© 2007 Chintan Vaishnav, Engineering Systems Division, Massachusetts Institute of Technology The...

© 2007 Chintan Vaishnav, Engineering Systems Division, Massachusetts Institute of Technology

The end of core:

Chintan Vaishnav, ESD, [email protected]

Should disruptive innovation in telecom invoke discontinuous regulatory response?

© Chintan Vaishnav, All Rights Reserved

May 31, 2007Philadelphia, PA

2© 2007 Chintan Vaishnav, Engineering Systems Division, Massachusetts Institute of Technology

VoIP bridges PSTN and the Internet! Should we care?

Router

Router

Router

Router

VoIP -- Packet-SwitchedCommunication

Switch Switch

The PSTN Circuit-SwitchedTelephony

END-DEVICES

CORE

Regulated

Unregulated

The broad regulatory question: Should VoIP be regulated like the PSTN, unregulated like the Internet or should there be a third approach?


Modes of VoIP

Mode Service Example Regulatory Term

Phone-to-Phone VoCable, VoDSL, Vonage, 8x8

“interconnected” service

(i.e. PSTN interconnection)

PC-to-Phone SkypeOut,Net2Phone “interconnected” service

PC-to-PC Skype, Yahoo, IM, Google Chat

“unmanaged” service

(i.e. no PSTN interconnection)


Regulatory Response PSTN vs. VoIP

US Telecom Regulation

Paradigm Traditional Regulation

Objective PSTN Phone-to-

Phone VoIP

PC-to-Phone VoIP

PC-to-PC VoIP

Social Regulation

911/E911 Public Safety

Wiretapping (CALEA)

Law Enforcement Capability

Disability Access

Equal Opportunity

Economic Regulation

Universal Service

Economic Development

Access Charges

Competition

“Light Touch” Regulation: Traditional 911/E911 and CALEA regulation extended only to “interconnected” VoIP services


Why is this Interesting?

Public Safety and Law Enforcement are perceived to be more relevant today then ever before…

Question:

Is 911/E911 and CALEA regulation of “interconnected” VoIP service…

- adequate and sustainable? - mindful of technical and human complexities?


Observation: Telecommunications regulation assumed a network core that…

- could be engineered to fulfill regulatory objectives- was controlled by an industry structure that could do the engineering

Argument: Disruptive trends such as VoIP erode assumed control in the core

Hypothesis:

With eroding control in the core meeting regulatory objectives will increasingly require discontinuous regulatory responses

Observation and Hypothesis


e.g. Ciscoe.g. Dell, Palm,User-innovatore.g. municipal

broadband

e.g. earth link(Pkt-switching)

e.g.SkypeOut,User-innovator

Observing and Conceptualizing The End of Core

CoreEndDevice

END-DEVICE

PROVIDER

APPLICATION

PROVIDER

SERVICE PROVIDER

ACCESS

PROVIDER

EQUIPMENT

PROVIDER

Communications Value Chain

VoIP

PSTN e.g. Lucente.g.AT&T, MCI, Sprint

(Circuit-switching) e.g. Uniden

1

Functions of a typical voice call

Setup & terminate the call (call signaling)

2 Voice transport (bit transport)

3 Secure the channel

4 Maintain user privacy

5 Billing forvoice service

1 2 3 4 5

12 3 45


The End of Core

Functionality is Dispersing to End-Device

+

The Ownership of the Core is Fragmenting

=

The End of Core


The implications of the End of Core for Regulation

The End of Core can cause…

Regulatory misalignment (Static Complexity): Between those who must meet the regulatory requirements versus those who control the functionality necessary to meet them

Regulatory Misalignment can cause… may require…• Inefficiency in achieving regulatory compliance• Regulatory capture by new players

Discontinuing access-centric regulatory thinking…and understanding the complexity of the value chain


The implications of the End of Core for Regulation

The End of Core can also cause…

Circum-innovation (Dynamic Complexity): By user-innovators (a customer with the necessary knowledge to innovate) who can introduce innovations that might, intentionally or otherwise, circumvent regulatory objectives

Circum-innovation can cause… may require…• arms race between proponents of compliance and non-compliance

Discontinuing command-and-control regulatory thinking…and understanding a collaborative model of regulation


