Now that long-standing, federally mandated, network-access rules are
essentially on the way out among local and long-distance phone providers,
who’s up and who’s down? In the money or out of business?
The short answer is: no one’s quite sure, though a lot of educated
The Federal Communications Commission (FCC) is slated to set new
rules for a coming round of negotiations over how much those line-sharing
and interconnect charges will now cost providers to shuttle their voice traffic
in and out of local markets — thanks to the expected demise of UNE-P
We know that the rules are effectively gone, barring any miracle stay
from a higher power. We know that new interconnect negotiations and what
those charges will be are the area to watch — even more so than regulatory issues
related to VoIP, notes Blair Levin, chief telecom analyst for Legg Mason,
and a former chief of staff at the FCC.
Here’s what else we know: as long distance and local phone providers,
incumbent and start-up alike, wrangle over those tolls, the real battle (indeed the final?) for dominance in the last mile to homes and businesses — traversing over
converged voice and data networks — will be under way.
Then again, new skirmishes and hand-to-hand combat are already breaking
out, even though conventional wisdom holds that negotiations on the new
interconnect fees among providers won’t be finalized until after the
AT&T, for example, just dropped the price of its VoIP service, CallVantage, which is a clear shot across the bow of new entrants such as Vonage, which could be facing major competition if AT&T moves aggressively to disrupt its long distance service to offer VoIP to consumers.
The other emerging detail is this: what kind of VoIP player you are will
likely determine how badly you may get walloped when those new
interconnect fees are factored into the market and providers’ business
But even here, all may not be what it seems. Levin wonders if the
price differential on the new interconnect fees will be all that relevant.
“To some extent, this probably
encourages cable more than anything,” he notes, since cable providers,
voice to video and high-speed data (without pesky FCC rules), see an
opportunity to build market share. “UNE-P was gonna die. It was just a
question of how and when.”
Now, the question is, who will survive the shakeout that follows,
probably more like next year.
Dan Hoffman, CEO and founder of M5, one of the largest providers of voice
telephony services in the northeast, is one VoIP player breathing a sigh of
relief, for now at least, because of where it sits in the network equation.
His business is higher up the application chain, or, to use an operating
system analogy, has moved up the stack. “We offer complex features, and that
is different from the business of selling lines or network access,” he says.
Hoffman’s approach is to avoid consumer services and stick with offering
business services for new era of
digital networking, such as new voice messaging applications (VoIP being
just the tip of the iceberg), conferencing and even new ways to extend
productivity tools outside a receptionist’s desk and phone.
But it’s not like M5 is exactly in the clear or the catbird seat. As
Hoffman put it, he may not be in hand-to-hand combat, but he’s got a
dogfight in the air with Nortel, Avaya and Cisco, as well as value-added
resellers (VARs) rolling out nifty messaging and productivity phone systems
and applications that will help add new value to networks.
And that brings us to another fundamental driver with a little
reminding from the experts and analysts: The old phone networks ain’t
(worth) what they used to be.
As Legg Mason’s Levin points out: “Time and distance are no longer
price-sensitive areas for phone providers. In reality, the network of the
future will be general purpose, not time sensitive, since the marginal costs
of time and distance are relatively meaningless. From an economic standpoint,
it makes sense to be charged to access the network. So there’s real
economics taking hold here.”
Hoffman agrees. “What matters now [in a network] are the service costs,
people costs, and
call-center support costs. That’s where the real economics are — in the
upper level of the network.”
So what applications are we talking about? There’s VoIP of course. There
is also video-on-demand, which phone companies will be using to strike back
at the burgeoning empires of video, data and now voice services that cable
providers are rolling out.
Verizon will be one to watch on this front, as it invests in fiber to the
home to help speed its video delivery.
So regulation and ground rules for those new tolls to access the markets
will be a factor, as will be the types of applications that run on those
“The most critical question is, how do you assess charges? How do
inter-carrier charges apply? What do they pay to connect the calls of their
customers to incumbent phone carriers. That’s where the money is,” Levin
The other thing we know is that more than any other player to watch here
is AT&T, as analysts, investment bankers and players alike handicap whether
it will exit its consumer business, exit consumer markets where the
interconnect fees are not worth the possible return, find a merger partner
or put those (consumer) assets up for sale.
And the most important thing we know, is that, for now at least,
businesses, and potential new businesses for VoIP, are absolutely baffled
about their options while the players sort themselves out in the final
battle for the last mile.
“My advice is that businesses have a contingency plan,” says Lisa Pierce,
research fellow and noted telecom analyst for Forrester Research. They need
to be aware of the possibility that their voice provider, as well as their
networking provider, may be mulling pulling out of their market in the
Erin Joyce is executive editor of internetnews.com