The Great Telecom Meltdown Artech House Jan 2005

The Great Telecom Meltdown For a listing of recent titles in the Artech House Telecommunications Library, turn to the back of this book The Great Telecom Meltdown Fred R Goldstein artechhouse.com Library of Congress Cataloging-in-Publication Data A catalog record for this book is available from the U.S Library of Congress British Library Cataloguing in Publication Data Goldstein, Fred R The great telecom meltdown.—(Artech House telecommunications Library) Telecommunication—History Telecommunciation—Technological innovations— History Telecommunication—Finance—History I Title 384’.09 ISBN 1-58053-939-4 Cover design by Leslie Genser © 2005 ARTECH HOUSE, INC 685 Canton Street Norwood, MA 02062 All rights reserved Printed and bound in the United States of America No part of this book may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the publisher All terms mentioned in this book that are known to be trademarks or service marks have been appropriately capitalized Artech House cannot attest to the accuracy of this information Use of a term in this book should not be regarded as affecting the validity of any trademark or service mark International Standard Book Number: 1-58053-939-4 10 Contents Hybrid Fiber-Coax (HFC) Gave Cable Providers an Advantage on “Triple Play” RBOCs Took the Threat Seriously Hybrid Fiber-Coax Is Developed ix 122 123 123 Cable Modems Sparked a Cable ISP Boomlet Fiber to the Home Kept Moving Further into the Future Exuberant Prices for Existing Systems as Industry Consolidated 124 Overbuilding Was Often a Costly Disaster Endnotes 129 130 DLECs and ELECs: An Exercise in Oversupply 133 DSL First Failed as a Video Offering 134 The Telecom Act Invites Novel Use of Unbundled Loops Collocation Did Not Come Cheap ILECs Controlled the Mass Market for DSL 134 134 135 Capital Poisoning Led DLECs to Overexpand Dropping Like Flies Survivors Face the ILECs’ Regulatory Might 136 138 139 Ethernet LECs Were Data CAPs Endnotes 140 142 CLECs’ Winning Strategies Are Met by Rule Changes 145 The Telecom Act Anticipated CAPs and Resellers Total Service Resale Had Little Value or Margin State Commissions Had to Administer Federal Rules Unbundled Network Elements Reduced Capital Needs 146 146 147 147 Initial Strategies for Serving “Classical” Voice Business “Smart Build” and UNE-Loop CLECs 149 149 UNE Platform Displaced Resale and Discouraged UNE-Loop 150 EELs Created an Opportunity to Serve Businesses 152 The ISP Dial-In Business and CLECs: A Match Made in Heaven 152 125 127 Contents xi Preface Acknowledgments xiii Ma Bell and Her “Natural Monopoly,” 1876–1969 Natural and Unnatural Monopoly Western Union Patent Protection The Kingsbury Commitment The Slow Pace of Progress The Smith Decision and Universal Service The Final Judgment Hushaphone and the First Cracks in the Monopoly The Disruptive Transistor Endnotes 10 The Rebirth of Competition 11 Carterfone Made the Network More Valuable 11 Registration Opened up the Floodgates Digitization from the Outside In 12 13 v vi The Great Telecom Meltdown The Integrated Voice and Data PBX Bubble Computer II and the Detariffing of Terminal Equipment 15 18 American Bell and the Embedded Base 19 MCI’s Shared Microwave Opened New Doors Private Line Competition Led to Rate Restructuring Execunet Gives Birth to Competitive Long Distance 20 20 22 Sharing and Resale Had Profound Implications for the Future The ENFIA Agreement Made Subsidies Explicit MCI’s Growth Fueled by Antitrust 23 24 24 Endnotes 25 Divestiture: Equal Access and Chinese Walls 27 Vertical Integration 27 AT&T Kept Out of the Computer Industry Legislative and Antitrust Actions Took Shape 28 29 The Money’s in Long Distance, Right? Long Distance Rate Restructuring Had Been Planned Before Divestiture Birth of the Baby Bells Stopping at the LATA Boundary Access Charges Milked the Monopoly Selecting Equal Access Carriers 800-Number Competition 32 32 34 34 36 38 38 The Centrex Revival 39 Digital Switching Becomes the Norm 40 Digitization of the Transmission Network The First Fiber-Optic Boom 43 43 ISDN Fails to Make a Dent 45 Digital Access Held Hostage to Local Measured Service Broadband ISDN Led to the ATM Boomlet 49 50 Regulators Made the Deal, but Fiber Did Not Make it Home Endnotes 52 53 Contents vii The Internet Boom and the Limits to Growth 57 The ARPAnet Was a Seminal Research Network Other Packet-Switching Technologies Had Their Adherents 57 58 OSI, the Big Committee That Couldn’t TCP/IP Becomes the Standard The Acceptable Use Policy 62 63 64 Commercialization