Internet and Internet Telephony

We would be remiss not to discuss the Internet in a book devoted to competition in telecommunications. The Internet offers a wide variety of new services, as well as new ways to provide old services like telephony. Internet telephony, as its name indicates, refers to telephony over the Internet; unlike a traditional phone call, for which a circuit is opened and dedicated to a single conversation for the whole length of the call, messages sent over the Internet are decomposed into tiny data packets, which may or may not take the same route, and which are reassembled at termination. Internet telephony uses the transmission control protocol/Internet protocol (TCP/IP), which more generally supports transmission of packets over the Internet regardless of their application (voice, audio, video, . . . ).

Internet telephony currently has a low market share, and arguably this market share is inflated by favorable regulatory treatment. The low market share in part results from the low quality of calls; Internet telephony, like other premium services such as videoconferencing and unlike e-mail, requires very low delays of transmission over the Internet. Such low delays are not yet guaranteed, and one of the key challenges for the development of Internet telephony is precisely the definition of protocols and interconnection agreements involving prioritization of premium services that will enable networks to promise their customers an adequate quality of service. Most experts predict a rapid growth of Internet telephony in the next few years. This section briefly discusses the future of the Internet more generally, as well as two key challenges currently facing its development: broadband access to the home and interconnection. These challenges raise issues of one- and two-way access, respectively. Their full analysis lies outside the scope of this book, and we will content ourselves with a description of the main issues.

1 Broadband Access

Currently, most consumers can connect to the Internet from their home or small business premises through dial-up access at very low speeds. Broadband access to the home would provide speeds of transmission, say, one hundred times faster than current speeds, as well as an "always-on" capability.

Several technologies are envisioned to break this "bandwidth-to-the-home bottleneck":

• DSL technologies: By installing new-generation modems at the customer's premises and at the location of the first switch, the owner of the copper line or else an entrant having "unbundled access" to the copper line can substantially improve its performance. ("Unbundled" refers to the fact that the entrant purchases only access to the naked copper line and not other services such as switching.) Several operators are currently performing commercial experiments with these technologies. We will come back shortly to the issue of local loop unbundling (LLU).

• Cable: Cable transmission facilities, which historically have been used to transmit content to the home, usually have only one-way capability (cannot offer interactivity). But once cable modems are set in place, they are able to provide two-way, higher bandwidth capability.

• Fiber to customer premises: Bringing fiber to the home would be an ideal system of delivery to a fixed location, with data delivery rates much larger than those for DSL technologies. Alas, the cost of putting fiber to the home is very high, and this solution is unlikely to be adopted in the short run. (Of course, businesses with large usage already have fiber to their premises.)

• Power line: There is currently some experimentation to modify power distribution networks in order to provide customers with high-speed access to the Internet through electricity wires. Like fiber to the home, this is not a realistic possibility in the short run.

• Radio spectrum and satellites: A number of wireless solutions are currently being considered. For example, some consortia are considering using a satellite constellation to provide "local access."

Let us return to the issue of local loop unbundling. Simplifying a lot, there are three forms of access to bandwidth that can be offered to an entrant:

1. Rental of naked copper line: The entrant rents the copper line from the home to the first switch from the incumbent operator and collocates with the operator so as to be able to install its modems. The bandwidth then belongs to the entrant, who can make the commercial use of it that he wishes (offer his own services or rent bandwidth to providers of final services). Presumably, the incumbent and the entrant then compete in packages or bundles, in the same sense in which two cable services providers (e.g., wireline and wireless) compete in bundles for the customer. The customer will choose her supplier, who then will install the modems and will provide a range of services using the bandwidth (produced in house or outsourced).
2. Exclusive bitstream access: The incumbent installs the modems on behalf of the entrants (as well as for himself). The entrants then do not rent only access to the copper pair, but rent the entire bandwidth. There is no competition in building facilities, but there is competition in bundles of services. Thus the key difference with the first option is that the investment in extra facilities (in particular, the modems) is here always borne by the incumbent, whereas it is borne by the entrant (provided the consumer chooses the entrant) in the first option.
3. Nonexclusive bitstream access: As under exclusive bitstream access, the incumbent keeps a monopoly on the building of new facilities, but instead of renting the entire bandwidth to a single entrant, he sells pieces of this bandwidth to different entrants at some access price per unit of bandwidth. This solution allows an entrant who does not wish to offer a full range of services to contract directly with the customer.

