The end of landlines: No phone numbers and no international calling charges

Most of us already live in a world where voice minutes are moot. But what about a world where international long-distance costs don’t matter, or phone numbers are rendered completely irrelevant? All of these are relics of the circuit-switched copper phone network, and if AT&T gets its way those things could all go by the wayside. We’ll enter the VoIP future and drag everyone who isn’t already making Skype calls or subscribing to digital voice lines with us.

On Wednesday, AT&T said it would spend $14 billion to boost access to its wireline and wireless networks over the next three years as it hopes to get out of running an old-school copper phone business. As Om pointed out, it’s the end of an era. But before we can move forward there are several issues that must be dealt with — from broadband and VoIP access for all to the role of the FCC, which will have to fight for relevance and regulatory power in an all-IP world.

And if you think that the world has already gone VoIP, you’re wrong. The FCC counted 192 million circuit-switched lines in 2001. By mid-2011,there were still 112 million lines. Because of the prevalence of the original network, most calls made still touch the original copper network at some point. Even your cell phone calls.

I think I was too hard on AT&T in my initial post on the topic, even though I did say I think moving off the PSTN (public switched telephone network) is the right thing to do for the company, and most of the problems associated with that move will have to be handled by the FCC. After reading its filing, talking to others in the telecommunications world and learning a bit more about some of the products it wants to offer, I think that Ma Bell is going about this in the best way possible. It has even taken proactive steps ahead of making this announcement to participate in an exchange that could become the model for how VoIP providers interconnect in the future.

VoIP versus landlines

To understand what’s at stake here it’s worth thinking about how the old voice market is different from the IP world. They are fundamentally different networks, although almost all calls (even VoIP ones) end up touching the PSTN network at some point in time. And that means the legacy of the old phone networks are still with us. Things like phone numbers, long-distance charges and even charging by minutes, which could theoretically disappear in a new all-IP world. The old voice networks are regulated by arcane rules that require all parties to connect calls and in doing so they get paid. This was beneficial for consumers because otherwise Verizon (s vz) might refuse to connect a call from AT&T (s T), leaving the two phone subscribers unable to chat, but it also led to distortions in the market.

This framework also led to the providers controlling telephone numbers (remember when you couldn’t port a telephone number, which means you may have stayed with a crappy provider for fear of having to tell everyone a new number?) and things like a minute of voice calling costing a hundred thousand times more than the cost of a minute of voice calling over IP. And as the world moved to VoIP, companies like Verizon and AT&T have to support two different networks, the IP network and the TDM network based on circuits. This is expensive, and that’s why AT&T would like to dump its obligations to operate and have a TDM network.

Meet a startup taking advantage of this transition

So how can it do this? Given that telecommunications services are tightly regulated around the world and IP services (which in the U.S. the FCC classifies as information services) aren’t, AT&T is trying to goad the FCC into taking up the issue. But it’s not stopping there. AT&T is one of three companies that are part of VCXC, a non-profit organization that is trying to create the equivalent of an internet exchange point (IXP) for the VoIP market.

Ooma handset.

It’s founder, Daniel Berninger, also founded Vongage and Free World Dialup and has said his goal is to change the voice market. He told me that so far he feels like he has failed, but with VCXC he thinks his time has come. Remember that the old-school voice market and the IP bandwidth markets are two separate markets? Well, the internet market has clusters of gear in offices and data centers around the country where different networks interconnect. These are called Internet Exchange Points, and they are a key reason that bandwidth is so cheap and ¬†they explain the redundant nature of the web.

Berninger wants to create the equivalent of an IXP for the voice market via his non-profit that helps link the TDM and VoIP networks without getting the FCC and its rulemaking involved. Already AT&T, and Ooma, the VoIP equipment and service provider, are members of this VCXC exchange. The goal of the exchange is to establish rules and rates for VoIP interconnection, without each service provider having to negotiate with one another. The deals might look like this VoIP interconnection deal Verizon and signed last year, but would avoid the work of having to sign sperate deals with every single provider.

“We want to erase the lines between voice communications and bandwidth as much as possible,” Berninger said. “Our members will exchange as much voice traffic as possible on the exchange and protect that traffic from fees.”

The role of the FCC in a VoIP world

It also will protect that traffic from the FCC’s regulations because it can be labeled as an information service as opposed to a telecommunication service. But this is a fraught issue for the agency. As we move to an all-IP world (and the FCC says this will happen in 2018) the agency will face questions over its authority to regulate the bits making up our phone calls. For a deep dive into this issue, read this post, but the short version is that the agency has very clear authority to make rules over traffic deemed telecommunications and murky authority over IP traffic. That’s one of the primary issues that Verizon is arguing in its court challenge of the agency’s network neutrality regulations — that the FCC can’t tell Verizon or any ISP how to manage its bits because that’s not its jurisdiction.

As voice moves becomes an information service, the FCC has less say over how providers interconnect. At the same time the loss of the PSTN does create public-interest issues where the FCC should have a say. There’s the question of cell phone companies such as Sprint or t-Mobile that buy special access circuits from the carriers. It’s likely that’s rather have fatter IP-based services but in some areas they get the old-school circuits. The FCC will have to look at that.

Another example is AT&T is expanding its LTE high-speed wireless networks to cover 300 million people, and in its call yesterday its executives explained how it will use LTE to deliver voice instead of the PSTN. Verizon is also delivering an LTE-based home broadband product in rural areas. But LTE costs a lot more than a landline and can come with data caps. The FCC may have an interest in making sure those costs are comparable to the landline phone for people who have no other choice, and that those networks are reliable. It’s unlikely that any LTE solution will be as reliable as the PSTN, but there are steps carriers can take at the base stations and towers to help boost the reliability of their service.

If the FCC opens the docket on this topic as AT&T has asked, these conversations and many more will be debated as we move forward from the old analog-based calling world to our digital futures.