Research Method

System Dynamics Model

• Refine the Causal Structure

• Construct Validity using real-world data

• Analysis

Field Research

• Internal Validity of the Model Causal Structure

• Understanding Circum-Innovation


Causal Structure of the System Dynamics Model

Compliance Gap

Actual RegulatoryCompliance

-

DesiredRegulatoryCompliance

+

Compliance GapRegulation


+

-


+



+

+

-B1

Current RegulatoryRationale


+

Deployment ofCompliant

Technology+



+

+

-B1



+

RegulatoryMisalignment

FunctionalityDispersion toEnd-Devices

+-

OwnershipFragmentation of

the Core

+


Technology+



+

+

-B1


Cost ofCompliance


+



+-


the Core

+


Technology+

+

Attractiveness of"Interconnected"

VoIP



+

+

-B1


Cost ofCompliance

-


+

Attractiveness of"Unmanaged" VoIP

+



+-


the Core

+


Technology+

+


VoIP



+

+

-B1


Cost ofCompliance

-


+


+



+-


the Core

+


Technology+

+

innovation forcompliance cost

reduction

-

-

Compliance CostReduction

B2


VoIP



+

+

+

-B1


Cost ofCompliance R1

Loss of Compliance throughDisincentive for

"Interconnected" Service

-Firms entering

"interconnected"VoIP market


+


+



+-


the Core

+

"Interconnected"VoIP Adoption

+

+


Technology+

+


reduction

-

-


B2


VoIP



+

+

+

-B1





-Firms entering



+


Firms entering"Unmanaged"VoIP market

++

R2

Loss of Compliance throughIncentive for "Unmanaged" Service



+-


the Core

+


+

+

"Unmanaged"VoIP Adoption

+

-


Technology+

+


reduction

-

-


B2


VoIP



+

+

+

-B1





-Firms entering



+


Firms entering"Unmanaged"VoIP market

Innovation inVoIP

++

R2

Loss of Compliance throughIncentive for "Unmanaged" Service



+-


the Core

+

+

Circum-innovation

Circum-innovationFraction

+

-

+


+

+

"Unmanaged"VoIP Adoption

+

-

R3

Loss of Compliancethrough

Circum-Innovation


Technology +

+

+


reduction

-

-


B2

<FunctionalityDispersion toEnd-Devices>

+

# - quantitative data

#

#

#

#

#

#

#

#

- Field Research


Summary of Field Research

Involving: Firms offering “interconnected” and “unmanaged” VoIP service

Investigate:1. How and why does the regulatory misalignment affect the deployment

of compliant technology?

2. How and why does the compliance cost affect the choice of technology to develop?

Field Study 1

Involving: Circum-innovations affecting 911/E911 and CALEA Compliance

Investigate: 1. How and why circum-innovations impact the regulatory compliance?

Field Study 2


Description of Data Collection

Theoretical Construct Proxy Type

Functionality Dispersion % Voice Traffic that is PC-to-Phone + PC-to-PC VoIP

Time Series

Ownership Fragmentation Market share of PC-to-Phone + PC-to-PC VoIP

Time Series

Desired Regulatory Compliance

Number of “interconnected” VoIP Firms

Time Series

Actual Regulatory Compliance Number of 911 and CALEA compliant “interconnected” Firms

Quant.

Level of Compliant VoIP Use % Voice Traffic that is “interconnected” VoIP

Time Series

Innovation Rate TBD Time Series

Compliance Cost Average Cost of a PSTN Wiretap

Quant.

Quantitative data from FCC, industry reports and trade magazines


Desired Contribution

ESD / Telecom Policy

1. Explaining dynamic complexity involved in the regulation of VoIP2. Increasing the ability to communicate risks and opportunities in regulating

the emerging communications technologies from the perspective of socio-technical systems

Innovation Theory Literature

3. A framing paper on the dynamics of regulation and innovation

Internet Architecture Literature

4. Extending the “tussle in cyberspace” work by one step with a paper on “tussle for surveillance and its impact on the Internet architecture”

System Dynamics Literature

5. A comprehensive paper on the system dynamics modeling of the communications industry

© 2007 Chintan Vaishnav, Engineering Systems Division, Massachusetts Institute of Technology

The end of core:

Chintan Vaishnav, ESD, [email protected]

Should disruptive innovation in telecom invoke discontinuous regulatory response?

