PREVIOUS	May - June 2005 (14.02 - 14.03)	NEXT

Telephones Become Software and the Phone a Computer

Skype Examined as Virally Spreading Second Generation of VoIP While SIP and World of Enterprise VoIP Live in Very Different Universe

How to purchase this issue. $400 or $1600 group. The May - June 2005 issue examines Skype, SIP and VoIP in 2005.

Convergence Arrives at Level of the End User Device

April 3, 2005 Ewing, NJ -- The telephone has become software. In 2003, VoIP was a bucket of bits adapted to a special SIP-endowed handset or “Ethernet phone” that cost between $200 and $600 and had to be connected via a complicated interface to an early island of connectivity like Free World Dial Up. In 2005 VoIP is viral and software. It is a program called Skype downloadable from the Internet. Other such programs will follow.

Skype is a free software phone that “just works.” And, as our experts point out, Skype is not necessarily the be-all and end-all of a softphone. Better products will likely appear, and, whatever happens, the business model appears to be profoundly disruptive.

At the very end of March Skype CEO Niklas Zennstrom published by Mathaba on March 29, 2005, said,

“The telephone is becoming a computer. See my telephone, I have Skype on a mobile phone with a 200 MHz processor and an operating system, and it’s connected to the Internet with different types of radio access, whether its GPRS, WiFi, 3G or WiMax, it uses different radio technologies. Then telephony becomes a software application that just lives on the network. Skype is that software application, there will certainly be others...” [Source is Skype Journal, Skype on my Linksys Router, April 2, 2005.]

Lingo and Vonage are based on hardware devices that must be shipped to customers and added to their networks. Both have the old advertising, network maintenance, billing and customer acquisition costs of the phone company business model. Customer acquisition costs are likely well over $100 per customer for services that bill at about 20 to 25 dollars a month. Skype customer acquisition costs are more like a penny a customer for a service where over a million people have purchased the minimum 10 Euro Skype-Out service and many many more merely use the service without ever leaving the Internet.

Two broadband connected people anywhere in the world can download the program, register an ID in the Skype directory and be speaking to each other with better than PSTN quality sound in less than 30 minutes. The user’s computer needs only a speaker and any microphone. Because Skype is built around Instant messaging including file transfer capability, users having their hands free can use the internet connected capability to exchange text, pictures, URLs - in short any form of data in real time. The possibilities created for productive collaboration are enormous. The channel of voice communication with a handset and receiver formerly held to the ear goes, in an instant, from very narrow to very wide. The nature of the interaction frequently changes. Fore example switch from headset to speakers and the conversation becomes more social to those present.

And for those with the computer and broadband, there is zero cost paid to the phone company. Zero cost - for high quality collaboration anywhere in the world that broadband exists. Zero incremental cost also creates new opportunities for use such as "squawk boxes" where the "call" is always-on. It is a rather startling change that is best experienced first hand rather than described in words alone.

Furthermore given Skype’s peer-to-peer architecture, broadband providers - phone companies and cable companies and potential competitors of Skype will find it almost impossible to discriminate against it. Its packets, encrypted will be harder for the provider to identify without the expenditure of disproportionate effort. The IP address of the authentication server could be blocked as could the IP addresses of known supernodes. If that were done, Skype could fight back with its own technology changes and enter a war of escalation that it would be unlikely to loose.

Not so for last year’s generation of Ethernet devices (Vonage, Lingo, Packet 8 and others) that link a customer’s handset through the Ethernet telephone adaptor's MAC address to an authentication database and compress and packetize the audio sending it through the network along with email, web, and other easily-identifiable data streams. Should it decide to do so, the telco cable-co duopoly in the US can favor its own higher priced VoIP services and give the so-called parasitic services whatever is left on a best effort traffic basis. Robert Cringley explains how on p. 133 above. Despite the FCC’s favorable ruling in March on behalf of Vonage, if the telco and cable cos, with VoIP packages of their own to sell, take the approached described in Cringley's article (see p. 133 and following discussion), they will very likely kill these non P2P “parasitic” VoIP services. Imposition of PSTN access charges by the FCC is another source of their possible demise. For these reasons and in my opinion, VC's who invest further in Vonage may find themselves on very thin ice.

Since Skype is P2P and uses the CPU and drives of the more than two million users who are now routinely simultaneously attached to its network, Skype will, for the most part, be able to avoid the centralized control functions exerted at the cable head ends or the telco CO. While it does have a centralized authentication server, reportedly in Denmark, I have yet to find someone who asserts that this server could be Skype’s Achilles heel.

