The ZapMail of 2003

[Ed Hansberry]

<a href="http://www.shirky.com/writings/zapmail.html">http://www.shirky.com/writings/zapmail.html</a><br /><br />Clay Shirky has written another article this month, this one on how the telecos are once again being squeezed out of providing value added services because they fail to understand how WiFi and Voice Over IP works and how you, with your $100 piece of hardware, are doing the squeezing.<br /><br />This has already happened once - to FedEx in the 80's with <a href="http://www.printerworks.com/Catalogs/CX-Catalog/CX-Fed-Ex.html">ZapMail</a>. FedEx would install ZapMail printers (you and I call them fax machines) and a ZapMail networking system (you and I call that the phone line) to magically send your documents to other people in just 2 hours (you and I do that in 2 minutes.) They didn't think their target customer would figure this out but would gleefully fork over $3 per page to let FedEx do it for them. Instead, we went out in droves buying machines for $500 each and began sending millions of pages for pennies each.<br /><br />Now the telephone companies are scrambling to offer ultra-cool IP services for your phone system, all the while assuming we are too stupid to do it on our own. Read Clay's article then come back here and discuss it. Is he right?

[Jhokur2k]

Sounds like a great plan... just looked on the Cisco site, and the ATA adaptor itself is $210, which is reasonable for the things it can do. I just put a WiFi switch in my house, why not connect VoIP into it, enjoy phone calls over my 5Mb DSL line as well as wirelessly websurf?

Too cool. Over the long run it'll be great, until the phone companies start figuring out how to charge for IP's - oh wait, they already do; my ISP is part of the phone company. So why haven't they already clued in and offered this? Because it kills their market. They have enough people in the loop that those few of us that can get it to work let alone use it won't hurt the profit margin enough to try and counter it with a reasonable offer.

[Rirath]

A good article, but I still have my doubts about VoIP. That Vonage looks pretty cool though. If it was up to me, I'd dropped the phone company long ago. Although a place like Vonage would work perfectly for me, it wouldn't work for the rest of my family.

[sweetpete]

Great article ... give it some time and I'm sure this prediciton will come true. I'm just wondering what the phone companies are going to do now that they are simple bit pipe producers

[Janak Parekh]

Sounds like a great plan... just looked on the Cisco site, and the ATA adaptor itself is $210, which is reasonable for the things it can do. I just put a WiFi switch in my house, why not connect VoIP into it, enjoy phone calls over my 5Mb DSL line as well as wirelessly websurf?
Right there is the problem, right now. There isn't enough demand to justify a $200+ device to solve the problem. The per-minute rates on POTS (plain old telephone system) is pretty reasonable for most people right now. It's not like faxes, where it was $$$ vs cents.

In our institution, we're doing research with IP phones, and plan to switch our entire phone infrastructure over to IP phones soon. But they're still individually too expensive to replace 200+ phones.

Once you get the price down to $50, you'll see the technology take off.

--janak

[AKBishop]

A good article, but I still have my doubts about VoIP. That Vonage looks pretty cool though. If it was up to me, I'd dropped the phone company long ago. Although a place like Vonage would work perfectly for me, it wouldn't work for the rest of my family.

The big problem I saw with Vonage is they don't offer 911 service. I haven't had the need to dial 911 yet, but when the emergency arises I would like to be able to get the police/fire/medical out to my house asap.

[Jhokur2k]

The per-minute rates on POTS (plain old telephone system) is pretty reasonable for most people right now. It's not like faxes, where it was $$$ vs cents.

In our institution, we're doing research with IP phones, and plan to switch our entire phone infrastructure over to IP phones soon. But they're still individually too expensive to replace 200+ phones.

Once you get the price down to $50, you'll see the technology take off.

--janak

This is very true - especially for the application I would be using it for, that being long distance calls... it gets whooped on by 1.9¢ / minute phone cards from 7-11. But, as you said, when the price comes down (or better yet, inspire the phone makers to put the option in low end phones for broadband users) it will grow.

I kinda see the same progression DVD had, only on a slower slope - I remember when a friend bought his 1st gen DVD player at around $1200. Now you can get a 3rd gen player that does a lot more for around $100. However, if it wasn't for the people who sank the $1200 in the beginning to show that the idea would take off, the $100 market may never have developed.

