Cerf moves up the stack

In a great move, Internet pioneer Vint Cerf has just moved up the Open Systems Interconnection stack from Layer 3 (networking) to Layer 7 (application) by leaving MCI and joining Google as chief Internet evangelist.

Maybe he was just escaping the fate of becoming an internal body part of a local telephone company and the prospect of having to work with the company on Internet-related technical issues. Or maybe Google offered him a deal he was too smart to turn down.

Whatever the reason, the move is a great symbol of a value move that has been accelerating with the shift to converged networks. According to the FCC, telecom business in the U.S. totaled about $295 billion in 2004. I could not find a table that said how much of that is taxes of various types. If my home bill is any guide, it could be as much as one-quarter of the non-wireless part and a bit less than 10% of the wireless part. Certainly, telecom has been a cash cow for governments.

But what is the future of this business? If long-distance and cell phone prices provide any guide, revenues will go down by a factor of five to 10 over the next five years - mostly because of competition. If instead you use local phone service as a guide, the price will go up by a factor of three over the same time period. My bet is on steep reductions. There is just too much competition in the voice business with cell phones and from the Internet (VoIP, video chat and e-mail). I also expect that telecom companies will be in for some very lean times, with more going through consolidation, bankruptcy or just going out of business.

Of course, governments could fix their declining revenues by raising tax rates. Cerf was instrumental in creating the Internet-as-transport system that we are just learning how to use to its full potential. He helped to define the technology, deploy the ARPANet, and nurture the IETF as the Internet standards organization and the Internet Society to help bring the Internet to most of the world. Recently, he helped manage Internet Corporation for Assigned Names and Numbers, the coordinator of key Internet functions. Thus Cerf has concentrated on the transport and political layers of the OSI stack.