The Smart Network Prevents HD Voice

At the HD Communications Summit in New York yesterday, a wide variety of conflicts were clarified, but the starkest of those conflicts is that between the business model of the cablecos and telcos and new technologies like HD Voice.

The technology

HD Voice samples a greater amount of spectrum, at least twice as much of it as a regular phone call does, to make calls easier to hear. Early adopters might be first responders, financial companies, medical institutions, and anyone else for whom a small misunderstanding could involve a significant risk.

But in the long term, the technology is likely to succeed or fail depending on whether or not consumers like it. The benefits, such as intimacy, clarity, and simply not having to repeat yourself during a call, will not be immediately obvious to anyone who buys the service because it only delivers clear benefits if the network and both phones are using HD Voice.

In some cases, only the person who has not purchased the technology benefits from it. If your phone if HD and the phone at the other end is not, you may hear static and other artifacts and those at the other end might hear a clear call.

So the technology will be difficult to sell to consumers until there's widespread adoption, and one company is taking the lead: Orange, the mobile wing of France Telecom.

Why it will be deployed in cellular networks first

HD Voice does not disrupt the business model of the cellular network. Because the cellco controls the network and the devices on it, HD Voice is easier to roll out there. Ironically, Moldova is the first nation to get HD Voice, as of September 13, 2009. The rollout by Orange currently has only one HD handset, from Nokia, but more are expected, perhaps when Orange rolls out the service in the UK, France, and Belgium.

"I believe that when Orange rolls out HD voice service in the UK, France, and Belgium, that will be the tipping point," said Brough Turner, Dialogic Chief Strategy Officer.

While HD voice is coming to mobile networks, cablecos and wireline telcos are reluctant to sell it.

The problem is not technology -- it's all about business models. At the conference, every attendee received a Gigaset HD-ready phone (which I have not yet tried but will write about soon).

Disruption by hardware

The key question from the audience was this: "How will a company pay for a Gigaset-like handset when that handset allows the user to route around the provider's voice service?"

Gigaset's device, when connected to a network, automatically obtains a SIP number. That's not all you need to make a voice call, but many consumers have the necessary software, such as Skype, to make HD calls. They don't need a cable or phone service to do it -- in fact, if the call routes over cable or phone lines, it will be degraded to standard definition. That's because the old networks are only built to handle SD voice transmissions.

So a phone or cable company that sold HD Voice handsets to its customers would, in effect, be encouraging them to route their calls over the internet.

Skype does not compete as a primary phone line provider, noted Michael Jablon, Time Warner vice president of digital phone strategy.

But Skype could lower the value of the services provided by phone and cable companies, noted Julian Spittka, Skype product manager and senior engineer. He said that the old networks have failed to adapt to two key disruptions of the past two decades: the change from circuit-switched to packet-switched voice and the substition of software for hardware.

Spittka noted that Skype performs, in free software on the desktop, many functions that required big iron in the past. He added that free software downloads will always have a greater reach than hardware, which must be purchased.

Dialogic's Turner pointed to a third major change in the past decade: the sale of several billion SIM cards worldwide.

As the mobile network adopts new technology, in part because it is closed, software available for free on the internet will disrupt the business model of cablecos and telcos that provide internet service but still rely on voice services for the bulk of their revenue.

"70 percent of telco revenues come from voice," said Dan Berninger.

With HD, those revenues are threatened -- and, for the first time, VoIP with HD will be able to provide a higher quality call than wireline in SD.

These are interesting times.

The Professor Calls Out Internet Lies Again

Professor Andrew Odlyzko may not be a household name, but he should be to anyone who cares about the internet. Odlyzko is an internet statistician who dives into the past two centuries' worth of statistics, citing the rates of growth of traffic over British steam railroads, the early postal service, laws regarding lighthouses.

In 1998, he said many, including former FCC Commissioner Reed Hundt, were culpable in the telecom bubble. He called out the myth that the internet was doubling every 100 days, noting in section 3 of "Internet traffic growth: Sources and implications" that if the internet were really doubling every 100 days, as was widely reported, it would be growing over 10 times per year, and over 1,000 times every three years.

The telcos had an interest in perpetrating this myth. They were looking for handouts from the government. Other companies such as Inktomi also benefited from the myth. The equipment providers clearly benefited. "The growth rate in Internet traffic is the most important factor in determining demand for equipment," Odlyzko wrote.

These lies should be remembered because they contributed to the boom and the telcom crash that followed it, Odlyzko wrote.

"There are several lessons to be drawn from the myth of astronomical Internet traffic growth. One is that almost all people are innumerate, lacking the ability to handle even simple quantitative reasoning, and in particular to appreciate the power of compound interest. Another one is that people are extremely credulous, especially when the message they hear confirms their personal or business dreams."

This is strong language for a math paper and shows why Odlyzko is frequently quoted by such publications as The Economist.

The telcos don't need DPI

More recently, Odlyzko wrote that the telcos don't need Deep Packet Inspection, an invasion of privacy that the telcos claim they need in order to free up congestion in home internet connections, in a paper called "The Delusions of Net Neutrality".

"What service providers publicly promise to do, if they are given complete control of their networks, is to build special facilities for streaming movies. But there are two fatal defects to that promise. One is that movies are unlikely to offer all that much revenue. The other is that delivering movies in real-time
streaming mode is the wrong solution, expensive and unnecessary," Odlyzko wrote.

The telcos make money from voice, not internet service, and definitely not from movies, and there's not enough money in the movie industry to change that. "For all the hoopla about Hollywood, all the movie theater ticket sales and all the DVD sales in the U.S. for a full year do not come amount to even one month of the revenues of the telecom industry. And those telecom revenues are still over 70% based on voice, definitely a connectivity service," Odlyzko wrote.

So why do the telcos want to have DPI? Video services such as YouTube work fine -- but they don't require streaming technology and the telco derives no income from them.

Odlyzko said there are two reasons why the large internet providers want DPI: "to prevent faster-than-real-time progressive downloads that provide low-cost alternative to [their] expensive service" and "to control low-bandwidth lucrative services that do not need the special video streaming features."

"Communications service providers do have a problem. But it is not that of a flood
of video. Instead, it is that of the erosion of their main revenue and profit source, namely voice. Voice is migrating to wireless. Second lines, and to an increasing extent, even primary landlines, are being abandoned. And voice is (with today’s technologies) a low-bandwidth service, that takes just a tiny fraction of the capacity that modern broadband links provide," Odlyzko concluded.

The propaganda campaign in favor of DPI and against net neutrality is all about who gets to control the internet. The phone and cable companies want to charge for the most basic of services, from e-mail to Google.

When Ed Whitacre, then CEO of AT&T (now CEO of GM) asked for extra cash from Google in a now-famous Businessweek interview, there was widespread revulsion from customers.

"It certainly has the feel of extortion: pay up or no one on our network will be able to reach your website," wrote one commentator.

Some even hoped that Google would become their own internet provider.

Here's the bottom line: net neutrality must not be stopped by lies that are as damaging as those that inflated the telecom bubble.

Two Rounds, Not Three, for the Stimulus?

It looks like there will be only two rounds of the stimulus.

In addition, Congressman Rick Boucher wants more needy areas in the Eastern U.S. to be eligible in round 2.

Expect the cash from round 1 to go out faster than expected -- and the start of round 2 to be delayed.

The grant applications from round 1 are in and there are a wide variety, from Hughes Network Systems requesting almost $500 million to local libraries asking for no more than $25,000.

What happens next is this: we learn what technologies will be funded, what entities will be funded, and get a large number of other questions answered.

And then the rules for round 2 will be changed.