quantities of ATAs are being purchased in front of my eyes along with DSP resource boards and just about everything else from session border controllers to softswitches and IP PBXs.
I cannot think of anything that would make this show better. The traffic is amazing as evidenced by the photos on the ITEXPO home page.
This is the largest gathering of VoIP buyers in the world and I can confidently say this is the one place you need to be if you are in the VoIP space. It is amazing to me how much momentum there is in the
I am seeing lots of international attendance at the show from countries like
The general themes of this show are that we are really just at the start of something grand. VoIP 2.0 is here. It is incredible to me how many speakers echoed this sentiment. We have amazing opportunities ahead of us as an industry. We need to stop focusing on saving money and instead talk about productivity and new services. That is where’s tomorrow’s fortunes are to be made.
I have also heard over and over how regulation needs to be reduced. Politicians worldwide need to realize we are dealing with a different animal in VoIP. The old test “if it walks like a duck and quacks like a duck it is a duck” doesn’t work anymore and even Chairman Powell mentioned today that perhaps it is a swan. IP changes everything. The need to regulate VoIP cannot in my opinion be any greater than the need to regulate Hotmail or IM. We are talking about packets here. IP communications.
Powell suggests we have a 12 page document or so regulating IP communications and we don’t need to rewrite the telecom act as this would involve too much politics and would drag on.
Carly Fiorina echoed this sentiment saying that we need a baseline of regulation to protect consumers from fraud but from there, it is obvious that the speed of innovation will always be ahead of regulation. Even if the perfect regulation is ever passed it becomes obsolete immediately.
Amazingly Commissioner Susan Kennedy of the California PUC agreed with all of this as well.
Perhaps the regulators who don’t agree just didn’t come to the show.
Other themes of the show that service providers will start regionalizing their services. Meaning we will see service providers selling telephone numbers from other countries in ethnic US communities and elsewhere. This concept is the biggest threat to Vonage and others as it virally marketed and makes sense for those people keeping in touch with friends and relatives in other countries.
Where will VoIP 2.0 go from here? The show is halfway through and I will keep you posted whenever I hear anything else newsworthy. Hope to see you here today or tomorrow.
Sincerely,
Rich
Interesting quote from a conferee asking a question of Chairman Powell at ITEXPO.
Part of the response to this question asked if the USF is there for people or rural monopolies? Powell mentioned he could get killed for making this comment.
Powell discussed the power of Moore's Law and the rapid advancements in technology in cars, building systems and the medical field. Storage too has grown exponentionally in cost and dropped in price. Powell's first hard disk purchase cost $1,000+ and held 10 megabytes.
There is a technology revolution happening before our eyes he said. This is really the information age. Average people now have control and the impact of this on society is profound.
Traditional businesses are being collapsed in different ways. Consumers are your boss and a threat to your business Powell opined. the music industry didn't see the consumer threat of MP3 downloads until it was too late.
Powell implied that we are in an age of great differentiation and things like news are more personalized than ever.
Consumers will find a way to get connected and stay connected. Don't underestimate techology innovation and look at how bloggers brought down Dan Rather and MoveOn.org changed the political climate.
Powell asked when we will stop trying to regulate things that are just bits. Zeros and ones.
Powell was charming and thrilled conferees with humorous stories about his personal life that tied into his talk. Blogged from my Blackberry.
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