© Chintan Vaishnav, All Rights Reserved

Committee:

Prof. Charles Fine (Chair)

Dr. David Clark

Prof. John Sterman

Thank You!



AdoptionSector

Innovation Sector

Ind. Struct. Sector

Ind. Struct. Sector

Regulatory Compliance Sector

ActualRegulatoryComplianceCompliance

Deployment Rate

ComplianceObsolescense Rate


ComplianceGap

-

+

+

UnmanagedVoIP Firms

InterconnectedVoIP Firms

UnmanagedMarket Entry

UnmanagedMarket Exit

InterconnectedMarket Entry

InterconnectedMarket Exit


Deployment Rate



+

ComplianceGap

-

+

+Time toDeploy

-

FragmentingOwnership

DispersingFunctionality

++

UnmanagedVoIP Firms







Deployment Rate



+

ComplianceGap

-

+

+Time toDeploy

-

Compliance Cost

+

+

-



++

PSTN Users

InterconnectedVoIP Users

UnmanagedVoIP Users

PSTN-UnmanagedMigration

PSTN-InterconnectedMigration

Interconnected-Unmanaged

Migration

Level of Use ofCompliant VoIP

-

+

Demand forUnmanaged VoIP

Demand forInterconnected

VoIP

+

+

UnmanagedVoIP Firms






+

+


Deployment Rate



+

ComplianceGap

-

+

+Time toDeploy

-

Compliance Cost

+

+

-

Unmanaged-Interconnected

Migration



++

PSTN Users


UnmanagedVoIP Users




Migration


-

+



VoIP

+

+

UnmanagedVoIP Firms






+

+


Deployment Rate



+

ComplianceGap

-

+

+Time toDeploy

-

Compliance Cost

+

+

-

Price ofInterconnected VoIP

Price ofUnmanaged VoIP

-

-

Attractiveness ofInterconnected

Service

Attractiveness ofUnmanaged Service

-

+

-

+


Migration

+

+

<Price ofInterconnected

VoIP>

<Price ofUnmanaged

VoIP>

+

+



++

PSTN Users


UnmanagedVoIP Users




Migration


-

+



VoIP

+

+

UnmanagedVoIP Firms






+

+


Deployment Rate



+

ComplianceGap

-

+

+Time toDeploy

-

Compliance Cost

+

+

-



-

-


Service


-

+

-

+


Migration

+

+

Number of VoIPInnovators

Innovators in Firm

User-Innovators

+

+Innovation Rate+

Circum-innovationFraction Available

Circum-InnovationsCircum-innovaiton

Origination Rate

+

+

VoIP Firms

VoIP Users

+

+<Price of

InterconnectedVoIP>

<Price ofUnmanaged

VoIP>

+

+



++

PSTN Users


UnmanagedVoIP Users




Migration


-

+



VoIP

+

+

UnmanagedVoIP Firms






+

+


Deployment Rate



+

ComplianceGap

-

+

+Time toDeploy

-

Compliance Cost

+

+

-



-

-


Service


-

+

-

+


Migration

+

+


Innovators in Firm

User-Innovators

+

+Innovation Rate+



Origination Rate

+

+

+

ObsolescenseSeverity

+

VoIP Firms

VoIP Users

+

+

Circum-InnovationAdoption

-

AdoptionProbability

+


VoIP>

<Price ofUnmanaged

VoIP>

+

+



++


References

VoIP1. Goode, B. (2002). "Voice over Internet protocol (VoIP)." Proceedings of the IEEE 90(9): 1495-1517.

Technology History2. Fagen, M. D., A. E. Joel, et al. (1975). A History of engineering and science in the Bell System. [New York], The

Laboratories.3. Temin, P. and L. Galambos (1987). The fall of the Bell system : a study in prices and politics. Cambridge ; New

York, Cambridge University Press.4. Abbate, J. (1999). Inventing the Internet. Cambridge, Mass, MIT Press. Telecommunications Regulation (PSTN and VoIP)5. (1934). Communications Act of 1934. 47. U.S.C.6. (1994). Communications Assistance for Law Enforcement Act. 47. U.S.C.7. (1996). Telecommunications Act of 1996. 47. U.S.C.8. (2004). Notice of Proposed Rulemaking: Communications Assistance for Law Enforcement Act and Broadband

Access and Services. WC Docket No. 04-295.9. (2004). Notice of Proposed Rulemaking: IP Enabled Services. WC Docket No. 04-36.10. (2005). E911 Requirement for IP-Enabled Service Providers. WC Docket No. 05-196.11. Nuechterlein, J. E. and P. J. Weiser (2005). Digital crossroads : American telecommunications policy in the Internet

age. Cambridge, Mass., MIT Press.12. Laffont, J.-J. and J. Tirole (2000). Competition in telecommunications. Cambridge, Mass., MIT Press.