[DrtyBlvd]

Pretty much the same as all technology then - price driven! (Albeit the service aspect of 911 calls)

In the UK the offer of Broadband by Cable already includes a phone package - but it utilises regular old lines - and that has been a major issue with the development of ADSL for the leading telco, BT - as they have historically owned the last loop connection, everyone else has had to rent it from them to provide users with their service; the rates they charged meant that fixed rate broadband was not very economical, indeed unviable for most - proved by trials from a few suppliers. However, like most things this has now changed, over the course of the past two years, and now they are finding themselves being a 'bit pipe provider' to others who are pricing and service providing at better rates - hence the price driven comment.

VoIP is, I think, more of a benefit in the US rather than here - the whole structure of charges being so very different - lets face it, long distance here is constrained by the Island itself, which fits in Texas, ooo, say 4 times? Not exactly much 'long' about it! Overseas calls, Australia and so on especially, would drive it - but is there enough of a market for that in the UK?

[twntaipan]

For all the world when I read the article I kept having the image of the railroad system of the 19th century compared to the 20th and now 21st centuries. In the last half of the 19th centuries the money was in owning the rail networks and they carried everything--goods and people in great numbers. They were, for their day, fast and even economical.

But when the automobile was developed and mass produced, trains began to wane as a means of major provider of public transportation (even more with the advent of planes).

The telcos will become the 21st century versions of the railroads--they will carry some traffic, but customers will go to where the value is--as this article points out.

[bdegroodt]

A good article, but I still have my doubts about VoIP. That Vonage looks pretty cool though. If it was up to me, I'd dropped the phone company long ago. Although a place like Vonage would work perfectly for me, it wouldn't work for the rest of my family.

The big problem I saw with Vonage is they don't offer 911 service. I haven't had the need to dial 911 yet, but when the emergency arises I would like to be able to get the police/fire/medical out to my house asap.

That as well as the fact that you can't get more than one line on each broadband connection. Up until a couple of months ago, I had 6 lines running in my home.

I use MCI's Neighborhood plan for $49.99/Month (Plus all the "taxes" that nobody can decipher.) and get all the benefits of Vonage. Hasn't been without glitches, but for as much as I use the phone I still feel like I got a great deal on MCI.

[jweitzman]

Good article, and mostly right, I think. However, while I haven't thought too deeply about the premise, one salient fact seems to have been glossed over: the telcos still own the network infrastructure and there are real costs involved in using it.

While the existing revenue stream is intact, we've become accustomed to thinking of bandwidth as essentially free. This is helped by a glut of bandwidth driving down prices, but as anyone who runs an Internet service for a living can tell you, bandwidth ain't free.

If the whole revenue model changes, the telcos will have to recoup their costs by charging far more for the bandwidth. Here competition is limited, barriers to entry are great, and business relationships in peering complex. In short, it is the telco business.

I think we'll reach some equilibrium where you can buy some set of services from the telcos. You'll probably wind up paying about the same whether you want wholesale network access or similar access bundled with various IP services. Savings will be available to those with the scale to make the most efficient use of the network bandwidth they pay for.

I see the FedEx/ZapMail analogy as not quite applicable, because FedEx did not control the network, it only attempted to control access to it. As long as the telcos were willing to sell access to individuals on similar terms, FedEx had a problem. In the VoIP example, the telcos control the network itself.

One other thing that was not discussed was government regulation. The telcos are regulated utilities and do not have full latitude to limit competition or access to the network.

JW

[Roosterman]

[quote="bdegroodtI use MCI's Neighborhood plan for $49.99/Month (Plus all the "taxes" that nobody can decipher.) [/quote]
I think you just hit on another aspect of this that may have a chilling effect all over the internet. Right now all units of government generate a great big revenue stream from the telephone. Here in the US, states are already complaining about all the "lost revenue" from internet sales. Once these units hit $50 and really start selling, IMHO, governmental units will really up there efforts for taxation of all aspects of the internet. It is just killing them to not have a piece of the pie.

[bdegroodt]

Good article, and mostly right, I think. However, while I haven't thought too deeply about the premise, one salient fact seems to have been glossed over: the telcos still own the network infrastructure and there are real costs involved in using it.
...

I see the FedEx/ZapMail analogy as not quite applicable, because FedEx did not control the network, it only attempted to control access to it. As long as the telcos were willing to sell access to individuals on similar terms, FedEx had a problem. In the VoIP example, the telcos control the network itself.