The choice of regulatory framework will be crucial for the development of broadband access to the home. Key issues include the choice of technology (xDSL technologies are still improving) and their compatibility with the services that entrants and incumbents desire to offer; the optimal sharing of the investment risk between incumbent, entrant, and customer (in view of rapid technological progress in these and alternative technologies and of an important uncertainty about demand for the new services, economic depreciation ought to be large); the design of regulatory commitments against takings of the new facilities; the definition of proper access charges (cost oriented versus demand-and-cost oriented, measurement of cost, nondiscrimination rules, relationship between local loop rental and consumer's monthly subscriber charge, etc.); and relationship to universal service. 

2 Interconnection in the Commercial Internet

Probably the largest stakes in telecommunications today lie in the Internet. Yet, little is known about the future industrial organization of the Internet. Indeed, the biggest part of the initial network, the NSFNET, was privatized only in 1995, and thus the commercial era is just beginning. Until recently the Internet community was largely one of engineers working cooperatively to take the Internet off the ground. Nowadays, financial stakes are huge, and the Internet is turning into a fascinating commercial battleground.

Again, we content ourselves with a brief description of the issues, starting with a description of the players. End users include residential users and businesses, who have access to the Internet either through dial-up (over the phone line using modems) or through dedicated access. On the other side lie web sites, which provide a wide variety of free or fee-based content as well as offerings of services (e-commerce, . . . ). In between can be found a host of intermediaries. Some intermediaries provide users with guidance as to whether to connect, what to buy, and so forth: search engines, portals, infomediaries, . . . Other intermediaries provide transmission services: internet service providers (ISPs), internet backbone providers (IBPs). We will focus on the latter, keeping in mind that the dividing line between the various players is not always clear-cut: For example, America Online (AOL), an ISP offering Internet access to residential users, also offers content as well as search capabilities (for example, through its acquisition of Netscape, which produces a browser with search-engine capability).

Internet backbone providers direct traffic over large regions of the world using long-haul fiber-optic cables. IBPs connect to each other at multiple points under the so-called "peering agreements" (see following paragraphs). IBPs pick up the traffic generated by ISPs (as well as that of their own customers) and carry it over long distances. They also have the most sophisticated routing of all Internet players.

The Internet is a network of interconnected networks. Indeed, one of the main appeals of the Internet is its current almost ubiquitous connectivity: From almost any point (URL address) in the network can be sent messages to almost any other point. One may wonder how a network of 7,000 ISPs and 4 to 50 IBPs (depending on the exact definition of IBPs) can offer such ubiquitous connectivity. The basic structure is hierarchical.

IBPs "peer" with each other. In so doing, they accept for routing all traffic that is destined to their own customers, the customers of their customers, and so on. Peering used to occur at public peering points, NAPs (network access points), or MAEs (metropolitan access exchanges). The slow expansion of the capacity at these points (Internet traffic grows at a rate of up to 1000% a year) has led IBPs to turn to private peering, that is, to exchanging traffic pairwise at a number of bilateral interfaces. The importance of public peering points, where an arbitrary number of networks exchange traffic, is waning. IBPs impose a number of conditions to accept each other as peers: number of points of interface, national high-speed network, and so on. Currently, peering arrangements are of the bill-and-keep type; that is, each peer terminates without charge the traffic originating with other peers. This feature is probably a leftover of the transition process. One may wonder whether IBPs will keep running their two-way interconnection arrangements through bill-and-keep.

IBPs do not make money from their peering relationships. To cover the huge investments they have made in infrastructure, they charge their customers, who in turn charge their own customers. Charges often are related to the capacity of the link between the network and its customer, but can also depend on usage. Thus the Internet can be seen as a pyramid, in which monies are collected at the bottom.

To be certain, the organization of the Internet is not purely hierarchical. For example, it may make sense for two ISPs in the same city, such as ISPs A and B, to exchange traffic directly (engage in "secondary peering") rather than let their mutual traffic move up and then down the hierarchy. Such sideways interconnections do not upset the hierarchical nature of the Internet.