The End of Core (Internet Architecture and Industry Structure)13. Clark, D. D. (1988). "The design philosophy of the DARPA Internet Protocols." SIGCOMM Comput. Commun. Rev.

25(1): 102-111.14. Saltzer, J. H., D. P. Reed, et al. (1984). "End-to-end arguments in system design." ACM Trans. Comput. Syst. 2(4):

277-288.15. Blumenthal, M. S. and D. D. Clark (2001). "Rethinking the design of the Internet: the end-to-end arguments vs. the

brave new world." ACM Trans. Inter. Tech. 1(1): 70-109.


16. Clark, D. D., J. Wroclawski, et al. (2002). Tussle in cyberspace: defining tomorrow's Internet. Proceedings of the 2002 conference on Applications, technologies, architectures, and protocols for computer communications. Pittsburgh, Pennsylvania, USA, ACM Press: 347-356.

17. Clark, D. D., W. Lehr, et al. (2005). The Growth of Internet Overlay Networks: Implications for Architecture, Industry Structure and Policy. Technology Policy Research Conference, Arlington, VA.

18. Vaishnav, C. (2005). Voice over Internet Protocol (VoIP): The Dynamics of Technology and Regulation. Technology and Policy Program. Cambridge, Massachusetts Institute of Technology: 166.

19. Vaishnav, C. and C. H. Fine (2006). A dynamic assessment of VoIP innovation, adoption and their interaction with CALEA regulation. Technology Policy Research Conference, Arlington, VA.

Innovation20. Utterback, J. M. and W. J. Abernathy (1975). "Dynamic Model of Process and Product Innovation." Omega-

International Journal of Management Science 3(6): 639-656.21. Abernathy, W. J. and J. M. Utterback (1978). "Patterns of Industrial Innovation." Technology Review 80(7): 40-47.22. Dosi, G. (1982). "Technological Paradigms and Technological Trajectories - a Suggested Interpretation of the

Determinants and Directions of Technical Change." Research Policy 11(3): 147-162. 23. Anderson, P. and M. L. Tushman (1990). "Technological Discontinuities and Dominant Designs - a Cyclical Model of

Technological-Change." Administrative Science Quarterly 35(4): 604-633.24. Henderson, R. M. and K. B. Clark (1990). "Architectural Innovation - the Reconfiguration of Existing Product

Technologies and the Failure of Established Firms." Administrative Science Quarterly 35(1): 9-30.25. Christensen, C. M. and R. S. Rosenbloom (1995). "Explaining the Attackers Advantage - Technological Paradigms,

Organizational Dynamics, and the Value Network." Research Policy 24(2): 233-257.

Research Methods26. Sterman, J. (2000). Business dynamics : systems thinking and modeling for a complex world. Boston, Irwin/McGraw-

Hill.27. Fine, C. H. (1998). Clockspeed : winning industry control in the age of temporary advantage. Reading, Mass.,

Perseus Books.28. Nelson, R. R. and S. G. Winter (1982). An evolutionary theory of economic change. Cambridge, Mass., Belknap

Press of Harvard University Press.

References (Contd.)