JW

I think the ZapMail analogy is also a little weak due to the fact that fax/ZapMail was a quantum leap in service level. With the telco issue, you're really just talking about getting a dial tone cheaper (And hopefully at the same level of quality.). There's really no marginal improvement in the service delivery. You still pick up the receiver, hear the funny tone and dial away.

[twntaipan]

Here is an article that deals with the POTS response to VoIP--which sounds like the robber barons of the rail year's response to competition too.

January 6, 2003

Phone companies set off a skirmish
By William Glanz
THE WASHINGTON TIMES

A group of phone companies has asked an advisory group to consider regulating Internet telephone service in response to a threat from the emerging technology.

Three Baby Bells — BellSouth Corp., Qwest Communications International and Verizon Communications Inc. — have singled out 2-year-old Vonage Holdings Inc. The Bells argue that Vonage, a privately held firm based in Edison, N.J., could dry up the pool of available phone numbers in some areas unless the North American Numbering Counsel steps in to modify the way numbers are assigned to subscribers.

"This is the first skirmish in what I think is going to be a huge fight over the next year," said Jon Canis, a telecommunications lobbyist at Kelley Drye and Warren LLP, in Tysons Corner.

Calls over telephone lines rely on circuit switching. Vonage, which started service in April, charges customers $40 a month to place calls over Internet protocol technology.

To make Vonage technology work, customers must have a broadband connection from a cable modem or digital subscriber line. Their standard telephones are plugged into adapters and hooked up to their broadband connections.

The service is available in about 100 area codes, including the District. Vonage says it has more than 8,000 subscribers.
Vonage also lets subscribers make and receive calls from anywhere with the same phone, as long as they carry their adapters. Each call is sent to an Internet protocol address in the adapter.

BellSouth, Qwest and Verizon are objecting to Vonage's approach to let subscribers pick area codes of their choice. A Vonage customer in Dubuque, Iowa, can have a New York area code.

Vonage is classified as a data service, not a carrier, so it doesn't have a pool of numbers from regulators to assign customers. It receives numbers from phone companies in the 100 area codes where it has negotiated access to the telecommunications network and has set up servers to handle phone calls.

The Bells assign phone numbers based on a person's residence because their markets are determined by geographic boundaries, putting them at a distinct disadvantage to Vonage, which can offer service nationally.
Internet telephony makes the concept of calling areas meaningless because calls are sent to an Internet address, Mr. Canis said.

Vonage should be required to assign phone numbers to customers based on where they live, the Bells argued in a nine-page position paper filed in November with the North American Numbering Counsel, an advisory group to the Federal Communications Commission.

If it doesn't, Vonage will exhaust the supply of phone numbers in some areas, the phone companies say.

"This problem will increase when other [Internet telephone companies] begin to obtain and assign numbers in a similar fashion," the Bell companies wrote.

Vonage Chief Executive Officer Jeffrey Citron doesn't buy the argument.
He says new area codes can be introduced as numbers become scarce and that only about 20 percent of Vonage customers live in area codes different from the three-digit codes they request.

Mr. Citron said the Bells' argument also fails to take into account movement among subscribers to their own wireless services, Verizon Wireless and BellSouth's Cingular Wireless.

He estimates that 1 million of the nation's 138 million wireless subscribers have moved from the areas where they first subscribed to cell phone service and haven't changed their numbers.

"The Baby Bells are just attacking Vonage — nothing more. It's because they view us as a threat, and they're right," Mr. Citron said.
Forrester Research predicts 4 million U.S. homes could sign up for the service by 2006. About 1.2 percent of U.S. homes "cut the cord" as of November 2001 and received phone service only through a cell phone provider, the FCC said.

The North American Numbering Counsel will discuss the Bells' proposal at its Jan. 22 meeting. Regulators must have a policy that doesn't favor one technology over another and doesn't deplete available phone numbers, said Bob Atkinson, chairman of the NANC and former deputy director of the FCC's common carrier bureau.

The current pool of numbers is expected to last until 2031.

"To me, the pressure of [running out of numbers] is off," Mr. Atkinson said.

But the pressure on the Bells from Internet telephone companies appears to have just have begun.

