As the telecom industry contemplates the TDM-to-IP transition aimed at replacing traditional voice service with VoIP, some of the biggest challenges will center on interconnection. The move to IP will require rethinking how service providers exchange traffic with one another from a business, regulatory and technology standpoint.
Business and regulatory components
“We want IP interconnection,” said Maggie McCready, executive director for public policy at Verizon, at a Comptel event last month. The event, titled “IP Transition– An Evolution of the Network, Regulatory Environment or Both?” was also webcast.
McCready said half of Verizon’s 13 million voice customers are now served over FiOS. And potentially those customers could be interconnected with other service providers more economically using IP.
McCready noted, however, that some nationwide service providers say they will only negotiate with Verizon if Verizon agrees to abide by “backstops” that help regulate pricing in the TDM world. And Verizon does not believe that is the appropriate path.
“They have to come to the table and talk,” said McCready about other service providers. “We’ve done it, it can work . . . and if it doesn’t work, what’s the harm in trying?”
Another IP interconnection issue that could be challenging to resolve is pricing transparency. While the nation’s Tier 2 and Tier 3 carriers would like to have some idea about what other carriers are paying for interconnection, powerful Tier 1 carriers may be reluctant to disclose that information.
“Would a small company get the same rate [as a larger company]? I don’t know,” said McCready.
And although it wasn’t discussed much at the Comptel event, another thorny issue is that rural carriers traditionally have relied on per-minute access charges for completing calls from other carriers to their network to help cover some of their costs of delivering service, which are higher in rural areas. Rural carriers may be reluctant to enter into IP interconnection agreements unless those revenue streams are retained or replaced.
The technology component
IP interconnection also will change the physical infrastructure through which calls are exchanged.
A carrier like Verizon might exchange traffic at 12 interconnection points nationwide, McCready said. And that reality also may impact regulatory and business issues.
For example, McCready asked, “If state arbitration is the backstop and I have 12 interconnection points, how does the state play a role?”
FCC Chief Technology Officer Henning Schulzrinne noted another change that will occur as carriers move to the sort of infrastructure McCready described.
“A small network in Iowa won’t exchange with [other carriers] at every exchange point,” Schulzrinne said. As a result, he said the smaller carriers may need to use an intermediate provider to provide transport to some exchange points.
Schulzrinne made his comments at an Internet Engineering Task Force Technical Plenary session about “The end of POTS: Transitioning the PSTN to IP.”
Schulzrinne said he knows of at least one carrier that is exchanging voice traffic with other carriers using VPNs. “Voice is such a small portion [of total IP traffic] it will be difficult to maintain separate interconnections with smaller networks,” he said.
One thought on “Interconnection May be Toughest Part of TDM-to-IP Transition”
And so the trend to monopolization and sustaining inefficient vertical integration (silos) continues. How exactly are 12 interconnection points going to work in a world of high mobility, high-definition, two-way services? Seems like we are going to waste a lot of bandwidth on unnecessary backhaul and signalling. So supply is going in the opposite direction of demand. Just great.
Furthermore, stakeholders need to understand that bill and keep (settlement free exchange) not only promotes monopoly, but also robs the network ecosystem of a necessary mechanism for new service/technology introduction and infrastructure investment.
Time to revisit metcalfe's law (aka the network effect) and understand that value at the core is geometric while cost at the edge is linear. That's why monopolies love to expand interconnection zones, as they did in the Kingsbury Commitment, as they did with expanded LATAs in the 1980s (which commercially scaled the internet), and what they are doing with content now (251). They can guard that core value of edge access better.
Taking that from an intranet (one carrier) to an internet (many carriers) example, if 1 carrier has 1 million customers and another has 1000 customers, then the former has a theoretical value of ~499 billion whatevers and the latter ~499k. So clearly the former has a lot more influence and clout over the latter. Sounds like the US vs, say, Guinea, right? So the combination of the two should be still be under 500 billion, right? So Guinea doesn't really matter to the US, right? Right? Wrong.
Adding Guinea's value to the US' value is not linear, it is geometric and the combination of Guinea traffic to US traffic boosts the total value to 501 billion whatevers. That's 1 billion more pathways vs 499k; or 2000 times more information pathways. Let that sink in for a bit before you answer the question, what is the best settlement system for the US to incentivize Guinea to upgrade its technology/infrastructure/service so that the 1 million customers in the US could talk to the 1000 customers in Guinea? (because of course the US would like to increase the potential pathways geometrically instead of linearly) If you said a balanced settlement system that includes terminating settlements you would be correct. But please do not confuse that with the 2-sided revenue models the incumbents want for internet fast lanes in the current net neutrality debate.
This was a creative commons, free, network 101 class on the economics of metcalfe's law that we've conveniently forgotten in the last 15-20 years as we rush towards a bill and keep (settlement free) future.