Description of Data Collection

Theoretical Construct Proxy Data (Unit) Type Source

Functionality Dispersion % Voice Traffic that is PC-to-Phone + PC-to-PC VoIP

• Number of PC-to-Phone Users (Users)• Number of PC-to-PC Users (Users)• Number of Phone-to-Phone Users (Users)• Number of PSTN Users (Users)• Average PSTN MOU (MOU/Month)• Average PC-to-PC MOU (MOU/Month)

Time Series

• Industry Report (triangulation)• Industry Report (triangulation)• FCC• FCC• FCC• Industry Report (triangulation)

Ownership Fragmentation Market share of PC-to-Phone + PC-to-PC VoIP

• Price of PC-to-Phone Service ($/Min)• Price of PC-to-PC Service ($/Min)• Price of Phone-to-Phone Service ($/Min)• Price of PSTN Service ($/Min)

Time Series

• Industry Report (triangulation)• Industry Report (triangulation)• FCC• FCC

Desired Regulatory Compliance

Number of “interconnected” VoIP Firms

• Number of Phone-to-Phone Firms (Firms)• Number of PC-to-Phone Firms (Firms)

Time Series

• Industry Report (triangulation) + FCC

Actual Regulatory Compliance

Number of 911 and CALEA compliant “interconnected” Firms

• FCC CALEA Compliance Filings (Firms)• FCC 911/E911 Compliance Filings (Firms)• % Authorized Wiretaps Successful (%)

Quant. • FCC• FCC• US Courts

Level of Compliant VoIP Use

% Voice Traffic that is “interconnected” VoIP

• Number of PC-to-Phone Users (Users)• Number of Phone-to-Phone Users (Users)• Average PSTN MOU (MOU/Month)

Time Series

• Industry Report (triangulation)• FCC• FCC

Innovation Rate TBD • VoIP Patents• VoIP Product Announcements

Time Series

• USPTO• Trade Magazines

Compliance Cost Average Cost of a PSTN Wiretap

• Average of Cost per Wiretap Order ($/Order)

Quant. • US Courts

Qualitative Understanding from Case Studies

Compliance Cost Effect of Regulatory Misalignment on Deployment of Compliant Technology

Effect of Compliance Cost Technology Choice Effect of Circum-innovation on Compliance



AdoptionSector

Innovation Sector

Ind. Struct. Sector

Ind. Struct. Sector

Regulatory Compliance Sector


Deployment Rate



ComplianceGap

-

+

+

UnmanagedVoIP Firms







Deployment Rate



+

ComplianceGap

-

+

+Time toDeploy

-



++

UnmanagedVoIP Firms







Deployment Rate



+

ComplianceGap

-

+

+Time toDeploy

-

Compliance Cost

+

+

-



++

PSTN Users


UnmanagedVoIP Users




Migration


-

+



VoIP

+

+

UnmanagedVoIP Firms






+

+


Deployment Rate



+

ComplianceGap

-

+

+Time toDeploy

-

Compliance Cost

+

+

-


Migration



++

PSTN Users


UnmanagedVoIP Users




Migration


-

+



VoIP

+

+

UnmanagedVoIP Firms






+

+


Deployment Rate



+

ComplianceGap

-

+

+Time toDeploy

-

Compliance Cost

+

+

-



-

-


Service


-

+

-

+


Migration

+

+


VoIP>

<Price ofUnmanaged

VoIP>

+

+



++

PSTN Users


UnmanagedVoIP Users




Migration


-

+



VoIP

+

+

UnmanagedVoIP Firms






+

+


Deployment Rate



+

ComplianceGap

-

+

+Time toDeploy

-

Compliance Cost

+

+

-



-

-


Service


-

+

-

+


Migration

+

+


Innovators in Firm

User-Innovators

+

+Innovation Rate+



Origination Rate

+

+

VoIP Firms

VoIP Users

+

+<Price of

InterconnectedVoIP>

<Price ofUnmanaged

VoIP>

+

+



++

PSTN Users


UnmanagedVoIP Users




Migration


-

+



VoIP

+

+

UnmanagedVoIP Firms






+

+


Deployment Rate



+

ComplianceGap

-

+

+Time toDeploy

-

Compliance Cost

+

+

-



-

-


Service


-

+

-

+


Migration

+

+


Innovators in Firm

User-Innovators

+

+Innovation Rate+



Origination Rate

+

+

+

ObsolescenseSeverity

+

VoIP Firms

VoIP Users

+

+

Circum-InnovationAdoption

-

AdoptionProbability

+


VoIP>

<Price ofUnmanaged

VoIP>

+

+



++

© 2007 Chintan Vaishnav, Engineering Systems Division, Massachusetts Institute of Technology The...

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Transcript of © 2007 Chintan Vaishnav, Engineering Systems Division, Massachusetts Institute of Technology The...