ILECs ‘DOOMED’ BY NEXT-GENERATION NETWORKS, EXPERTS SAY

But ILECs face a world where voice calls have become just an application on a network, he said, and it can be any network: IP, cellular, wireless LAN or cable TV. A strategy for the ILECs is to build their own IP networks to carry voice, and in a Wed. session, SBC and Qwest representatives confirmed plans by those carriers to enter the voice-over-IP (VoIP) market, said Dave Passmore, NGN co-chmn. and research dir. for Burton Group, who with McQuillan led the closing session. But Passmore said he was skeptical that ILECs would move quickly to adopt VoIP. “Voice over IP undercuts everything they've ever done,” McQuillan said: ILEC infrastructure, billing systems and people all are geared toward a single network with a single purpose to deliver voice calls, he said.

“ILECs don’t have an easy way out,” McQuillan said. Whether they decide to stay with their shrinking base of wired phones or branch out into new technologies, he said, they face “competition from many directions.” Voice calls made on cellular phones, or through Wi-Fi hot spots, enterprise LANs, cable modems, PDAs or “softphones” on laptops all cut into the ILECs’ core business, McQuillan said. He agreed with many speakers at NGN that predicted Bell forays into VoIP would be limited: “Their primary reaction is to dig in.” ILECs have spent billions to build their network, which is generally paid for, “and they have a regulated monopoly, so their inclination will be to keep the PSTN going as long as possible,” McQuillan said. In terms of telecom battles raging in Washington and the courts, expect more of the same, he said: “The ILECs’ final refuge will be in their political power,” which is considerable. “The ILECs are large employers, they have large number of retirees that vote, influence with the Republican and the Democrat party, the FCC,” McQuillan said. The mounting battle means the U.S. “can’t have a smooth transition to a nationwide broadband network.” He said instead to expect “a slow meltdown of the PSTN accompanied by a rapid buildup of broadband networks.” He agreed with Passmore that the federal govt. was unlikely to fund a nationwide broadband network: “There was incentive to build the PSTN and to make it universal… but there’s no inherent right to have entertainment or a Web browser.”

The decline of the PSTN as a single-purpose network also will create headaches for policy-makers, McQuillan said. The FCC and govt. still have the mindset of a single voice network to regulate and to tax. Only in the last few months have states looked at VoIP providers as a new source of tax revenue, and the FCC decided it’s time to study the issue. But voice can become an application on many different networks, he said: “What will government do when they realize all networks are all purpose?” Voice calls can now travel over routes that defy measurement by any taxing authority. He gave the example of using his PDA to call Passmore’s iMax laptop at a Starbucks. He said the call (either voice or data) might travel over a wireless LAN to a corporate LAN which is connected to the Internet over a Bell’s DSL line, and might emerge on a tariffed T-1 line that backhauled the Starbucks’ Wi-Fi network. “But I never really called in a telephony sense, I just checked my ‘buddy list’ and assumed he'd be at the Starbucks,” McQuillan said.

New wireless technologies dominated NGN this year with several sessions devoted to wireless LANs, and specifically to wireless LANs in public hot spots, Passmore said. For example, the hot topic was 802.16 “Wi-MAX” technology, a long-range wireless standard that’s making its way through the IEEE. Unlike other Wi-Fi modes whose range can be measured in feet, Wi-MAX offers up to 70 Mbps throughput short range and an ability to maintain at least 6 Mbps connectivity 10 miles or more. But McQuillan warned of a “refined mode of crowd mentality” where, NGN show after show, networking executives have looked for “the next big thing.” The networking industry gets “a little too enthusiastic” about short-term prospects, and the buzz about wireless LANs could become another dashed promise, he said. “I'm not entirely convinced that there’s going to be a strong business model for providing wireless hot spots,” Passmore said. McQuillan said the “diversity of business models” meant Wi-Fi hot spot services were “likely to be driven into the hands of the carriers,” if for no other reason than that they have a billing capability. He also worried that there was no controlling authority: “If I call from my PDA to that Starbucks hot spot and the quality is lousy, who do I complain to?”

Wi-Fi service providers may need to rethink their business plans, Passmore said. Wireless Internet access may need to be included as part of fees for profitable services, such as a hotel room charge, “much like salt, pepper and ketchup on the table as part of a meal at a restaurant.” He said NGN was abuzz with wireless LANs because vendors were finally providing “reasonable” security. Wi-Fi technologies had “a strange adoption curve with an 11% decline [last year] because of security problems,” he said, but at the end of 2003, Wi-Fi protected access was working “and we see a lot of enterprises budgeting for deployment in 2004.”

The NGN closing session marked McQuillan’s retirement from the networking industry. He began his career inventing data algorithms for ARPAnet, the predecessor of today’s Internet. His research forms the basis of routing protocols used in all carrier networks and the Internet. A consultant since the 1980s, he cofounded NGN 17 years ago.