If one managed to bring down Skype, one will find that there are even more decentralized softphone programs by Popular Telephony and Nimcat Networks waiting in the wings. These programs claim to be "serverless" and to give their users the capability to install them in a federated fashion where user groups can define limits of inclusion and install bridges that will connect islands to each other. Doing this would create another decentralized architecture that the telco and cable cos would find hard to root out.

Meanwhile, running on the major desktop platforms and in more and more cell phones, Skype is spreading virally. [See the May 19 2003 “A Viral Communications Architecture” paper at http://dl.media.mit.edu/viral/viral.pdf. We discuss this on page seven of this issue.] On Sunday April 3, Richard Stastny, a major contributor to this issue, placed the other “bookend” around the growth of Skype asking "Is Skype reaching The Tipping Point?" http://voipandenum.blogspot.com/2005/04/is-skype-reaching-tipping-point.html "Skype is currently growing epidemic, so one may step back and look-up again “The Three Rules of Epidemics” given in the bestseller from 2000 “The Tipping Point” . . . . The book analyzes why ideas, trends and products seemingly out of nowhere suddenly cross a threshold, tip and spread like wildfire." I agree with Richard. Skype is a major development.

With its API opened, Skype is gaining third party support that permits a wide range of communication functions. It looks like it will be soon merging voice communication on cell phones and with Wi-Fi. As long as the bandwidth is adequate (at least 64 kilobits or better) Skype can be used on mobile platforms with which it is compatible. If you can browse the web on your cell phone, increasingly you will be able to Skype from it. Skype has signed an alliance in the UK that will open wi-fi hotspots to people who wish to use Skype and do so without charge. For business people the savings involved in avoiding cell phone connect charges are very large. Its Skype-Out service that permits Skype calls to the PSTN for a small per-minute fee passed a million users for the first time in late March.

Dave Hughes and I began to use Skype to call Nepal in late November. Then on December 1st, Hughes began a symposium mail list discussion thread that led to this May June COOK Report issue when David Reed grabbed my attention a week later with the statement that Skype was on its way to becoming the globally dominant “Wintel platform of Voice over IP.” SIP, Reed continued, had failed to become the signaling protocol glue that was going to tie all manner of different VoIP hardware devices together because the SIP developers were too beholden to the phone companies.

Reed asserted that the "way to succeed in business is to pick the best customers, and delight them. And the crucial caveat - the best customers are not the ones who always buy anything you sell - those are *your* best customers, not *the* best customers. The best customers are the ones who will teach you what you should be selling.

The following is how it applies here:

SIP’s vendors have defined their customers to be phone companies.
Skype has defined its customers to be people who live a communications-centered life.

It’s impossible to delight a phone company with voice over the Internet. The people who live a communications-centered life will teach you what really matters. Those people are *not* happy customers of the phone company.

It’s still possible to beat Skype with SIP, but the current SIP vendors (such as XTen) have no clue whatsoever! To win, you have to delight some customers, not participate in an illusory “market” for “technology” Reed concluded."

Seeing this as a provocative challenge, I invited Richard Stastny, Richard Shockey, Henning Schulzrinne, and Cullen Jennings to join the discussion list and later added Martin Geddes (Telepocalypse), James Enck (Eurotelcoblog), and Stuart Henshall (Skype Journal). The result was a fascinating barrage of information that made the material for this issue too encyclopedic. (Yes - even I have reached my limits - feeling like I am constantly chasing the multiplying broomsticks of the Sorcerer’s Apprentice in putting the final details for this issue together.)
The pace of change with Skype between the beginning of December and the first days of April is amazing. Skype has had a significant announcement of new features and capabilities or a new alliance with the likes of Motorola and others almost every week. For example, a new update for Skype Windows on March 23 (1.2) is features expanded address book capabilities and integration from other address book sources. http://skype.com/company/news/2005/v1_2.html

But Don’t Forget SIP

Meanwhile Henning Schulzrinne and Cullen Jennings provide, in this issue, admirable defenses of SIP which, as a signaling protocol, is burdened with the need to interoperate with all kinds of different devices. But Martin Geddes made some very worthwhile comments on SIP as he read a draft of this summary: "SIP is not very important to understanding the future of VoIP. Talking SIP versus Skype is a bit like trying to analyze e-commerce by reading about HTTP." [Editor: The remainder of Martin's remarks are found on page 184 below.]