The design of interconnection arrangements is crucial for the future of the Internet. In the short term, it conditions the prices charged to dial-up and dedicated access users and to web sites, and thereby the use and organization of the network. In the "long run" (a few months in the Internet world, owing to the growth of traffic and technological progress), it determines the networks' incentives to build up their capacity and to cooperate.

The framework for two-way interconnection for traditional voice telephony provides a number of insights that will be useful for our understanding of Internet interconnection. However, as it stands, it is inappropriate, in that it does not reflect the specificities of the Internet. These specificities not only are technical (packet switching versus dedicated circuit), but they also have important economic dimensions. For example, unlike voice telephony, the party who requests the message may receive rather than send this message, as is the case when a user downloads a web page. Such specificities require a careful consideration of the interaction between the wholesale market (interconnection arrangements) and the retail markets (pricing to end users and web sites and commercial interaction between these).

A second important issue related to interconnection is the development of premium services. Premium services on the Internet (IP telephony, video on demand, videoconferencing, etc.) require low delays in packet transmission and therefore a higher quality of service throughout the network than is currently observed. Several scenarios may be envisioned. First, some large Internet operators may develop proprietary standards and offer such services on a limited basis (between their customers), hoping that the lack of ubiquity will be mitigated by tipping, or at least that the proprietary offering will create a comparative advantage. Second, networks may agree on standards and two-way access charges for the premium services to attempt to achieve ubiquity. The incentives for cooperation and the design of two-way access charges for premium services are important topics for research.

Multimedia Sessions on the Internet

Layering telephone-type functions onto the existing Internet architecture is a challenge. Some of the basics are just not there. For example, the Web uses names asymmetrically. There are a huge number of Web sites out there that can be accessed by anonymous users with browsers. Type in the URL, or use a search engine. Click and go. But the Web site doesn’t normally try to find you, and you lack a URL. The Public Switched Telephone Network (PSTN) by contrast names all its endpoints with telephone numbers. A telephone number is mapped to a device such as a mobile phone or a physical line for a fixed telephone. Various companies provide phone number directory services, and the phone itself provides a way to dial and to alert the called user by ringing. The basic Internet structure of routers and computer hosts provides little help in emulating this architecture. Somehow users need to register themselves with some kind of telephony directory on the Internet, and then there has to be some signaling mechanism that can look up the called party in that directory, and place the call. The IETF (Internet Engineering Task Force) has been developing a suitable signaling protocol (SIP—Session Initiation Protocol) since around 1999 and many VoIP companies are using it.

The next problem is a phone equivalent. A PC can handle sophisticated audio and video, multi-way conferencing, and data sharing. A PC, however, cannot be easily carried in a small pocket. Lightweight and physically small portable IP hosts are likely to have only a subset of a PC’s multimedia capabilities and cannot know in advance the capabilities of the called party’s terminal—more problems for the signaling protocol. A further reason for the relative immaturity of interactive multimedia services is the lack of wide-coverage mobile networks and terminals that are optimized for IP and permit Internet access. The further diffusion of WiFi, WiMAX and possibly lower charges on 3G cellular networks will hopefully resolve this over the next few years.

Can the Internet, and IP networks in general, really be trusted to carry high-quality isochronous traffic (real-time interactive audio-video)? Whole books have been written on the topic (Crowcroft, Handley, and Wakeman 1999) and it remains contentious. My own view is as follows. In the access part of the network, where bandwidth is constrained and there are a relatively small number of flows, some of which may be high-bandwidth (e.g., movie downloads), some form of class of service prioritisation and call admission control will be necessary. In the network itself, traffic is already sufficiently aggregated so that statistical effects normalise the traffic load even at the carrier’s Provider Edge router. With proper traffic engineering, Quality of Service (QoS) is automatically assured and complex, expensive bandwidth management schemes are not required. As traffic continues to grow, this situation will get better, not worse due to the law of large numbers. Many carriers, implementing architectures such as IMS (IP Multimedia Subsystem), take a different view today and are busy specifying and implementing complex per session resource reservation schemes and bandwidth management functions, as they historically did in the PSTN. My belief is that by saddling themselves with needless cost and complexity that fails to scale, they will succeed only in securing for themselves a competitive disadvantage. This point applies regardless whether, for commercial reasons, the carriers introduce and rigidly enforce service classes on their networks or not—the services classes will inherently be aggregated and will not require per-flow bandwidth management in the core.

