Section 1.3. Riding the Internet Past the Telephone Companies | Talk is Not Cheap!: Saving the High Costs of Misunderstandings at Work and Home

1.3. Riding the Internet Past the Telephone Companies

AT&T ruled the telephone world in the U.S., and by example, most of the rest of the world, with a bureaucratic and noninnovative fist. There were telephones and there were computers, but the two were kept strictly separate by AT&T management and Congress until outside events forced them to change in 1968.

Note: Acronym AlertPOTS = Plain Old Telephone System, PSTN = Public Switched Telephone Network.

What should we call the telephone network? Officials use the PSTN acronym far more often, while telephone company detractors prefer POTS. I believe POTS includes customer equipment, such as the telephones and answering machines owned by people, while PSTN focuses on the network exclusively. I also believe POTS is funnier, so I tend to use that.

1.3.1. The Bell Wall Breaks in 1968

Until 1968, AT&T's political power stopped any competition. AT&T refused to allow any equipment they didn't build or approve to attach to the telephone system, including actual telephones used by customers. You didn't own your telephone, you rented it from AT&T. The courts ruled in favor of a company called Carterfone and forced AT&T to allow customers to connect to the telephone network.

Before Carterfone, everything on the telephone network was made by AT&T or Western Electric. Period. The idea in 1967 of going to the store to buy a telephone was unthinkable. Same situation existed for modems. The Carterfone decision changed that.

MCI broke new legal ground by convincing the FCC to rule they could compete with AT&T using a microwave telephone link between Chicago and St. Louis. That was the beginning of non-AT&T long distance providers.

Gordon Moore and Andrew Grove founded Intel in July, 1968. While most people think of Intel for their PC processors only, the company has a huge (and historic) business innovating inside the communications industry. All the pent-up innovation stifled by AT&T bureaucratic executives exploded thanks to companies like Intel.

Last but certainly not least, the Defense Department's Advanced Research Project Agency gave a contract to a small New England company named Bolt, Beranek and Newman. The results of that contract in 1968 became the Internet we know and love (and sometimes curse) today.

1.3.2. Innovators from Everywhere

Harking back to Intel, their 486 processor was the first with enough power to digitize sound waves in real time as well as be affordable for most people. This meant a PC could power a telephone. You may look at a little telephone and wonder why it takes an entire PC to match the processing power, but that's only because the telephone is a small external part of a huge network full of wires, switches, routers, and specialized computers. 486 PCs, with the right software, could replace all the equipment investment made by AT&T and connect both ends of a telephone call with nothing more than a basic data network in between.

The first Internet Telephony software platforms, or softphones as most called them, arrived in 1994. However, the first mention I can find of a successful test of packetized voice (another term a few people use for Internet Telephony or VoIP) is from August 1974. The endpoints were USC and MIT, which should tell you these were early network researchers (but a cross-country packetized voice test across the country is certainly impressive).

I also found references to several early packetized voice projects within AT&T in the late 1970s to early 1980s. We can't call these projects Internet Telephony yet because most of them predate the official Internet.

Note: Who Got There First?Locating prior art (a patent law term for a preexisting instance of an alleged invention, or when someone mistakenly thinks they invented something before anyone else) for any innovation can be never-ending as careful investigation finds more and more exampleswhich is one reason the U.S. Patent Office needs a complete overhaul. But that's another book.

The telephone network and the Internet exemplify two opposite network philosophies. Where do you want the intelligent control? Brains in the network, or brains in the network-connected devices?

AT&T built the controlling intelligence into the network (computers and switches in each central office) so telephones could be as simple (unintelligent) as possible. Internet designers put the intelligence at the ends of network connections. The goal of the Internet is to deliver every packet regardless of where it came from, where it's going, or what's in that packet. Packet in, packet routed, packet delivered, billions and billions of times per hour, no matter if parts of the network are congested or offline. Packets in, packets routed, packets delivered.

When intelligence is expensive, such as nearly 100 years ago when AT&T started building the network, centralizing the intelligence makes sense. But now intelligence, in the form of processing power, is cheap and portable. Somewhere, no doubt, someone has measured the processing power of a Palm Pilot against the collective intelligence of all the switches in New York City in 1912 or some such.

The point is clear: intelligence and processing power is now extremely inexpensive, and the capabilities of the basic telephone connected to the telephone network was long ago surpassed by intelligent devices attached to the Internet. The smarter the end points, the dumber the network can be.

And the Internet was designed to be dumb and focus on moving bits and nothing else. When a router (a device used by ISPs and others to make sure data goes where it's supposed to go) on the Internet goes down, data streams flow around that router using different tracks through the Internet and still reach their destination. Once you get past the link from your home computer to your broadband provider, there is no other single point of failure on the Internet. Until, of course, you reach the last leg down to a home computer on the far end.

The last segment, between your provider and you, is called the last mile of a connection. No, it's not always a mile, but that's the term. Who owns that last mile? In almost every case, one of two companies provides the last mile: your telephone company or your cable provider. Many millions of homes have both connected, giving them, I suppose, two last miles.

On the Internet, the smart end devices connect over a dumb network. On the telephone network, dumb devices connect over a smart network. Fans of both will argue their way is better. However, it's much easier to upgrade a few end devices at a time to add new capabilities than it is to upgrade the smarts of an entire network. Upgrading the end devices is what Internet Telephony is all about.

