AT&T hints at complex Concept

Some might remember a time when AT&T was American Telephone and Telegraph. Well, there’s not much revenue coming out of the telegraphy business these days, and if you doubt telephony’s going the same way, you’re deluding yourself. What does AT&T become when two-thirds of its acronym is obsolete? If you look carefully, you’ll can see some hints about the company’s future in Network World’s interview last month with AT&T CTO Hossein Eslambolchi and in the company’s announcement that it soon will begin rolling out consumer VoIP services.

Some see AT&T’s Concept of One as an indication that convergence is happening, that AT&T and other carriers will invest to migrate legacy services to IP. Baloney. What’s happening is that native IP traffic and revenue are growing and justifying an IP backbone. If that backbone also can be made to support enterprise and voice services, the total cost of infrastructure is lower for AT&T. In the early phases, Concept of One really will be Concept of One More, meaning AT&T has to build out its IP infrastructure first and gradually absorb other service networks onto it.

Enterprise services with Level 3 features are absorbed more easily into the new IP backbone, and Eslambolchi has indicated that the AT&T backbone’s IP traffic is substantially non-Internet. This enterprise traffic is partitioned from the Internet, a strategy that the other interexchange carriers are quietly adopting as well. Thus, it’s clear that the Concept of One will segregate VPNs, the Internet and probably content traffic. Security for VPNs, now an encryption issue, will be automatic when VPNs are segregated from the Internet.

VoIP might be another of AT&T’s market priorities, but AT&T would gain nothing by converting analog voice traffic to IP. The carrier’s early motive is to dodge universal services and access payments, and converted voice would be treated the same as TDM voice. Instead, AT&T will use customer premises equipment to convert voice to an IP format, both for companies and consumers. That way, there’s no incremental capital cost to put voice on the new backbone.

In the long run, carriers can’t earn money on VoIP. You can do voice over broadband/Internet today without paying a nickel as long as your calling partners are similarly connected. That means AT&T’s real goal with VoIP is to convert voice calling to multimedia IP calling over its Concept backbone. Watch how the carrier structures its service, and you’ll see the hooks to add collaboration, pictures and video. Multimedia calling will end up costing as much as voice calling costs today.

Cost is what it’s all about. Consumers and companies tend to spend a fixed portion of their income on communications. We’re not going to see that percentage explode or sink over time . As technology and competition change the price and profit of existing services, the carriers will adapt the services themselves and not just live with the new and lower profits. So in the future, getting the best bang for your bandwidth dollar will mean adapting to the newer services such as VPNs that are created over infrastructure with a lower capital and support cost.

We have tended to see the future as a kind of tension between the “new Internet” and the “old TDM.” In fact, the future will be a new set of services and infrastructure that lies between these two extremes. Service never will be free, but as new services emerge to carry the cost of networking for the carriers, some of the old services will become incrementally free. It’s not as exciting a future as free networking, but it has the advantage of being practical and realizable.

AT&T clearly sees the future, perhaps as well or better than its competitors. The question now is whether the carrier has wasted too much time fighting regional Bell operating companies over unbundling to preserve incumbent service revenues. Legacy prices will fall with or without an IP backbone. If AT&T can’t establish a profitable role for itself in IP services, Concept of One becomes Concept of None.