Whether SIP has truly failed or not depends on one’s perspective. Even Skype depends on SIP for PSTN gateway signaling for Skype-In and Skype-Out service. SIP has been burdened by many requirements for making a wide variety of hardware communicate with each other under widely varying and complex conditions. Interoperability demands have yielded results of protocol complexity.

In other words: Where is the appropriate place for standards? You have to decide in advance who your customer is and realize that what one customer set wants the other may hate. What then do you do? Do you give away something proprietary like Skype and capture huge user base? Or, if you aren’t going to give it away, do you need something like SIP to make it interoperate? There is great deal of truth that vendors develop technology that their big industrial customers will like. But technology that pleases these big companies is not necessarily technology that pleases end users. CIisco’S 40 gig router being a case in point - the carrier customers want it but do they represent a market with enough longevity to justify Cisco’s investment?

In the VoIP world David Reed recommends: Ride the commoditization curve of Instant Messaging instead of trying for monopoly rents. But I ask: How do you create wealth through commoditization? Enabling the power of what one person can do to move to the edge? And then develop loose networks of on-call specialists?

Skype and the Enterprise

What I am seeing with Skype that is new and different is that, since it is a soft phone, it becomes entirely freed from the old legacy infrastructure of physical network boundaries and devices from the switches in the network center to the PBXs and the like at the edges. It really does have a Greenfield to grow from in a way that nothing in more than 100 years of wire line voice communication has ever had before. Free, unencumbered, and viral it will give the enterprise fits!

However, as Melissa Davis points out, enterprises - especially the larger ones - have information and data security requirements that are legal and fiduciary and cannot therefore be lightly dismissed. Because of these requirements, Skype ­ as it now stands - is unwelcome in a corporate network. Skype, as a proprietary application installable on a corporate desktop and one that uses the open port 80 connection by which corporate employees can surf the web to send encrypted data streams through the corporate firewall, is a security risk. In effect, Skype breaches the Maginot line that is the central definition of corporate security. Here the penetration is really unique since it goes from the inside out. Coping with this demands quite a role reversal for the security managers who are trained to protect against incursions that come from the outside world.

While the ordinary telephone facilitates communication in a way that is congenial to corporate hierarchy, Skype with it’s buddy lists, and its ability to conference in five callers with a few mouse clicks and its ability to keep audio channels to people on the outside open all day long represents a huge threat to both the real and perceived need to guard corporate information. For an eloquent description of what is being described, readers are invited to turn to pages 105 through 107 where Melissa and David Reed (two people with very different perspectives) debate and, in the end, arrive at a shared understanding of the issues.

The enterprise aspect of all this is a major issue. There is substantial money in enterprise voice. I predict that Skype-like softphones will penetrate the corporation. The advantages of collaboration by freeing professionals to use to use these collaboration tools that are so intimately bound up with their PCs and that leverage Instant Messaging with retainable reviewable archives of every use are too great to be kept forever at bay except by the most fortress like institutions. The major unknown is how quickly the penetration will occur.

The discussion in this issue explores several scenarios. There is some evidence that some enterprises may be exploring customized versions of Skype. Skype may itself bring out a version designed to alleviate security concerns. There are also emerging soft phone alternatives from Nimcat Networks, Popular Telephony and before long others that will offer voice communication integrated with broadband networks rather than with the old wireline PSTN.

Skype as a Second Generation of VoIP

I am concluding that the profound story here in “VoIP land” is not Vonage and Cisco's "stuff," or SIP, or IP PBXs etc - this "stuff", one way or another is tied to hardware and not surprisingly to the phone system and its related hardware. What I am increasing certain of is that Skype represents a second generation of VoIP that will have a far more profound impact than the first generation.

The phone as software does not begin nor end with Skype. Analysts had better study Google’s emerging local services. Google is building a directory of local businesses that is keyed to maps that are far superior to anything done so far by Map Qwest. It is likely that Google will begin to offer these businesses its own Skype-like soft phone services. Do a local merchant search. Click on the phone icon that Google returns for a business and open a voice connection with the merchant. It is doable now. We have reports that Google is testing it in the United Kingdom

The reaction of many people is going to be” “Why would I use my computer to talk to someone rather than the telephone?” Let me say only that this immersion in Skype and softphones has left me with the conviction that, when people try it, they will find the experience to be so comfortable and productive that they would go back to the old way of doing things only with great reluctance.

A New View of Broadband

The past three months has encouraged me to see broadband in a wholly new way. Broadband is like a fertilized field on which new crops and creativity will be grown.

