David Isenberg: SMART Letter #91

Greg sent me this newsletter by David Isenberg.

The newsletter is reprinted in full below. I'm going to sign up to the mailing list. Isenberg's original claim-to-fame is because of writing The Rise of the Stupid Network. In short, to nicely go along with this newsletter, the network is dumb transport with smart(er) endpoints, and telcos are likely going to be going away.

Isenberg also talks about RSS -- it's not a fad, it's not going away, start using it now. He's got a <a href="http://www.isen.com/blog"">blog too, but no RSS feed (he's using Blogger). Hopefully that will change soon. Big blue RSS icon. Can't miss it unless you are looking for a small orange XML icon.

CONTENTS
 The Story Under the VoIP Story
 Destroy My Business Model?  Yawn.
 isen.blog and The SMART Letter
 Conferences on my Calendar
 Copyright Notice, Administrivia
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The Story Under the VoIP Story
by David S. Isenberg

These days there's a flurry of newspaper stories about VoIP 
(Voice over Internet Protocol) every few days, as if VoIP 
is going to save the telecommunications industry -- or 
maybe the entire tech investment sector.  The stocks of 
Net2Phone and VocalTec and DeltaThree are surging.  Today 
Verizon's going to do it.  Yesterday, Time Warner telecom 
announced expansion of recent VoIP trials to all 18 million 
customers.  Last week Qwest announced VoIP in Minnesota.  

But the larger story is not "new life for the telecom 
sector."  Quite the opposite.  Because while VoIP will 
probably be good in the long run for the tech sector as a 
whole, VoIP will hasten the end of telephony-classic.

The mainstream press gets the "VoIP cheaper" angle.  Many 
stories note that a VoIP package at $39.95 a month is 
cheaper than the ILEC's comparable $59.95 plan.  They 
report correctly that this is due to the unregulated nature 
of the Internet (escape from universal service 
contributions, etc.) and to competitive pricing on bundles 
of feature like caller ID, call waiting, et cetera, with 
formerly fat margins.  They often cite the greater 
efficiency of IP over circuit-oriented protocols (but tend 
to overblow the technology advantage).

Sometimes the mainstream press gets little pieces of the 
"VoIP better" angle, too.  Recent VoIP stories acknowledge 
that enterprises can consolidate voice and data on one 
network, and that moves, adds and changes can be done more 
easily under VoIP.  A recent Wall Street Journal story 
(December 9, 2003) even suggested a future Time Warner 
integration of VoIP with Instant Messaging, but it failed 
to follow with what that's good for, and what it replaces.  
Further, most stories don't mention that VoIP over cable or 
DSL can support multiple "lines", multiple numbers, and 
multiple simultaneous calls per household with no new 
wiring.  Nor do they explore the implications of plugging 
your U.S. landline number into a DSL or Cable connection 
Japan or Mexico.  

These little blind spots are symptoms of not grasping the 
larger story -- the destruction of the telcos.  Sometimes 
the mainstream press pays lip service to "the potential 
threat to local phone companies," but usually this is cast 
as a battle of telco versus cableco.  The biggest story 
still eludes the media:  The telco business model -- that 
is, the delivery of my app (voice) over my net (switched 
circuits) for one integrated monthly price -- is going 
away.  

The reason is that VoIP makes voice just another 
application on the Internet.  VoIP stories that focus on 
the clash between telcos and cablecos fail to grasp the 
importance of Vonage, Packet8, Galaxy Internet Services, 
MyBroadLine, VoicePulse and Addaline, VoIP services -- 
applications, really, because they work just fine, no 
matter whose connection service they use.  And even as 
these are halfway steps because they interface with the 
switched telephone network via gateways, so do they provide 
the means for pure Internet calling that bypasses the old 
network -- and the old business model -- altogether.  

Meanwhile in Estonia, Ross Mayfield reports 
http://tinyurl.com/ynwt that Skype, an Internet telephony 
application that doesn't even share a numbering plan with 
conventional telephony has hit the tipping point.  Even 
doctors are using it to communicate with patients (while 
U.S. doctors don't even use email).  Ross reports that 
because Skype's "mode of use differs it is gaining a 
different culture of use."  The future is not evenly 
distributed.

Nor is mobile service sacred.  Today it is based on a 
conventional, vertically integrated, circuit-switched 
model.  Tomorrow it will go the way of the wireless 
Internet.

If the telcos are to survive, they will have to choose 
whether they're going to sell "my app over anybody's net," 
or "anybody's app over my net."  That is, in the age of the 
Internet, a company can be an application provider or a 
connectivity provider.  One company will not want to do 
both.  An app provider will want to use anybody's network.  
Imagine, for example, VoIP that works on DSL but not WiFi.  
Apps want to treat all networks the same.  Conversely, a 
connectivity provider will want to carry everybody's 
traffic.  Customers will not want to access some Internet 
apps over one ISP's connection and other apps over 
another's.  I suppose that it is *possible* for one company 
to do both apps and connections, but if so, one half will 
need to treat the other half's competitors as customers.  
What clear-thinking company would want to do that?

Telcos are already in trouble.  Voice revenues are the 
lifeblood of a telco.  In 2002, telcos lost about 4% of 
voice-grade lines every year.  The shift to VoIP, 
especially to Vonage-type services, that is, services that 
can connect to the Internet via any connection, will reduce 
the need for conventional lines further.  The telcos could 
switch to data, but even as their data service sales grow, 
they're finding it hard to make a profit on data.  In 
mature mobile markets, every user who wants service has it 
and revenues per user are flattening out; the shift to VoIP 
is only a matter of time.