After establishing a high-quality multimedia session, the next issue of concern is how secure that call is likely to be. By default, phone calls have never been intrinsically secure as the ease of wiretaps (legal interception) demonstrates. Most people’s lack of concern about this is based upon the physical security of the phone company’s equipment, and the difficulties of hacking into it from dumb or closed end-systems like phones. One of the most striking characteristics of the Internet is that it permits open access in principle from any host to any other host. This means that security has to be explicitly layered onto a service. Most people are familiar with secure browser access to Web sites (HTTPS) using an embedded protocol in the browser and the Web server (SSL—Secure Sockets Layer) which happens entirely automatically from the point of view of a user. Deploying a symmetric security protocol (e.g., IPsec) between IP-phones for interactive multimedia has been more challenging, and arguably we are not quite there yet. IMS implements hop-by-hop encryption, partially to allow for lawful interception. Most VoIP today is not encrypted—again, Skype is a notable exception. As I observe, Skype looked for a while to be proof against third-party eavesdropping, but following the eBay acquisition, I would not bet on it now.

The Internet as the Next-Generation Network

We already mentioned the many complex functions that need to be integrated to make a carrier network work. It’s like a highly-specialized car engine. So where was this function for the Internet? Who was doing it? In what is the central mystery of the Internet, no one was doing it. The basic Internet is unusable, because it does nothing but provide protocols to allow packetized bits to be transferred between hosts (i.e., computers). It is pure connectivity. However, pure global connectivity means that any connected computer application can be accessed by any other computer on the network. We have the beginnings of a global services platform.

Here are some of the things that were, and are, needed to bring global services into being, roughly in the order the problem came up, and was solved.

1.  Connecting to a service

Hosts and gateways operate on IP addresses for routing purposes. It is problematic, however, to use IP addresses (and port numbers) as end-system service identifiers as well. Apart from the usability issues of having to deal with 64.233.160.4 as the name of a computer hosting a service, IP addresses can also be reassigned to hosts on a regular basis via DHCP or NAT, so lack stability. A way to map symbolic names, such as www.google.com, to an IP address is required. This was achieved by the global distributed directory infrastructure of the Domain Name System, DNS, also dating back to 1983.

2.  Interacting with a service

Part of writing an application is to write the user interface. In the early years of computing, this was simply a command line interpreter into which the user typed cryptic codes if he or she could recall them. The introduction of graphical user interfaces in the late eighties made the user interface designer’s task considerably more complex but the result was intuitive and user-friendly. The introduction of HTML and the first Internet browsers in the early nineties created a standard client easily used to access arbitrary applications via HTTP across the Internet.

3.  Connecting to the Internet

Research labs, businesses, and the military could connect to the Internet in the eighties. But there was little reason for most businesses or residences to connect until the Web brought content and a way to get at it. Initially the existing telephone network was (inefficiently) used for mass connection by the widespread availability of cheap modems. We should not forget the catalysing effects of cheap PCs with dial-up clients and built-in modems at this time. More recently DSL and cable modems have delivered a widely available high-speed data-centric access service.

4.  Finding new services

Once the Web got going, search engines were developed to index and rank Web sites. This was the point where Altavista, Yahoo!, and later Google came to prominence.

5.  Paying for services

There is no billing infrastructure for the Internet, although there have been a number of attempts to support, for example, micro-payments. In the event, the existing credit card infrastructure was adapted by providers of services such as Amazon.com. More recently specialist Internet payment organizations such as PayPal have been widely used (96 million accounts at time of writing).

6.  Supporting application-application services

Computer applications also need to talk to other applications across the Internet. They do not use browsers. The framework of choice uses XML, and we saw detailed architectures from Microsoft, with .NET, and the Java community with Java EE and companion editions, mostly since 2000.

7.  Interactive multimedia services

Interactive multimedia was the hardest issue for the Internet. The reason is that supporting interactive multimedia is a systems problem, and a number of issues have to be simultaneously resolved, as we discuss next. So while for Broadband ISDN, voice/multimedia was the first problem, for the Internet, it has also been the last (or at least, the most recent) problem.