[Roosterman]

Thanks for the article TWNTAIPAN, shows the hipocricy of the TeleCo's. One of the major reasons for the proliferation of area codes is because of TeleCo's coming into a new market, or anticipate entering a market, and lock up huge blocks of numbers. :evil:

[Andy Sjostrom]

Thanks, Ed! Clay is right from the beginning to the end. This guy is the best.

[sting0r]

I think this a great stuff!!! You know what would be cool is if they could support other devices with there VOIP network like pocketpc's. For those of us using the 30 day demo SYMPHONE and are looking for a comercial solution once that demo expires this could be it. Imagine coupling a PDA with 802.11b and and VOIP client we could have a really cheap mobile phone for those times we are in range of a freebie WIFI network.

[bdegroodt]

I think this a great stuff!!! You know what would be cool is if they could support other devices with there VOIP network like pocketpc's. For those of us using the 30 day demo SYMPHONE and are looking for a comercial solution once that demo expires this could be it. Imagine coupling a PDA with 802.11b and and VOIP client we could have a really cheap mobile phone for those times we are in range of a freebie WIFI network.

I mentioned this in another thread, but what would stop a group of PPC folks interested in using the Symphone system from buying a license, setting up the server and charging a nominal fee to support the operation for users? Not really any different than a company buying it for their field reps etc. (Except the monthly fee thing.).

Kind of like buying your own fax machine per the example in the article.

[Ekkie Tepsupornchai]

Thanks twntaipan... that was a great read!!

It appears there is a re-occuring trend of new technology vs companies making money off old technology, regardless of whether it's digital music, digital video, or digital connectivity.

Overall, new technology typically can reduce operational overhead, improve service efficiency, resulting in better and cheaper service for the consumer. Unfortunately, incumbent companies would rather see that translated more into higher company profit as opposed to reduced consumer prices. When another company threatens that goal, the defenses go up.

[johncj]

It never ceases to amaze me how Shirky can be so almost right and completely wrong at the same time. He never ties WiFi into his analysis of VoIP at all. He says "most people do their computing at home or at work" and sounds like somebody saying 15 years ago that "most people make their phone calls from home or work", so there's no market for cell phones. Shirky understands what the telcos are doing wrong, but he has no clue about what's really going on. The ubiquity of inexpensive, high-speed wireless connectivity will change our understanding of what personal computing is, just like the adoption of cell phones changed our understanding of what telephony was all about. However, there are real differences in the technological changes and the regulatory schemes that Shirky is ignoring.

[sting0r]

bdegroodt....count me in....Any idea how much the setup would cost? I just assumed that the infrastructure would be a little too costly and if an existing infrastructure could be leveraged so much the better.


I think this a great stuff!!! You know what would be cool is if they could support other devices with there VOIP network like pocketpc's. For those of us using the 30 day demo SYMPHONE and are looking for a comercial solution once that demo expires this could be it. Imagine coupling a PDA with 802.11b and and VOIP client we could have a really cheap mobile phone for those times we are in range of a freebie WIFI network.

I mentioned this in another thread, but what would stop a group of PPC folks interested in using the Symphone system from buying a license, setting up the server and charging a nominal fee to support the operation for users? Not really any different than a company buying it for their field reps etc. (Except the monthly fee thing.).

Kind of like buying your own fax machine per the example in the article.

[bdegroodt]

bdegroodt....count me in....Any idea how much the setup would cost? I just assumed that the infrastructure would be a little too costly and if an existing infrastructure could be leveraged so much the better.

Yeah. I'm not sure how long TeleSym would have a lead, as I'm sure this type of stuff will be delivered in the years to come.

That said, they sell their 10 client access package for $5K on their site. If you want more than that, you have to go through a partner. What I'm not sure of is the amount of that price that is going towards the server license and how much each additional access license costs. I'm sure it's not the $500 each of the first 10 costs (If you pro-rate over the licenses.). Likely that 2/3 of the cost is the server and the rest is the license for users.

Even with that model, you still only would pay $41.67 per user per month for the software (Less than the phone company for me.). Add in some hardware and network bandwidth and the prices of the licenses would need to get cheap fast to make it work.

[AKBishop]

Perhaps I'm missing something, but is it really as easy as buying one of these Cisco ATA devices for $200, plugging it in to your router, and then plugging it in to your phone? I would think you need to subscribe to some kind of service that will take the VoIP signal and shove it onto the telephone lines as voice.

And if it is that simple... it seems a one time $200 fee for unlimited long distance would be great.