Martin Geddes examines the shift from a different angle in 
his aptly named blog, Telepocalypse 
http://tinyurl.com/yne4.  Geddes figures that if a 
hypothetical telephone company with revenues of US$25 
billion per year is to survive a Gartner Group prediction 
that the last circuit-switched call will be made in year 
2020, then this hypothetical telco would have to find (and 
sustain) US$600 million in new business for 17 years, 
through 2020.  Total U.S. telecom revenues are about US$300 
billion per year, so using Geddes' calculation the U.S. 
telecom sector would need to find US$7 billion in new 
business every year.  This is only plausible under the most 
extreme of scenarios.  More likely, the U.S. telecom sector 
will shrink by US$7 billion each year.  Other mature 
markets will shrink accordingly.

This, then, is the story under the VoIP story that the 
mainstream press is missing -- the telephone companies as 
we know them are, barring some extremely regressive 
shenannigans, on their way out.  This departure will not be 
linear or smooth -- nothing that big and well established 
disappears without a struggle, or without unintended 
consequences.  But the telcos won't cross this chasm by 
sauntering out over the edge at their accustomed pace, and 
they don't have the innovative muscle to make the jump.
-------

Destroy my Business Model?  Yawn.
by David S. Isenberg

Back in 1998, Tom Petzinger's Wall Street Journal write-up 
of my attempts to convince AT&T to change her obsolete ways 
http://tinyurl.com/yf3r set my phone a ringing for weeks.  
In contrast, an October 9, 2003 Wall Street Journal front 
page story on VoIP http://tinyurl.com/yf6p, which quoted me 
saying that VoIP, "destroys the incumbent telephone-company 
business model," created no detectable inbound activity on 
1-888-isen-com.

I wonder why I'm not besieged by worried telco execs trying 
to understand why I said that.  Maybe they already know the 
problem and they're evolving as fast as they can.  Or maybe 
I'm obviously wrong, or obviously uninsightful.  

Maybe.  But I have an alternative interpretation.  I think 
that telco corporate culture doesn't value discussing 
business models.  That was my experience at AT&T anyway.  I 
have two guesses about why:

Guess #1: Maybe telco execs don't talk about business 
models for the same reason that fish don't talk about 
water. They were handed an established business model at 
the beginning of their career. It was, literally, a given. 

Guess #2: Maybe, like sex, talking about business models is 
just not a polite thing to do in certain circles.  If so, 
we'd expect telco execs to talk about it in private, with 
anxiety-releasing humor and myth in lieu of fact.

In either case, there is something deeply unsettling about 
discussing anything identified with you that's about to 
fail. However, telco execs who can learn new job skills 
(Guess #1) or overcome cultural shibboleths (Guess #2) -- 
who can muster what it takes to examine their business 
model and its alternatives squarely -- are more likely to 
survive. Those who don't won't.
-------

isen.blog and The SMART Letter
by David S. Isenberg

I've started a weblog.  It is called isen.blog.  It lives 
at http://isen.com/blog.  Many of the readers of The SMART 
Letter have found isen.blog.  But there are still people, 
telecom-literate people, who don't know what a weblog 
(blog) is yet.  

Blogs are a winner app, not a fad.  By analogy, at a recent 
FCC event, Kevin Werbach showed 3 Venn diagrams depicting 
data, telephony, wireless, broadcast, etc.  In diagram #1 
data was shown as a little circle inside a bigger circle 
called "telecom."  In diagram #2 the data circle was 
outside the telecom circle, showing the results of the 
FCC's Computer Inquiry, which decided that data was an 
"enhanced service."  In diagram #3 the data circle was so 
big that the circles for broadcast, cable and wireless were 
inside it.  As late as 2001 an ILEC exec was marveling at 
how long the data "fad" had lasted. Blogs will do that too.

Start reading the blogs.  Read isen.blog.  But don't stop 
there.  Follow some links.  One of the best collections of 
other people's blogs is David Weinberger's "Joho the Blog" 
at http://hyperorg.com/blogger.  Another fabulous blog, by 
a woman who writes like she's sitting in your living room 
looking into your eyes, is http://riverbendblog.com.

RSS makes blogging even more powerful.  What's that?  
Here's a really simple summary; RSS is a way to track 
changes on a website without going there and saying, "Oh, 
yeah, seen all this before," or, conversely, "Gosh, that 
looks new."  I won't explain anymore; you don't need to 
know.  But you should experience RSS.  

My RSS experience comes from the FeedDemon RSS reader.  It 
is a little program that runs inside my PC.  You can 
download and install it at http://feeddemon.com.  There are 
other RSS readers besides FeedDemon, but I found FeedDemon 
fall-off-a-log easy to install and use.  No instructions 
necessary.  Do it now.  But please remember to come back 
and read the rest of this SMART Letter.  

And the future of The SMART Letter?  It provides a less 
instant, perhaps more thoughtful, more permanent venue for 
my writing than isen.blog.  I'd like to keep doing it.  
Despite the write-now tug of the blog.  If I write them 
both, will readers read both?
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CONFERENCES ON MY CALENDAR

January 27-28, 2004, Bedfont Lakes, Middlesex, UK.  Access 
to Broadband Campaign: Revolution at the Edge.  Second 
annual meeting.  I'll be the first keynote speaker.  My 
friends and colleagues Peter Cochrane and Dewayne Hendricks 
will participate too.  http://www.abcampaign.org.uk/

March 12-16, 2004, Austin TX.  Wireless Futures (A 
conference within the South by SouthWest multi-palooza).  
Don't know much about this yet, but from the list of 
invitees, it's going to be good.  http://wirelessfuture.org
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COPYRIGHT NOTICE: Redistribution of this document, or any 
part of it, is permitted for non-commercial purposes, 
provided that the two lines below are reproduced with it: 
Copyright 2003 by David S. Isenberg 
isen@isen.com -- http://isen.com/ -- 1-888-isen-com 
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