PathFinder Business Model Flaw

"PathFinder is the GSMA’s multi-tiered, fully extensible number resolution system. It is designed to facilitate the efficient global interoperability of new and existing IP services using telephone numbers – all within a business framework consistent with operator needs. It provides a comprehensive suite of services designed to enable IP-to-IP interconnections between interconnect partners for voice, messaging, video, and other IP services."

TransNexus is a certified PathFinder partner. The TransNexus OSPrey server can launch a ENUM query to the PathFinder service as an alternative to least cost routing. We believe the efficiencies from IP to IP routing made possible by PathFinder will generate new profits for carriers and better services for their customers.

As a PathFinder partner, I have been promoting the service to carrier customers. Some of the feedback I have received is very clear. Carriers do not like the Called Party Pays business model of PathFinder. Here is a simplified description of the PathFinder business model. Service providers provision their telephone numbers and corresponding Service Provider Number (SPN) to the PathFinder database. When a service provider originates a call they send a query with the called number to PathFinder. PathFinder returns the SPN of the service provider that serves the called number. This type of service has become critical since number porting between service providers is widespread. All of this is good. Now here is the problem - the carrier serving the called party pays PathFinder for the query. This simple flaw in the PathFinder business model is a serious obstacle to its success.

There is some sound logic to the PathFinder business model and here are some reasons why it makes sense:
1) The called network may benefit from the PathFinder service because it may receive the call directly over an IP connection which could be less expensive than a TDM interconnect.
2) Also a direct IP interconnection will enable end to end IP services so the called party can benefit from the advantages of VoIP such as wideband codecs and better sound quality.
3) The carriers who terminate the most calls will be the biggest carriers since they serve the most telephone numbers. Therefore, the biggest carriers with the most financial resources will make the largest revenue contribution for funding PathFinder. This is an egalitarian concept that regulators would endorse.

Now here are the counter arguments:
1) The called party pays model means that the terminating carrier is forced to pay an expense that it has incurred on behalf of the calling network. Everyone fears an expense liability that is out of their control.
2) The called party network has no record of PathFinder dips that point to its network and no way to audit its PathFinder bill. Conversely, the Calling party network has complete control over its number of Pathfinder dips and perfect audit capability of its PathFinder expenses.
3) Why should large carriers, who will be the net terminators for PathFinder queries, subsidize smaller carriers for PathFinder expenses?

And here is the Partner's appeal:
Put logic and intellectual arguments aside when defining the PathFinder business model. Go with what works in the market. PathFinder, like so many network initiatives, has a chicken and egg problem. The idea makes total sense, but is worthless until there is a big database that offers value. Getting the world's largest carriers to participate and provision their numbers to PathFinder is goal number one. Any other focus is folly. If the big carriers want a calling party pays business model - the argument is over. PathFinder needs to implement a calling party pays business model. TransNexus is a big supporter of the PathFinder concept and looking forward to its success.

If you think I have this wrong, please post your thoughts here. This is all about getting it right, you won't hurt my feelings. This post is all about getting the economic incentives right so PathFinder and the promise of IP to IP communications become a reality for everyone.

i3 Forum vs IPIA

In Andy Ory's opening speech at the Acme Interconnect 2009 conference he made the point that the emergence of new market segments requires disruptive change. But he added that it has to be just the right amount of disruption. Too little disruption and customers will just adjust and continue doing what they always do. Too much disruption and it becomes too difficult for customers to adopt a new opportunity even if it has major benefits.

This concept seemed to be illustrated in a panel discussion of the missions of the i3 Forum and the IPIA (IP Interworking Alliance). Carlos Da Silva from France Telecom represented the i3 Forum that has the goal to develop collaborative recommendations for an industry-wide transition of voice and related services to Internet Protocol (IP). John Boden of Vodafone spoke for the IPIA which has the mission “To provide an environment whereby stakeholders from mobile operators, fixed operators and carriers can agree to technical specifications and commercial templates for the IPX, which will facilitate the global interworking of IP services.” The IPIA is the users group for the GSMA IPX.

The mission of these two organizations sound very similar, but their plans and apparent success seem quite different. Early on I was a big fan of the GSMA IPX concept. The IPX is a big, bold idea and it seems to have a fundamental business model that makes sense. In contrast, my initial impression of the i3 Forum was that it just another group of PTT's trying to protect their incumbent business model. I still think the i3 Forum is just a stodgy group of incumbents trying to protect their business, but it sounds as if the organization, which has grown to 28 members, is making some progress on its goal of nudging the largest international SS7 networks toward VoIP. In comparison, there is no news from the IPIA. Its web site is closed to everyone except board members. It seems that the disruptive change offered by the GSMA IPX may be too much. Maybe the GSMA IPX be just another great idea which is ahead of its time.

