There is, in most respects, not much room for the little guy. Still, many companies attempt to eke out a living by raising capital and earning free cash flow on the basis of moving the needle down a couple of stairs in the telecom industry’s giant race to the bottom. Frankly speaking, as consumers, we need these guys … they create the price pressure that leads to market pressure that forces the cabal to lower their prices. Without them we’d all still be paying $1/minute to call one or two counties over. But rarely (and I suspect Bernie Ebbers would verify this) do they ever make any real money over the long-term.

Because of my history as one of Cisco’s early Packet Telephony product managers, and having architected and helped to launch a few different services including BuzMe and RingCentral, I see a lot of VoIP deals. I’ve taken to referring to many of them as “stupid phone tricks” (in a nod to Letterman) which are clearly designed to take advantage of some gap in arbitrage within the telecom industry.

Unfortunately, this has been the model of telecom “innovation” for many, many years. The first Cowboys in the telecom game were of course the CallBack kids. They allowed you to make calls from Brazil to the USA, for example, paying the long-distance rate for calling from the USA to Brazil instead of the other way around by “ringing both ends” of the call after you first dialed their local or toll-free number to instantiate the call. This significant inconvenience was trumped by the massive savings incurred for folks living in Brazil calling to their USA-resident relatives.

With long-distance deregulation came the rise of prepaid calling card services, which did something similar. Again you traded the convenience of just simply dialing the person you wanted to call for having to call a pilot number, entering a complex string of unmemorable digits, and THEN entering the number you wanted to call in order to save a little dough. The services made money, though, because you and I would usually lose our cards or forget our numbers before we fully expended the value in the cards. This model is called “breakage”. To my utter disappointment this represented the larger part of the market I was dealing with while at Cisco.

More than 8 years ago I recall being asked by my boss, Alistair Woodman, to write an opportunity evaluation of the recently-ratified SIP protocol. My response, over the course of weeks of researching and talking to everyone involved, was a breathless vision espousing nothing short of a complete re-think of the entire Telecom industry. SIP has some epic flaws and paradoxes, like its assumption that we’d all be on IPv6 by 2001, and its paradoxical empowerment of edge devices while making no accommodations for firewall/NAT traversal or P2P.

But it was a pretty good stab at unhanding control of telecom from the cabal and placing it in the hands of scrappy innovators. And as the VON shows once attested, there are some pretty feisty and intelligent people lurking within the telecom business. For a time I hoped to have been one of the more noteworthy ones.

With the benefit of hindsight we now know that SIP just hasn’t panned out (certainly not in the way I had hoped it would). It’s become just another signaling protocol in the transport of fairly uninteresting voice calls within the existing structure of telecom. Let me repeat that in another way: The incumbents took a protocol which was conceived and designed to blow them out of the water, and used it to cost-optimize their networks. As a protocol, SIP is incredibly successful in having propagated in Telecom in the less than 7 years it’s been deployable, but I suspect its effects on the industry would today leave its creators a bit cold.

My breathless assertions that thanks to SIP the web geeks would take over Telecom — first derived in 1997 and held by me until at least 2002 — have never even come close to fruition. SIP, because it unbundles signaling from the calling path and especially because it allows for rich metadata to travel through the network with SIP messages, is rife with potential for adding value — but no one, not even Skype (which uses a protocol clearly inspired by SIP but which fixes a lot of its problems) has deployed it in a way that takes complete advantage of this to stimulate innovation.

A few weeks ago I wrote about Cubic Telecom. There’s a small amount of real innovation there, but it largely falls into my “Stupid Phone Tricks” category. It might or might not save you a lot of money making and receiving long-distance calls while you roam on your mobile phone, but does nothing to abate the greater crime that is mobile roaming charges. After I wrote about Cubic, David Pogue of the NY Times was attracted into their orbit, but got burned when others realized Cubic’s rates weren’t quite so attractive as they’d said they were. Controversy erupted and their launch marketing was irreversibly damaged (see here also) by the Streisand Effect of their attempts to correct and adjust perception.

A Googling of “telecom innovation” yields 10,700+ hits but, sadly, no real innovation. What you will read, instead, are examples of creative cost-optimization (Voice Mail was really a way to eliminate the answering machine at home, and the receptionist at the office). You’ll also see some incredibly creative and extravagant attempts to defeat the inconvenience associated with the CallBack model. Cool, but not fundamentally enabling.