at Last Peering and Tiering 65 66 An Industry Structure Develops 67 Internet Traffic Explodes as the Public Joins Data Traffic Finally Tops Voice Short-Term Versus Long-Term Trends WorldCom Set a Suspicious Pace 69 70 71 72 ISP Pricing Creates Permanent Losses Investors Subsidized Prices 74 76 Dotcoms Create a Demand Bubble 76 Carrier Hotels Created Too Much Room at the Inn 80 The Bubble Bursts in Equipment Manufacturers’ Faces Surplus Gear Met Demand Endnotes 81 82 83 The Deuteronomy Networks 85 The Short-Term Bandwidth Crunch Invited More Suppliers ISPs Wanted Dark Fiber 86 86 Qwest Follows Sprint’s Lead Along the Rails 87 Kiewit Sells MFS, Creates Level 88 Williams Sold Wiltel, Created Another One 90 Metromedia Sold Cellular and Long-Haul, Created MFN 91 XO Communications Recycles Cellular Profits 92 Undersea, Undersea, Under Beautiful Sea 93 List of Acronyms LEC local exchange carriers LMDS Local Multipart Distribution Service LNP local number portability MAC media access control MAE-East Metropolitan Area Ethernet East MAE-West Metropolitan Area Ethernet West MCI Microwave Communications, Inc originally MFJ Modified Final Judgment MFN Metromedia Fiber Network MFS Metropolitan Fiber Systems MPEG Motion Picture Experts Group MPL multischedule private line MSA metropolitan statistical area MSO multiple system operators MTA major trading area MTS message toll service MTS mobile telephone system MTSO mobile telephone serving offices NCP network control protocol NFSnet National Science Foundation network NREN National Research and Education Network NTS non-traffic-sensitive OC optical carrier OEM original equipment manufacturer OSI Open Systems Interconnection OSIRM OSI Reference Model OSS operational support systems 183 184 The Great Telecom Meltdown PARC Palo Alto Research Center (Xerox) PBX Private Branch Exchange PCS personal communications service PDA personal data assistant PIC primary interexchange carrier PoP point of presence PRI primary rate interface PTT Post, Telephone, and Telegraph agencies PUC Public Utilities Commission QoS quality of service RAS Remote Acess Server RBOCs Regional Bell Operating Companies RCC radio common carrier RSA rural service area SBS Satellite Business Systems SCC specialized common carrier SDH synchronous digital hierarchy SDSL symmetric digital subscriber line SMSA standard metropolitan statistical area, later renamed MSA SNA Systems Network Architecture SONET Synchronous Optical Network SPCC Southern Pacific Communications Company SPID service profile identifier STM Synchronous Transport Module STS Synchronous Transport Signal Level TCG Teleport Communications Group TCI Tele-Communications Inc List of Acronyms TCP/IP Transmission Control Protocol/Internet Protocol TDM time division multiplexing TDMA time division multiple access TELRIC Total Element Long Run Incremental Cost TIRKS Trunk Integrated Record Keeping System TRO Triennial Review Order UMTS universal mobile telephony system UNE unbundled network elements UNE-P UNE Platform USTA United States Telecom Association UUCP Unix to Unix Copy Protocol VDSL very-high-speed digital subscriber line VLSI very large scale integration VOD video on demand VoIP Voice over Internet Protocol VSAT very small aperture terminal VTPP Variable Term Payment Plan WAP Wireless Access Protocol WATS wide area telephone service W-CDMA wideband CDMA WDM wavelength-division multiplexing WLL wireless local loop 185 About the Author Fred R Goldstein is principal of Ionary Consulting, where he advises companies on technical, regulatory, and business issues related to the telecommunications and Internet industries, especially in areas where the two overlap He has helped numerous competitive carriers navigate the start-up process, helping them deal simultaneously with technical, regulatory, and business issues He assists service providers in network design, business modeling, planning, and technical architecture He has frequently been an expert witness in intercarrier compensation and network interconnection cases He has worked with enterprise networks on a wide range of matters such as backbone network design, voice systems planning, and traffic engineering Prior to starting Ionary, Mr Goldstein worked for Arthur D Little Inc., BBN Corp., and Digital Equipment Corp A graduate of Skidmore College, he is the author of numerous articles and the book ISDN in Perspective, has served on standards committees in areas such as ATM networks and Frame Relay, and has taught courses for Northeastern University and National Technological University 