One of the interesting points made by Da Silva in the panel discussion was about PTT bilateral agreements. Settlement based bilateral agreements are the bane of VoIP purists who believe in a bill and keep business model with settlement free peering. They claim it was the business model that drove the explosive growth of the Internet and can do the same for VoIP adoption. Da Silva explained the irony in this constant debate between incumbents and new entrants. Bilateral agreements are basically the bill and keep model. Each carrier manages their traffic flow to their bilateral partners so the net settlement is zero. Which is identical to the bill and keep model for networks that have equal traffic exchange. However, there is a funny money accounting twist that is important to incumbent carriers. Bilateral agreements with a zero net settlement enable each trading partner to book a significant amount of revenue. If incumbents changed to a bill and keep model they would take a big revenue loss. Of course the cash impact of the accounting change would be zero, but no incumbent telco executive wants his incentive pay plan to take a hit from a decline in revenue.

Acme Interconnect 2009

I am at the Acme Interconnect 2009 conference in Miami, FL. The Acme folks do a great job hosting a customer. The conference sessions they have organized are excellent and the facilities and activities are first class. It is no surprise that Acme customers are here from around the world.

Yesterday the conference opened with your choice of golf or fishing. I took the fishing trip. It was a great outing with plenty of beer and good food on the high seas off of Miami beach. The swells were five to eight feet and it was a trip to remember. Seamus Hourihan made a tally of the catch and the 22 people on aboard caught an average of approximately two fish each. Not bad, and nobody got sea sick.

Comptel Update

I was at the Comptel show in Orlando, FL earlier this week and everything appeared to be pretty much business as usual. The number of exhibitors were down about 10% from the last Comptel show, but overall the quantity and quality of business activity was good. The last year has not been a bad recession for the telecom sector.

The interesting new development apparent at this Comptel show is the new emphasis on managed services and the emergence of cloud computing. I suppose capital limitations are forcing some operators to avoid capital outlays and prompting others to repackage their services to meet the demand. I had been skeptical about cloud computing, thinking it was just another marketing buzzword for hosted services. However, Kelly Sparks, Chief Architect for Pac-West Telecomm gave me an insightful description of their cloud computing plans. It will be much more than just hosted servicess. The Pac-West Telecomm cloud computing offer will leverage their private network in ways that cannot be matched by cloud computing services offered over the Internet. Their plans make a lot of sense. They will not be competing with the likes of Amazon.com, instead they will focus on customers and telecom applications that need a dedicated network and service level assurance (SLA). In some respects Pac-West will become a distribution channel for their cloud application vendors. An interesting new carrier business model that is beyond simple network management.

Asterisk is 10

Wednesday night at Astricon 2009 in Glendale, AZ, the Asterisk Community celebrated the 10th birthday of Asterisk. It was not your typical trade show party. It was a pretty quirky event with a lot techie guys drinking beer and playing video games, darts, pool, air hockey and foosball. One colleague noted that there were seven females present and that this was an increase from three females at the Astricon party in 2008. Hey, but what do you expect, this is the Asterisk community. It is a bright, eclectic mix of hackers, open source developers and a lot of independent entrepreneurs who install telephone systems for small and medium businesses.

The stereotypical open source developer is an irreverent young guy with an outrageous mohawk and yes of course those folks are an important part of the Asterisk community. But what I find interesting is the large number of older business owners who attend Astricon. These are experienced guys who have been installing data and telephone systems for 20-30 years. If you wonder who these people are, go to the yellow pages and look for telephone systems. You will see pages of small businesses that install telephone systems. This is a highly fragmented, grass roots distribution channel that adopted Asterisk early because it enables them to earn margins they could never make from reselling the traditional PBX solutions. According to sources at Digium, Asterisk based PBX systems serve more phone seats in North America than any other phone system. That is a pretty amazing accomplishment for a 10 year project.

While at Astricon, I gave a number on tutorial on Number Portability. Here is a download link for the Number Portability presentation.

Covad Deploys TransNexus

I am happy to announce that we have been working closely with Covad Communications since the beginning of 2009 as they have expanded their VoIP services. Covad is a technically sophisticated carrier that rigorously explores every operating detail. They left no stone unturned as they tested our software. The Covad type of customer is our favorite type of customer. They know what they are doing and everything they do is planned and tested. They run a professional operation and there are no surprises and practically no technical support issues. More importantly, they are always looking for ways to innovate - a force that helps vendors like TransNexus lead the market with new features.

I am especially pleased with the testimonial from Jake Heinz, vice president and general manager of Covad. “Covad canvassed the vendor space for intelligent routing platforms, and based on feature/functionality, a fair price, and an excellent ROI, we chose TransNexus.” You can read more about this success story at www.TransNexus.com.

TransNexus Certified as a GSMA Pathfinder Partner

On October 1st, the GSMA announced the launch of its PathFinder Number Portability Discovery Service. The GSMA is the global wireless organization consisting of nearly 800 wireless carriers in 219 countries. PathFinder was created by the GSMA to provide an interoperable, industry-wide solution that enables the routing of global IP service interconnect traffic.

A couple of years ago the GSMA presented its vision for an all IP world based on the IPX, a global IP network run by GSMA operators. Carriers connected to the IPX would be able to peer IP communucation applications such as VoIP and video end to end over IP networks. The global route discovery provided by PathFinder is a big step forward in implementing that vision.

At TransNexus, we are proud to be one of the first vendor partners certified for the PathFinder service. The TransNexus OSPrey route server is certified to query PathFinder for Number Portability discovery. The GSMA Pathfinder Announcement.