The end of core: Should disruptive innovation in telecom invoke discontinuous regulatory response?

Transcription

1 The end of core: Should disruptive innovation in telecom invoke discontinuous regulatory response? Chintan Vaishnav, ESD, MIT 2007 PhD Colloquium Boston, USA Chintan Vaishnav, All Rights Reserved

2 VoIP bridges PSTN and the Internet! Should we care? The PSTN END-DEVICES Switch Switch Regulated CORE Router VoIP Unregulated Router Router Router The broad regulatory question: Should VoIP be regulated like the PSTN, unregulated like the Internet or should there be a third approach? 2

3 What is the Current Regulatory Response to VoIP? US Telecom Regulation Paradigm Social Regulation Economic Regulation Modes of VoIP Mode Phone-to-Phone PC-to-Phone PC-to-PC Traditional Regulation 911/E911 Wiretapping (CALEA) Disability Access Universal Service Access Charges Service Example VoCable, VoDSL, Vonage, 8x8 SkypeOut,Net2Phone Skype, Yahoo, IM, Google Chat Objective Public Safety Law Enforcement Capability Equal Opportunity Economic Development Competition Regulatory Term interconnected service (i.e. PSTN interconnection) interconnected service unmanaged service (i.e. no PSTN interconnection) Light Touch Regulation: Traditional 911/E911 and CALEA regulation extended only to interconnected VoIP services 3

4 Observation and Hypothesis 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 regulatory responses discontinuous from the past 4

5 Observing and Conceptualizing The End of Core Functions of a typical voice call 1 Setup & terminate the call (call signaling) 2 Voice transport (bit transport) 3 Secure the channel 4 Maintain user privacy 5 Billing for voice service Communications Value Chain EQUIPMENT PROVIDER ACCESS PROVIDER SERVICE PROVIDER APPLICATION PROVIDER END-DEVICE PROVIDER PSTN e.g. Lucent e.g.at&t, MCI, Sprint (Circuit-switching) e.g. Uniden VoIP e.g. Cisco e.g. municipal broadband e.g. earth link (Pkt-switching) e.g.skypeout, User-innovator e.g. Dell, Palm, User-innovator Core End Device 5

6 The End of Core Functionality is Dispersing to End-Device The Ownership of the Core is Fragmenting = The End of Core 6

7 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 Inefficiency in achieving regulatory compliance Regulatory capture by new players may require Discontinuing access-centric regulatory thinking and understanding the complexity of the value chain 7

8 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 arms race between proponents of compliance and non-compliance may require Discontinuing command-and-control regulatory thinking and understanding a collaborative model of regulation 8

9 Research Method System Dynamics Model and Field Research Build a system dynamics model Perform internal validity of the model using field research Perform construct validity by calibrating the model with realworld data Use the model and modeling insights to perform policy analysis 9

10 # Functionality Dispersion to End-Devices # Causal Structure of the System Dynamics Model Regulatory Misalignment Ownership Fragmentation of the Core Cost of Compliance - - B2 Regulation B1 Compliance Gap - Desired Regulatory Compliance Current Regulatory Rationale # Deployment of Compliant Actual Regulatory Technology Compliance - - Compliance Cost Reduction innovation for compliance cost reduction - Attractiveness of "Interconnected" VoIP Loss of Compliance through Incentive for "Unmanaged" Service # Attractiveness of Firms entering "Unmanaged" "Unmanaged" VoIP VoIP market "Interconnected" R3 VoIP Adoption R1 Loss of Compliance through Disincentive for # "Interconnected" Service "Unmanaged" VoIP Adoption R2 # Firms entering "interconnected" VoIP market # # - # - quantitative data - Field Research Loss of Compliance through Circum-Innovation Circum-innovation Fraction Circum-inn ovation Innovation in VoIP <Functionality Dispersion to End-Devices> 10

11 Summary of Field Research Field Study 1 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 2 Involving: Circum-innovations affecting 911/E911 and CALEA Compliance Investigate: 1. How and why circum-innovations impact the regulatory compliance? 11

12 Description of Data Collection Quantitative data from FCC, industry reports and trade magazines Theoretical Construct Functionality Dispersion Ownership Fragmentation Desired Regulatory Compliance Actual Regulatory Compliance Level of Compliant VoIP Use Innovation Rate Compliance Cost Proxy % Voice Traffic that is PC-to-Phone PC-to-PC VoIP Market share of PC-to- Phone PC-to-PC VoIP Number of interconnected VoIP Firms Number of 911 and CALEA compliant interconnected Firms % Voice Traffic that is interconnected VoIP TBD Average Cost of a PSTN Wiretap Type Time Series Time Series Time Series Quant. Time Series Time Series Quant. 12

13 ESD / Telecom Policy Desired Contribution 1. Explaining dynamic complexity involved in the regulation of VoIP 2. 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 13

14 Thank You! The end of core: Should disruptive innovation in telecom invoke discontinuous regulatory response? Chintan Vaishnav, ESD, MIT Committee: Prof. Charles Fine (Chair) Dr. David Clark Prof. John Sterman Chintan Vaishnav, All Rights Reserved