While the user-controlled or switch-controlled lightwaves we looked at over the past two months are tied to fiber and switches and huge band width and therefore relevant to research entities and enterprises, this equally profound instant voice "stuff" is not dependent on its users having access to their own special dedicated hardware and big infrastructure and therefore it is NOT dependent on getting a start in enterprises that can give its employees the dedicated layer one and layer two switches as is required for User Controlled Light Paths.

Instead, this "stuff" (Skype), free and viral, is tied only to one thing. To BROADBAND and its underlying infrastructure. It could care less whether it rides over DSL or cable modem. It does both with equal ease. And now it is being freed to ride on mobile. Namely on Wi-fi and cell phones. Skype certainly depends on all the existing layers of the protocol stack. In that sense there is nothing magical about it. In depending on broadband it has to depend on the infrastructure that enables broadband. However, while end user premises and connections would need some serious upgrades to run end user-controlled lightwaves, these same end user connections, if they deliver broadband, can deliver Skype without any changes to the underlying network infrastructure.

Skype represents a hub to which many different means of communication can be tied, if you have broadband. The emphasis here (with Skype) is that communication is portable and tied to the individual and not to a phone company or a phone network. The lesson is that there are many different pieces here that can be tied together in fascinating ways and, when we are done, anyone who tries to control its users or keep them within the bounds of their network - looses.

Years ago SIP had a glimpse of the future with “presence” and a series of imaginative activities that could flow from it. But, through no fault of its own, SIP, has lost by being forced to fit what it did on top of the enterprise and PSTN voice networks, and by being forced to be interoperable with legacy infrastructure. Wrong.

Wrong -- in that the only thing that you have to fit voice as a bucket of bits into is packets that ride on TCP/IP or maybe even UDP broadband data pipes. In such an environment, broadband is a foundation for everything else. It is so in a way that I believe is not yet well understood.
Skype will move forward in the rest of the world whether the enterprise likes it or not, and the applications that will grow up around Skype will give broadband another huge push that just email and the web cannot. But tragically, this newly productive world is not so likely to flourish in the US because of roadblocks of ideology and ignorance of key elements of technology. Having won at the FCC, the ILECs have a full court press going in the state legislatures. The outcome may be grim.

Broadband is infrastructure. It is not frivolous entertainment designed to be delivered by private enterprise for the benefit of the stockholders. Wireless muni-nets are under siege while advanced fiber transmission capabilities are increasing beyond what could be imagined a year ago. One thousand channel wave length multiplexing in a single optical fiber was demonstrated in early March over a 126 kilometer distance in Japan. See http://www.ntt.co.jp/news/news05e/0503/050308.html

A ubiquitous bandwidth utopia, is achievable rather than the current scarcity model. But nothing will be gained until we rediscover that governments do exist to maintain water, sewer, electricity and roadways and the people of a local community deserve sufficient respect from their local politicians to be allowed to invest in and build their own economic foundation rather than being kept subject to the duopoly of the ILEC and Cable Co.

Contents

Accelerating Growth of Skype Marks New Approach to Voice Communication - Meanwhile Enterprise VoIP Grows but Requirements Very Different from Single User, Small Business World of Skype Adoption p. 1

Is VoIP No Longer an Appropriate Term for Thinking About the Kind of Communication Represented by Skype? Some Further Points of View on the Meaning and Role of Skype p. 9

Interview

An Introduction to the World of Skype
Skype Specialist Stuart Henshall Evaluates Skype’s Strategy of Moving Voice and Real Time Collaboration to Wherever Broadband is Present p. 13

Symposium Discussion December 1 - January 4, 2005–

Sype versus SIP: a Debate Between the “It Just Works”
Point of View and the Standards Based, Interoperability World View p. 23

Symposium Discussion - January 4 - 15, 2005

Some Broader Issues Involving the Bluring of Boundaries of
VoIP in the Telephony Wireless and Enterprise Worlds, p. 40

A Balkanization of Personal and Enterprise Communication Trends p. 40
Multiple VoIP Markets p. 41
Skype Interconnectivity p. 42
Meshed Up Neighborhoods p. 43
Skype Marches On p. 45
Access to Broadband p. 45
Viral Communications p. 46
“Harmonizing” Discordant Systems p. 47
Intel Backs Municipal Broadband p. 48
The Window of Opportunity for ENUM is Closing Fast p. 49
Two Parts of VoIP p. 51
Competition and Wireless Paths - WiMAX Troubles p. 51
Impact of Smart Design on Wireless Cost p. 53
How to Think about the Strategy of Power in Terms of Part 15 p. 53
An Almost Hopeless Complexity of Variables Involved in Service Pricing p. 55

