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.

-Ian.

— http://story.news.yahoo.com/news?tmpl=story&ncidR8&e=1&cidR8&u=/ap/ 20021008/ap_on_bi_ge/worldcom_plea Ex-WorldCom Executive Pleads Guilty Tue Oct 8, 8:14 AM ET

By DEVLIN BARRETT, Associated Press Writer

NEW YORK (AP) – Former WorldCom executive Buford Yates became the second company official in two weeks to plead guilty in the bankrupt company’s multibillion-dollar accounting scandal, insisting that he also was following orders from top-level management.

Yates, the ex-director of general accounting, pleaded guilty Monday to conspiracy and securities fraud as part of a deal with the Manhattan U.S. attorney’s office to cooperate in their investigation of the largest corporate accounting fraud in U.S. history.

Yates said in U.S. District Court in Manhattan that he was instructed by supervisors to misreport expenses, allowing WorldCom to overstate earnings by $5 billion between October 2000 and April 2002.

Echoing the earlier guilty plea of former WorldCom controller David Myers, Yates’ lawyer David Schertler said his client committed the crimes on orders from the “highest levels” within the company.

Myers, in his plea two weeks ago, said he acted on instructions from “senior management.”

Neither defendant would say if that included former chief executive Bernard Ebbers, who has not been charged but is under investigation. Ebbers has denied any knowledge of the fraud.

Yates, 46, admitted he helped the company hide billions of dollars in expenses; WorldCom officials have said the financial misstatements total more than $7 billion.

“I came to believe that the adjustments I was being directed to make in WorldCom’s financial statements had no justification and contravened generally accepted accounting principles,” Yates said in court. “I concluded that the purpose of these adjustments was to incorrectly inflate WorldCom’s reported earnings in order to meet the expectations of securities analysts and mislead the investing public.”

Yates’ lawyer said his client had argued against the accounting tricks but was overruled by superiors.

“He strenuously objected to making those adjustments,” Schertler said outside court. “When he raised those objections, he was told they had been approved by the highest levels of WorldCom management.”

After Yates described his role in the massive fraud, U.S. Magistrate Judge Andrew J. Peck said he would recommend to U.S. District Judge Barbara S. Jones that the plea be accepted by the court.

Sentencing was set for Jan. 9. Yates, of Brandon, Miss., faces 10 years in prison and a $1 million fine on the most serious charge of securities fraud.

The Securities and Exchange Commission (news – web sites) also filed a civil lawsuit against Yates for his role in the scheme.

Prosecutors say Yates carried out orders by chief financial officer Scott Sullivan to hide $3.8 billion in expenses to make the telecommunications giant appear profitable.

Myers pleaded guilty last month to securities fraud and is cooperating with prosecutors.

Two other accounting executives who worked directly under Yates are expected to plead guilty as part of cooperation deals with authorities, according to court papers.

Prosecutors say the executives, Betty Vinson and Troy Normand, carried out orders from Sullivan and Myers to disguise the $3.8 billion in operating expenses as capital expenses.

“As Sullivan, Myers, Yates, Vinson and Normand well knew, there was no justification in fact or under generally accepted accounting principles for these entries,” according to the indictment against Yates and Sullivan.

Since the accounting mess first came to light, WorldCom officials have said roughly $7 billion was misreported. More recent reports have placed the figure as high as $9 billion.

Sullivan, who is free on $10 million bond, has maintained his innocence. He is under increasing pressure to cooperate after Yates and Myers’ actions and the expected pleas by Vinson and Normand.

Sullivan’s lawyer, Irv Nathan, has said his client is a victim of a “rush to judgment.”

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