Large Internet service providers make arrangements with each other, called peering arrangements, to connect their networks directly and keep their traffic off the public Internet. After all, if they keep their customers' traffic on private data channels, they have more control. Internet Telephony companies are starting to work out voice-peering arrangements for exactly the same reason. Expect service to have higher reliability and the vendors to have more control over the voice traffic flow as more peering arrangements are signed. Yes, this is an example of more innovation from the Internet Telephony companies.

1.3.3. Bits Are Bits

Once the audio portion of a telephone call has been digitized, whether 8,000 times per second or at a higher resolution, the audio becomes a stream of digital bits. These bits are virtually indistinguishable from bits of web sites, music files, email, and airline ticket confirmation forms. Bits are bits.

With a monolithic telephone company network, timing must be tightly controlled so connections between central offices tick the same seconds off together. But the decentralized Internet has a wide variety of timekeepers, and few networks absolutely track connected networks to the subsecond level. Yet Internet Telephony works fine.

The data stream packets require little absolute timing, but do require coordinated timing between packets in the data stream. So the Real Time Protocol portions of each data packet help coordinate packet sequencing at the receiving end, keeping words flowing smoothly.

Courts have followed the "common carrier" rules for Internet service providers, meaning they are not responsible for what goes over their lines. After all, the Post Office isn't held responsible for what individuals mail, and the telephone companies have never been held responsible for what people say to each other over the phone. If the people mail or say something illegal, they may get caught, but the Post Office and telephone company are not considered coconspirators. Bits are bits.

And bits in the late 1970s were bits, at least to a study by the Department of Defense. Their own widely publicized report said clearly that a packet switched network, supporting packetized voice traffic, would be cheaper than circuit switched voice, the only technology in place at that time. Bits are bits, and 30 years ago, bits were bits.

1.3.4. Regulatory Issues

We can't blame AT&T engineers because they didn't reinvent the telephone on a regular basis; that wasn't their job. The U.S. Government made a deal with AT&T to grant them a monopoly in exchange for building the world's best telephone system. AT&T did their job, but politics and innovation changed the rules on the old guard phone company.

But regulation remains a popular issue for some states and some federal lawmakers. They believe that because telephone calls are regulated, Internet Telephony must also be regulated. However, cooler heads believe that a national telephone network is regulated, not the telephone calls themselves, and packetized voice across independent data networks (the Internet and private networks) should not be regulated.

Here's a clip from the FCC web site (www.fcc.gov/voip/):

Does the FCC Regulate VoIP?

The Federal Communications Commission (FCC) has worked to create an environment promoting competition and innovation to benefit consumers. Historically, the FCC has not regulated the Internet or the services provided over it. On February 12, 2004, the FCC found that an entirely Internet-based VoIP service was an unregulated information service. On the same day, the FCC began a broader proceeding to examine what its role should be in this new environment of increased consumer choice and what it can best do to meet its role of safeguarding the public interest.

In spite of their insistence on bleating the graceless word VoIP at me, I love this paragraph.

Note: Thank You, FoundersThe Founding Fathers mandated that all government information (with very few exceptions) may be freely copied, quoted, and used. Copyrights do not apply to government-created information.

Of course, this all gets tricky when you realize that the telephone companies, which are heavily regulated, provide many of the Internet data connections used by all the people talking over the Internet and bypassing the telephone network. Worse, when an Internet phone call goes to a phone that's part of the traditional telephone network, an Internet-to-PSTN gateway must connect the Internet phone service to the traditional telephone service.

This overlap confuses some people, and they demand regulation. After all, they regulate AT&T, and they want to regulate the Internet telephony calls running over AT&T's Internet data connections.

Many experts feel that the reason the Internet Telephony should not be regulated in any way is because the AT&T data lines are just carrying bits. Moreover, customers leased those AT&T lines and their bandwidth to support any and all types of Internet traffic. No one leases a data link just for web pages, and a separate data link just for email. You lease a data link and you control the information flowing through that data link, period.

The move from regulation to free market always hurts the entrenched status quo industry leaders, and the telephone business will not escape this pain. Telephone companies will shrink and be forced to innovate for their own survival as they lose customers who switch to less expensive options.

Regulation has yet to help the incumbent telephone companies, even though they go crying to the government every chance they get. Jeffrey Citron, CEO of Vonage, Inc., told me the incumbent phone companies "proved they will abuse their market power to keep their high pricing. They're not acting in the best interests of their customers, so that's why they're heavily regulated. If they want to get out of their regulated business, they can build out the fiber to the home networks they promised, because those are nonregulated businesses for them."

Every step of the way, incumbent phone companies fought Internet Telephony proponents rather than innovating new technology. In fact, the standard line is that while Internet phone companies hired engineers, the remnants of the original AT&T network hired lawyers.

Some Internet Telephony executives expect the incumbent traditional telephone companies to drop traditional wire-line telephone customers. You may think this is just wishful thinking, but AT&T, of all companies, has declared their intention to drop out of the residential telephone long distance service market, and has dropped in value so much that one of the Baby Bell spin-off companies, SBC, bought them. Another major telephone company is trying to sell 30 million home telephone customers to anyone who will take over their landline business.