The end of core:

1. Should disruptive innovation in telecom invoke discontinuous regulatory response? The end of core: Chintan Vaishnav, ESD, MITchintanv@mit.edu May 31, 2007 Philadelphia, PA © Chintan Vaishnav, All Rights Reserved

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

3. Modes of VoIP

4. “Light Touch” Regulation: Traditional 911/E911 and CALEA regulation extended only to “interconnected” VoIP services Regulatory Response PSTN vs. VoIP US Telecom Regulation

5. 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?

6. 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 discontinuous regulatory responses

7. 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 1 3 4 2 5 e.g. earth link (Pkt-switching) e.g.SkypeOut, User-innovator e.g. Dell, Palm, User-innovator e.g. Cisco VoIP e.g. municipal broadband 2 5 3 4 1 Functions of a typical voice call End Device Setup & terminate the call (call signaling) 1 Secure the channel Billing for voice service 3 5 Core Voice transport (bit transport) Maintain user privacy 2 4 Observing and Conceptualizing The End of Core

8. The End of Core Functionality is Dispersing to End-Device + The Ownership of the Core is Fragmenting = The End of Core

9. 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 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 The implications of the End of Core for Regulation

10. may require… Circum-innovation can cause… Discontinuing command-and-control regulatory thinking…and understanding a collaborative model of regulation • arms race between proponents of compliance • and non-compliance 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 The implications of the End of Core for Regulation

11. 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 Research Method

12. # - quantitative data # - Field Research # # # # # # # Causal Structure of the System Dynamics Model

13. Field Study 1 • Involving: Firms offering “interconnected” and “unmanaged” VoIP service • Investigate: • How and why does the regulatory misalignment affect the deployment of compliant technology? • 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: • How and why circum-innovations impact the regulatory compliance? Summary of Field Research

14. Description of Data Collection Quantitative data from FCC, industry reports and trade magazines

15. ESD / Telecom Policy • Explaining dynamic complexity involved in the regulation of VoIP • Increasing the ability to communicate risks and opportunities in regulating • the emerging communications technologies from the perspective of • socio-technical systems Desired Contribution Innovation Theory Literature • A framing paper on the dynamics of regulation and innovation Internet Architecture Literature • 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 • A comprehensive paper on the system dynamics modeling of the communications industry

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

17. Innovation Sector Ind. Struct. Sector Adoption Sector Regulatory Compliance Sector Ind. Struct. Sector System Dynamics Model

18. VoIP • Goode, B. (2002). "Voice over Internet protocol (VoIP)." Proceedings of the IEEE90(9): 1495-1517. • Technology History • Fagen, M. D., A. E. Joel, et al. (1975). A History of engineering and science in the Bell System. [New York], The Laboratories. • Temin, P. and L. Galambos (1987). The fall of the Bell system : a study in prices and politics. Cambridge ; New York, Cambridge University Press. • Abbate, J. (1999). Inventing the Internet. Cambridge, Mass, MIT Press. • Telecommunications Regulation (PSTN and VoIP) • (1934). Communications Act of 1934. 47. U.S.C. • (1994). Communications Assistance for Law Enforcement Act. 47. U.S.C. • (1996). Telecommunications Act of 1996. 47. U.S.C. • (2004). Notice of Proposed Rulemaking: Communications Assistance for Law Enforcement Act and Broadband Access and Services. WC Docket No.04-295. • (2004). Notice of Proposed Rulemaking: IP Enabled Services. WC Docket No.04-36. • (2005). E911 Requirement for IP-Enabled Service Providers. WC Docket No.05-196. • Nuechterlein, J. E. and P. J. Weiser (2005). Digital crossroads : American telecommunications policy in the Internet age. Cambridge, Mass., MIT Press. • Laffont, J.-J. and J. Tirole (2000). Competition in telecommunications. Cambridge, Mass., MIT Press. • The End of Core (Internet Architecture and Industry Structure) • Clark, D. D. (1988). "The design philosophy of the DARPA Internet Protocols." SIGCOMM Comput. Commun. Rev.25(1): 102-111. • Saltzer, J. H., D. P. Reed, et al. (1984). "End-to-end arguments in system design." ACM Trans. Comput. Syst.2(4): 277-288. • 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. References

19. References (Contd.) • 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. • 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. • Vaishnav, C. (2005). Voice over Internet Protocol (VoIP): The Dynamics of Technology and Regulation. Technology and Policy Program. Cambridge, Massachusetts Institute of Technology: 166. • 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. • Innovation • 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. • Abernathy, W. J. and J. M. Utterback (1978). "Patterns of Industrial Innovation." Technology Review80(7): 40-47. • Dosi, G. (1982). "Technological Paradigms and Technological Trajectories - a Suggested Interpretation of the Determinants and Directions of Technical Change." Research Policy11(3): 147-162. • Anderson, P. and M. L. Tushman (1990). "Technological Discontinuities and Dominant Designs - a Cyclical Model of Technological-Change." Administrative Science Quarterly35(4): 604-633. • Henderson, R. M. and K. B. Clark (1990). "Architectural Innovation - the Reconfiguration of Existing Product Technologies and the Failure of Established Firms." Administrative Science Quarterly35(1): 9-30. • Christensen, C. M. and R. S. Rosenbloom (1995). "Explaining the Attackers Advantage - Technological Paradigms, Organizational Dynamics, and the Value Network." Research Policy24(2): 233-257. • Research Methods • Sterman, J. (2000). Business dynamics : systems thinking and modeling for a complex world. Boston, Irwin/McGraw-Hill. • Fine, C. H. (1998). Clockspeed : winning industry control in the age of temporary advantage. Reading, Mass., Perseus Books. • Nelson, R. R. and S. G. Winter (1982). An evolutionary theory of economic change. Cambridge, Mass., Belknap Press of Harvard University Press.

20. Description of Data Collection Qualitative Understanding from Case Studies

21. Innovation Sector Ind. Struct. Sector Adoption Sector Regulatory Compliance Sector Ind. Struct. Sector System Dynamics Model