Interview

Skype Seen as “Instant Voice-Integration” of Multiple Forms of Communication into Broadband Based Collaboration -- Improved Audio Codecs, P2P Architecture, & Other Features May Push Skype like “Instant Voice” Softphones into New Areas --James Enck Explores Possible Impact on Wireline and Mobile Carriers. p. 57

Symposium Discussion: January 15- February 6, 2005

How VoIP Mixes with Wireless, the
Enterprise and other Markets

Symposium Discussion: February 6 - 22, 2005

Skype, SIP, the Enterpriseand Security

Symposium Discussion: February 23 - March 3, 2005

VoIP Economic, Quality and Network Traffic Issues

VoIP Adoption Curves, p. 117
With Regard to Architecture and Economics all VoIP is not Alike, p. 118
More on Muni Networks (Texas and Colorado) p. 119
QoS OpEx Economics - Flows or UCLP? p. 122
Technical Aspects of VoIP Traffic Shaping on Wi-fi Network p. 124
Successful Video Accommodation by Microsoft’s IPT Platform p. 126
Voice, Caspian, Broadband and Korea, p. 127
IMS in the Mobile World p. 128

Symposium Discussion: March 3 - 7, 2005

Some VoIP Regulatory Issues

Highlights p. 151

Executive Summary p. 180

Side Bars

Symposium and Interview Contributors to this Issue

Affiliation given for purposes of identification - views expressed are those of the contributors alone

Nigel Ballard, Wireless Director, Matrix Networks, proprietor of joejava.com
Jim Baller, Partner in Baller Herbst law firm & Expert on Municiple Networks
Sebastian Buettrich is a technology strategist who founded wire.less.dk in 2002
Mike Cheponis, wireless consultant, antenna design specialist
Frank Coluccio, President DTI Consulting, NYC, high-capacity optical netw’k consultant
Peter Cohen, consultant and peering specialist for Telia
Melissa Davis, optical network architect with RS Information Systems
Peter Ecclesine, Technology Analyst, Cisco
James Enck, Securities Analyst & proprietor of Eurotelcoblog
Jim Forster, Distinguished Engineer, Cisco
Martin Geddes, consultant and author Telepocalypse
Vijay Gill, Director Peering, America on Line
Alex Goldman, Editor ISP Planet Jupiter Media
Steve Heap, CTO of Arbinet a bandwidth broker and VoIP Traffic terminator
Sebastian Hassenger WebSphere Market Strategy and Planning IBM Software Group
Stuart Henshall, consultant and author of Unbound Spiral and Skype Journal
Tom Hertz, CTO, Opportunity Iowa
Dave Hughes, owner Old Colorado City Communications and wireless advocate
Cullen Jennings, SIP & VoIP Security Expert Cisco
Patrick Leary, Wireless Evangelist, Alvarion
Tony Li, Router Architect at Cisco, Juniper and Procket, recently returned to Cisco
Malcolm Matson,British entrepreneur and Director of OPLAN Foundation
Franscois Menard, Canadian policy expert and municipal fiber network architect
Andrew Odlyzko, Director Digital Technology Center, University of Minnesota
Dave O’Leary, Juniper Networks
David Reed, Internet pioneer, spectrum policy expert, currently with Media Lab & HP
Jere Retzer, Sr Mgr, Next Generation Networks, Oregon Health & Science University
Larry Roberts, Arpanet Pioneer, CEO Anagran
Bill St Arnaud,Director Ca*Net4 , Canarie, Canada
David Sandel, CTO, NetLabs LLC, St Louis
Chris Savage, elecom attorney and partner at Cole, Raywid & Braverman in Wash. DC
Henning Schulzrinne, Professor and Chair in the Dept. of Computer Science, Columbia University
Ron Sege, CEO Tropos
Raj Sharma, President of Nextone a VoIP systems integrator
Richard Stastny, Austrian Telecom author VOIP and ENUM Blog
Richard Shockey, Senior Manager, Strategic Technology Initiatives, NeuStar Inc.
Jim Southworh, former chair DSL forum, VP Concentric. Now Secure Pathways CEO
Jeff Sterling, Interconnected Associates, Bellevue, Washington
Matt Wenger, Product Manager North America, PacketFront
Damien Wetzel, Network Consultant Paris, Formerly with Akamai and Internap
Ron Yokubaitis, CEO Giganews