Note: The following essay was adapted from a talk I gave to staff at Earthlink Business in January 2011.
Do we really need telephone companies, or are they a relic of the past technology, now replaced by data networks?
I had this question upon entering the voice side of the Networking Industry, coming from classical Computer Science and Data Networking. Technology history had shown that centralized systems concentrated too much risk, and could generally not scale well. All the successful systems distributed the knowledge and the power. Consider, for example, DNS, the web and email. In every case of successful Internet technology, the smarts and flexibility and power were moved from a centralized database to a vast set of unaffiliated servers. The future was distributed, with intelligence moving closer to the edge.
When I began my work in telephony, I was mildly shocked to learn that the modern Voice over Internet Protocol (VoIP) phones, each with its own IP address, DNS resolver, and modern processor could not automatically locate the other VoIP phones out there on the Internet. Why would a new era of technology bother to reproduce the oddities of a former generation? By that time, in 2003, Skype was a big, working success. Shouldn't a $400 VoIP phone have the same kinds of capability, but without the dependence on a PC?
To my mind, VoIP only made sense if we went all the way to distributing all the logic, intelligence and features to the endpoint. This was the Internet era, after all!
Instead, "modern" VoIP telephone companies are busily reproducing the architecture of the past. Each service provider has some sort of centralized a "switch," and each telephone would be provisioned (configured) in that switch as a separate user or line. Then the switches are connected to one another, primarily via 1970's-1980's TDM technology using antiquated protocols.
It's easy to see the historical reasons for this model: the old endpoints were extremely simple by modern standards. And it's easy to see why the telephone companies would like this model: it ensures customers are dependent on them; that helps to ensure ongoing recurring revenue.
But are those historical reasons enough to maintain the "telephone company" model into the current era? If there's a more efficient model coming, then the market will, eventually, kill off the old model, even if it has a lot of inertia. So is there any real reason to keep this centralized model in place, besides the business motivations, and plain inertia?
And why hasn't VoIP brought about the hope heralded since the 90's: free phone calling, and no more telephone bill?
It's been about ten years since contemporary VoIP systems were born. Now we don't even start CLECs -- we start ITSPs -- but some of the fundamental values of telephone companies have been retained. One key value is the (1) user the location database. Telcos have a way of tracking down a user, whether he's connected to a different point on the frame, or does a SIP REGISTER from a new IP address. Closely related to this, telcos have a (2) simple and understood user addressing -- i.e., telephone numbers. People are comfortable with telephone numbers, and they work reliably to connect calls. Another key value is (3) quality, i.e., reliably establishing the voice call, because the telco may own or operate every device along the path of the telephone call.
Those are all technical issues that users experience. But there are other advantages owing to the telco model that users don't normally experience. One of those is (4) call routing. Users aren't aware of which way their call is routing to reach the final destination, and still achieve the user addressing, quality, and location services. Another related function is (5) interconnection, allowing competent network operators to connect calls to other competent network operators. Closely related to routing is (6) privacy: there's an expectation and a penal code ensuring traditional telephony that the calls are not subject to disclosure. Calls are routed between competent service providers who each take a responsibility for ensuring the privacy.
If we consider VoIP in particular, service providers have an advantage by(7) accommodating existing network complexity -- especially NAT. Hosted NAT traversal through SBCs has been a key contributor allowing Hosted PBX services to be easy to deploy, reducing the cost and complexity of the device at the NAT boundary between Public Internet and private VoIP network. Further, telephone companies can provide (8) simple deployment of endpoints by centralizing the software and configuration of SIP phones into centralized servers.
There are other convenient services, like accounting. If every device was independent, who would keep the records of the phone calls? But perhaps the question is: would anybody care about records, if every call was free. Who keeps the records of web site visits, or Instant Messenger exchanges? So I don't consider accounting to be a fundamental value, but rather an incidental service useful for the current model. Another is interoperability. Service providers reduce the number of logical interconnection points that must be integrated properly. The alternative is negotiation, where each endpoint tries to cooperate with every other endpoint. Within the VoIP industry desultory success with practical endpoint negotiation has not established confidence that this will be easy.
So some of us thought VoIP would be a disruptive technology, and would bring the swift end to the traditional telephone company. But it turns out that the telephone company model appears to provide a lot of value. All of these eight features have to be provided by something, even if it's not the telephone company.
If you're in a business, and you're worried about competition coming in and replacing you with innovation, you should go ahead and do that innovation yourself. So what would it take to displace the telephone company? I.e., what would it take to eliminate the organization that is somehow responsible for each phone call? For this purpose, I'm going to allow some service providers, like DNS operators and ISPs, because they don't know or care about each phone call.
So we have four Hard Problems. And we have to rely on ISPs to do a lot more for us to ensure quality. And if we do want PSTN access, we're going to need to keep a service provider.
With this level of difficulty ahead, I would say the future is bright for the Telephone Company.