I mentioned yesterday that the cable industry was regulated differently from telcos, and one of the differences is that cable is “capped” on maximum subscribers per provider. Many would like to see that regulation lifted to support M&A more broadly. In the telco space, there’s also an effort for regulatory change underway, this one linked to the transition of telephony to IP.
The new FCC Chairman (Wheeler) gave a speech on “The IP Transition: Starting Now” in mid-November. On the surface, the issue may seem very simple; telephony has been based on time-division multiplexing technology that makes little or no sense in an age when the same consumer is being supplied with Internet access that could serve to carry voice at a very low marginal cost. The problem is that the FCC has long taken the position that it regulates services and not technologies, and so even taking up “IP” rather than “voice” or “the Internet” is a stretch for the body. That raises the question of where it might stretch to, and how it might impact the market.
Circuit-switching is different from packet-switching (which is what IP is) in a couple of ways significant in a regulatory sense. One is that a circuit is a dedicated path between a provisioned pair of endpoints—one being a central-office switch and the other being your local access loop. That means that there’s no ambiguity as to where a given call originates. In packet switching, a path is determined ad hoc by the address of the endpoints, and a packet voice user can get a different address depending on when and how they connect. It is more difficult to pinpoint the exact location of a call, and this is what creates some of the E911 issues. When you decide to use Skype or Google Voice you are sternly told that you don’t have local exchange voice services and 911 service, and you can’t port a landline number to such a VoIP service because there’s a fear consumers might lose 911 without knowing it.
Another thing that’s different in packet voice is that the resources for plain old telephone service (POTS, as it’s known) are dedicated once the signaling phase of the call completes and the connection is made. With packet voice, packets continually vie for attention in the network, and unless the network has QoS capability the traffic is passed best-efforts, which means call quality can be variable. Many who have commented to the FCC on the IP transition don’t like that variability; they want their POTS. But the big question here is whether the legislation requiring priority calling for first-responders in emergencies can be accommodated.
A more general challenge is that operators were declared to be monopolies in POTS and were forced (in the US by the Telecom Act of 1996, and by similar “privatization” regulations elsewhere) to unbundle the elements of their voice plant—a plant built under regulated monopoly protection. Other companies now lease loops and build their own services on top, and these fear that the decision to eliminate POTS would eventually eliminate the unbundling regulations that they depend on.
The FCC’s efforts will have to address the four issues of public safety, universal access, competition, and consumer protection (as one commissioner delineated them). It’s likely that they will take some decisive steps to modernize how regulations impact the IP transition, but it’s also true that the FCC (as all Federal Commissions) is effectively a court of fact and not a legislative body. They act within the law, which means that they can exercise discretion or drive change only where the law permits. I think the FCC has the latitude to do what they think best here, but Congress can always step in and we all know how that can mess things up!
If we assume that there is an FCC policy shift that drives change, the result would likely be an evolution toward the notion that IP access is the new POTS dial tone. Universal service then means IP access, and it could be provided by copper, copper/fiber hybrids, FTTH, or 3G/4G depending on the situation and cost. The Internet and voice services, and likely other services as well, become “true services” on top of IP access. To provide for separation and QoS differences as needed by the services, we’d likely see more SDN principles deploy. It’s not that SDN is the only way to support IP voice (obviously it’s not because we have it now and almost never use SDN for any part of it), but that a massive new QoS application would justify a massive shift in technology, which is essential to validate SDN on a large scale.
NFV could also be a beneficiary of a VoIP shift, though I do want to point out that cloud-hosted functionality for shared technology elements like those in VoIP don’t necessarily require any form of NFV to deploy. What is likely to be true is that the notion of IP access carrying multiple services would encourage the evolution of more and more of those services, and hosting the functionality is the logical path to take. Where that hosting is more single-user and dynamic in nature, NFV principles could be critical.
The normal process of creating regulatory change starts with a Notice of Inquiry, followed by a draft Order and a final Order. The FCC launched the process last year, and Wheeler says that the goal now is to have a draft Order ready to present to the Commissioners in January. That could mean that the final order would be published next year. It’s very possible that it would be appealed (to the Federal Appeals Courts and even the Supreme Court) but the courts generally try to defer to the FCC in technical matters; as long as they follow the letter of the law. This might mean that there would be a regulatory stimulus behind the IP voice transition, and that means vendors need to be thinking about how it would impact them—and how it could be exploited.