187 Index CableLabs, 124 CAPI, 48 Carterfone, 9, 11 Cascade Communications, 52 CCITT, 46 Cellular Digital Packet Data (CDPD), 108 Channel bank, 13 Cisco Systems, 64, 81 Code Division Mulitple Access (CDMA), 102, 108 Collocation, 134, 149 Commercial Internet Exchange (CIX), 65 Communications Act of 1934, Computer II, 18 Covad Communications Co., 134, 139 CXC Corp , 18 1ESS switching system, 13, 28, 40, 41 3GPP, 105 3GPP2, 105 5ESS switching system, 41 Above 890 Megacycles, Adams, Scott, 48 Adelphia Communications, 115, 171 Advanced Mobile Phone Service (AMPS), 99 Advanced Networks & Solutions (ANS), 65 Advanced Research Projects Agency (ARPA), 23, 57 Allen, Paul, 129 America Online (AOL), 66, 79 American Telephone & Telegraph Corp (AT&T), 4, 5, 19, 34, 37, 43, 86, 95, 112, 119, 128, 151, 173, 177 ARPAnet, 57 Arthur D Little Inc., 124 Asymmetric Digital Subscriber Line (ADSL), 126, 133, 135 Asynchronous Transfer Mode (ATM), 50 At Home Networks (@Home), 125 Data Access Arrangement, 12 Datapoint, 17, 62 Datran, 21 deButts, John, 29 DECnet , 61 Deutsche Bundepost, 27 Digital Broadband Communications Inc., 137 Digital Equipment Corp (DEC), 16, 17, 60 DMS-10 switching system, 41 DMS-100 switching system, 41 DOCSIS, 125 Domain Name System (DNS), 77 Bell Atlantic Corp., 82, 94, 119, 127, 156 Bell, A G., BellSouth, 165 Berkeley Software Distribution (BSD), 63 Best effort service, 75 Bolt Beranek & Newman Inc., 58, 60, 67, 68 British Post Office , 27 Broadband ISDN, 50, 123 ENFIA, 24, 33 189 190 The Great Telecom Meltdown Enhanced Service Providers, 33 Enron Corp., 171 Equal Access, 32, 37, 38 Ethernet, 17, 140 Execunet, 22 Fiber to the Curb (FTTC), 165 Fiber to the Home (FTTH), 52, 126, 164 Final Judgement, 7, 28 FLAG Telecom, 93 Fowler, Mark, 33 Frame Relay, 51 Genuity Corp., 89 Global NAPs, 153, 161 Gluon Networks , 162 Goeken, William, 20 Gray, Elisha, Greene, Judge Harold, 29, 30 Grubman, Jack, 172 GSM, 101, 108 GTE Corp., 19, 36, 42, 44, 73, 88, 157 Harris Corp., 14 HarvardNet, 138 Heathkit, 12 Heavyside, Oliver, Hushaphone, IBM Corp., 59, 61 Icahn, Carl, 93 IDT Corp , 120 Improved Mobile Telephone System (IMTS), 98 IMT-2000, 105 InteCom, 16 Integrated Services Digital Network (ISDN), 40, 46, 49 Ionica, 121 Kellogg Switchboard and Supply, Kiewit, Peter’s Sons, 89, 115 Kingsbury, Nathan, Level3 Communications Inc., 89 Local Access and Transport Area (LATA), 35 Local Digital Distribution Corp., 122 Local number portability (LNP), 155 Lucent Technologies , 81, 120, 156, 159, 161 Mackay, Charles, 77 marchFIRST Inc., 79 Markey, Edward, 33 MCI Corp., 20, 24, 73, 85, 95, 151, 162 McLeod USA Inc., 121 Merrill Lynch, 114 Metromedia, 91, 100, 115 MFS Communications, 88, 119 Modified Final Judgement, 19, 30 Morgan, J P., Mosaic, 68, 78 Motorola Inc., 97 Natural monopoly, Netscape Communications Corp., 78 NextWave, 103 Northern Telecom (Nortel Networks), 14, 28, 40, 81 Northpoint Communications, 136 NSFnet, 58, 65 Odlyczko, Andrew, 72 Open System Interconnection (OSI), 62 PacWest Telecomm Inc., 153 Powell, Michael, 118, 139, 163 Project Oxygen, 94 Pupin, Michael, Qualcomm Corp., 102, 103, 105 Qwest Corp., 87, 174 Radio common carriers (RCCs), 98 Rate caps, 52 RCN Corp., 129 Reciprocal compensation, 119, 157 Residual pricing, 113 Rhythms NetConnections, 136 Rochester Telephone, 146 ROLM Corp., 14 Roncalio, Teno, 29 Satellite Business Systems (SBS), 114 SBC Corp (Southwestern Bell), 161 Separations and Settlements, 32 Siemens, 28, 42, 161 Signaling System 7, 38 Smith v Illinois Bell, SONET (Synchronous Optical Networks), 45 Sonus Networks Inc., 161 Southern Pacific, 21 Special access, 112 Index Sprint Corp., 36, 74, 95, 137, 148 Strowger, Almon, Switched access, 112 Systems Network Architecture (SNA), 61 T1 transmission system, 13, 43 TCP/IP, 48, 58 Teleport Communications Group, 85 Teletype Corp., 28 Telex, Telica Inc., 161 Teligent, 76, 120 TELPAK, TELRIC, 147, 151, 164 Time Division Multiple Access (TDMA), 102 Triennial Review Order (TRO), 140,164 TWX, United States Telecom Association (USTA), 163 US West Corp., 53, 127 USN Corp., 146 UUNET, 66 191 Vail, Theodore, 10 Van Deerlin, Lionel, 29 Verizon Communications Inc., 90, 95, 138 Vitts Networks, 137 Voice over IP, 160 WATS, 23 Wavelength Division Multiplexing (WDM), 95 Wescom Switching, 14 Western Electric, 2, 3, 5, 14, 40 Western Union, 2, 114, 121 Winstar, 120 Wireless Access Protocol (WAP), 102 Wirephoto, Worldcom Inc., 66, 71, 72, 119, 139, 155, 171, 172 X.25, 46, 51 XCOM Technologies, 89, 156 Xerox Corp., 131, 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