What Cubic is presently caught up in is the fact that their dubious cost savings are hampered by the fact that calling mobile phones, for example, in Europe is always going to be expensive and hugely differentiated in terms of pricing from calling land lines in Europe. The rise of draconian mobile pricing models combined with the steep decline in global long-distance calling rates results in a more and more limited opportunity to cost-optimize and more and more pitfalls for the consumer. Unfortunately, Cubic’s a great example of how this happens and how it can bite one in the ass.

There are a number of artificial bottoms in the telecom industry. Long-Distance was the first and most obvious of these: when there was sufficient market pressure from a few successful VoIP guys (and other telco competitors) to reduce costs, the incumbents simply did so. Why? Their costs to provide long distance were arbitrary. Their only consideration was how much margin they could take without losing customers.

There are a couple of false bottoms in mobile at the moment (who am I kidding, there are half a dozen) including roaming, long-distance, and SMS. SMS is a great modern example of this and here’s why:

The cost for a mobile network to transact an SMS message are incalculably small — on par with your ISP handling an email message. Yet it’s become an enormous cash cow for the mobile phone industry — imagine if your ISP charged you a penny for every email sent or received. A small number of companies such as hotxt (now trutap) rose to try and take a notch out of the carriers on this front, but were ultimately thwarted by the fact that they have to take pot shots at the carriers from within their own ecosystem.

It’s not that easy to attack the SMS business model by requiring users to instead install an app and send and receive messages over wireless data, which is also ridiculously expensive.  It’s kind of like borrowing from Peter to pay Paul, and in any case I’m not sure what it accomplishes for the third-party service.  Not fun. And not particularly innovative.

There is encroachment now, by mobile telecom into terrestrial telecom, and subsequently by platforms like the iPhone and OpenMoko and the rumored GPhone. I guess this means there’s some hope for change. But all of them appear to be embracing the traditional approach to telecom and stepping up to milk the cow in collusion with the big carriers. And this, friends, is a shame. Because innovation will only be barely perceptible if we continue to allow Telecom Monopolists to write the rulebook.

-Ian.

It’s definitely a secondary phone service, as when you instantiate calls it actually signals their VoIP-based call back service to “ring both ends”. Yes, it’s a CallBack service. The result is a fairly long wait time (20-30 seconds) to connect calls. But the savings when you roam across continents or even in the next country over are profound. The fact that it operates on a pre-paid, non-subscription model helps you cost-justify it as a secondary phone.

I’ll skip the phone, thanks, but I plan to use it, but only for incoming calls, when I travel to the U.S. as an alternative to a prepaid plan with the evil AT&T. It also does SMS at reasonable rates but, as yet, not data. So I’ll still be extorted for using my BlackBerry and iPhone on the road.

Feature request: One major issue with using a secondary phone is that when you make outgoing calls, nobody knows it’s you. My calls are far more likely to be avoided by my board members and business contacts because they don’t know the number. Problematically I don’t want to give them that number and add it to my swelling list of phone numbers because it adds complexity and creates a potential dead-end: my MaxRoam number, unlike my mobile phone number, is not mine… and I can’t take it with me.

To resolve this, and much of this depends on the quality of the termination networks and the strength of their relationships with these termination partners, MaxRoam could ask me which phone number I want to identify myself as when instantiating outbound calls via their web site. They could then rewrite the outbound dialing number on their terminating gateways for the leg of the call destined to whomever I’m calling so that it appears as it should on their phone and my name, etc. pops up.

Of course, there are others among us who might enjoy that anonymity. >:)

A problem for MaxRoam in the short term is that all this fiddling, plus the extra call wait times (75% of calls are incomplete, so 25-30 seconds just to get a busy signal or somebody’s voice mail will get frustrating), is not for the faint-hearted consumer market. I anticipate that they will develop a rabid audience of tens of thousands of global roamers who absolutely love their service, but until big strides are made in the usability model it’ll be difficult to break through to the broader market and really kick the snot out of the mobile carriers.

Their greater effect may be to sensitize the mobile phone consumer market further to the gouging that occurs between carriers for roaming, and the utter fleecing which carriers subject their customers to for Long-Distance. Given the myriad benefits in reducing operating cost for VoIP, and given that VoIP has been widely deployed in mobile phone networks for more than 5 years, it is positively criminal that they want me to pay $2/min. to call Brussels from my mobile phone while I’m at home.

I’m worried that, like Vonage, companies like Cubic will invest significant dollars to champion the charge to fairer pricing in mobile telecom, only to get smote by the carriers as they finally cave under consumer, media, political, and market pressures and adjust their margins accordingly.