SMART Letter #94
Square-peg Telcos, Round-hole Future
March 28, 2004

SMART Letter #94 -- March 28, 2004
Some Rights Reserved by Creative Commons License - "undistorted stupidity" -- -- 1-888-isen-com
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The Latest on WTF!?!
Square-peg Telcos, Round-hole Future
If it's Funny it Must be True! by Scatt Oddams
Conferences on my Calendar
Creative Commons License Notice, Administrivia

The Very Latest on WTF!?! A Gathering of Smart People
April 2-4, 2004, Westchesther

96 of the SMARTest people (and a number of Virtual
Participants) will convene in the Peter F. Drucker
Auditorium of the Edith Macy Conference Center on April 2
for 48 hours of participatory thinking. Full details
available at

Square-peg Telcos, Round-hole Future
by David S. Isenberg

(filed with VON Magazine, 12/1/03, and still relevant).

With hundreds of billions of dollars at stake, the Telco-
VoIP battle lines have been drawn and the first volley has
been fired.

The FCC threw down the gantlet to the regulatory agencies of
the individual states?and to the incumbent telcos?at a
historic December 1, 2003 hearing on VoIP. The FCC invited
no speakers from established telephone companies. The day
belonged to VoIP heroes such as Jeff Pulver, Tom Evslin and
Kevin Werbach.

FCC Chairman Michael K. Powell said, "with all due respect
to Oldsmobile, this is not your father's telephone." He
said, "We must be careful that we don't shove a round
Internet into the square holes of older, more familiar
services." He added that the FCC would decide "...what
regulation, if any, is warranted."

Powell's "...if any..." hung in the air. The hearing was
meant to declare?not only to the telcos and the states, but
also to Congress, the courts and the investment community?
that the FCC would not suffer piecemeal regulation and
dueling litigation that could undermine the Internet's
entrepreneurial vitality.
Will Powell prevail? Hundreds of billions of dollars are at
stake. The telcos will not stand idly by. Regulation of VoIP
is their last hope. They will not ignore the one loophole
that the FCC leaves open?US policy precedents like public
safety, law enforcement, national security, affordable
access (also known as "universal service"), and access by
people with disabilities?to achieve their ends.

These precedents are clearly desirable, and they're well
established in policy, law and regulation. But they could
become the square holes that won't accommodate the round
Internet. Example: the E-Rate, an existing subsidy to
advance Internet in schools. The E-Rate covers services;
e.g., the monthly bill for T1 service, but not products;
e.g., wireless equipment?even if a wireless link has ten
times the capacity of a T1 and pays for itself in two
months. The E-Rate's goal is good, but its implementation
enshrines existing methods and locks out the new. Leading
edge schools are hurt the worst. E-Rate dollars flow only to

The FCC's desire to address such precedents provides a telco
target, even though Powell promises a light hand. Anti-
innovative consequences could easily emerge. For example,
will public safety, law enforcement and national security
regulations for VoIP have the words, "service provider" in
them? Even today, there are flavors of VoIP, Skype, for
example, that are peer-to-peer; there is no VoIP service
provider. Applications like Skype work over any Internet
connection. If we must do VoIP through a service provider
or, worse, a service provider that must have certain
federally mandated capabilities, it's bye-bye innovation,
hello telco.

Universal service for VoIP could provide another anti-
progress telco toe-hold. At the FCC hearing, California
Public Service Commissioner Carl Wood said that VoIP would
cause his state to lose $400 million dollars in Universal
Service subsidies by 2008. But he didn't say that by 2008
VoIP technology would be 400% to 800% cheaper because VoIP
technology, when unimpeded by regulation, follows Moore's
Law. Moore's Law will give more people affordable telephony
than Universal Service ever could, but this is not an easy
message for the states, the courts and Congress to act upon.

The incumbent telcos were not visible on December 1, but
they're not ignoring VoIP. The FCC will hear from them in
force. When I visit the FCC, I see the coiffed, Italian-
suited lobbyists heading for the Eighth Floor, where the
Commissioners work.

I'm somewhat comforted by the VON Coalition's announcement
(also on December 1?good timing!) that its members have an
agreement with NENA, the National Emergency Number
Association, to develop technical and operational mechanisms
to reach 911 services via VoIP. This demonstrates to the
Commissioners that it is possible to achieve nationally
desirable goals voluntarily, without regulation. Tom Evslin,
in his December 1 FCC testimony, told of VoIP industry
efforts to work with law enforcement, with people with
disabilities, and on universal service rules voluntarily,
without regulation.

When the FCC forbears?that is, when it deliberately decides
not to regulate?this supersedes the actions of individual
states as powerfully as when the FCC decides to regulate.
When incumbent telco lobbyists arrive on the FCC's Eighth
Floor to plead for their lives, I'm hoping Chairman Powell
will keep his word about round pegs and square holes and
say, "Sorry, boys. VoIP is the future. We're going to

[This article originally appeared in the January 2004 issue
of VON Magazine, . VON Magazine's
website is now, finally, live and up to

If it's Funny it Must be True!
by Scatt Oddams

This nails "The New Normal"
perfectly. Nuf said.

[Scatt Oddams is the Cartoon Critic in Residence at The
SMART Letter. You can lob comments towards oddams at]


April 2-4, 2004, Westchester County NY. WTF!?! A Gathering
of SMART People. Find out more (and register as a Virtual
Participant) at

June 24 & 25, 2004, Santa Clara CA. Supernova. Kevin
Werbach convenes advocates of decentralization.

Redistribution or reuse of this document, or any part of it,
is licensed under the Creative Commons Attribution-
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California 94305, USA. Attribution must include the
following three lines:
Copyright 2004 by David S. Isenberg
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