In the Spotlight: Jon DeLuca, FiberNet

In October, network wholesaler FiberNet Telecom Group became the latest company to offer a wholesale voice-over-IP peering service, joining providers such as Stealth Communications. Based on the Internet Engineering Task Force’s ENUM protocol, FiberNet’s Phenomenum peering service will initially be offered at the large collocation facility at 60 Hudson Street in New York City and will expand elsewhere based on customer demand. FiberNet’s chief executive officer, Jon DeLuca, spoke with Telephony’s Ed Gubbins about the market, the model and more.

On the core VoIP peering market: There’s a market developing, but it’s still pretty nascent. If you come at it from the somewhat surprising proposition that virtually all VoIP traffic still utilizes the public switched telephone network as a clearing house for call origination and termination, it defeats the purpose of the whole thing. As VoIP grows as more of a conventionally consumer-used product at the edge rather than trying to realize efficiencies at the network core, it hasn’t taken full-scale effect because of the incorporation of the PSTN as essentially still the main switching facility for VoIP traffic.

Even some of the large MSO VoIP rollouts utilize the PSTN to clear calls that are kind of intra-network. If two VoIP customers on the same cable company platform call each other, it still hops off the VoIP network to manage the call. We’re just at the beginning of this fundamental shift in core network architecture.

On the Phenomenum brand name: If you sing it to kind of a Sesame Street theme song, it helps.

On the Cogent/Level 3 dispute: That was a private peering arrangement between two companies of different sizes and traffic flows. They agreed to exchange traffic at no cost because they recognized the mutual benefit of it. With Phenomenum, we’re endeavoring to set up a more centralized public and private peering platform where we’ll enable the participants to determine their own pricing mechanisms for call termination. We’re not espousing participants in our platform need to provide services for free. We don’t think this will be a free service. There’s still a profit motive that we think our customers will expect out of this. It’s simply a service that might shift some long-standing paradigms in the industry, such as usage-based billing models, which might disappear.

On the disappearance of usage-based billing models: You kind of already have seen it. Say you buy flat-rate VoIP from a North American MSO. Those companies are trying to deliver as much of that traffic as they can on their own networks, or IP networks, and making some actuarial assumption of what the termination costs will be. You can see the disconnect between the customer-side billing of a flat rate and on the back end for termination charges, they’re still usage-based. The minutes and seconds tick away. With Phenomenum, it still might be usage-based, but it might be a per-session charge, so that, regardless of the length of the session, there’s no increase in cost. Part of the excitement is: There’s still a lot to be worked out from a business perspective of how customers are going to want to transact on this platform. We might find people like a traditional private peering arrangement where there’s a free exchange of data or voice packets and there’s no cost to either party. But the system’s going to be set up so that, much like in the old legacy world of bilateral arrangements, customers can mutually set up pricing terms for different trading partners.

On wholesale transport prices: We’ve seen pricing start to level off. It’s not deteriorating at as fast a rate as it has in the past, particularly in the transport business. In the colocation business, it’s always been relatively strong. At some point, you’re reaching or approaching capacity equilibrium. The infinite capacity of fiber is really a function of the networking equipment. The price deterioration of network equipment has really stabilized. The Nortels, Lucents, Ciscos and Alcatels are not pricing their equipment in the way they had in the past few years. As carriers continue expanding their networks, the gray market, which has really been a source of affordable equipment, is starting to dry up. From just a simple ROI perspective, if a carrier has to deploy equipment to provide connectivity, it’s going to require a higher return because the capital investment is greater. And many of the disruptive competitors in the marketplace are no longer with us.

On bandwidth buying: At the end of 2004, we launched a native Ethernet network. We provide Fast Ethernet and GigE connections. We really thought the Fast E connections would be the sweet spot in the market, but our customers are really just buying GigE connections. They’re not using the full GigE throughput, but they’re buying it. It gives you a sense of where their heads are at in terms of expectations.

On RBOC/IXC mergers: We’re excited. The companies [RBOCs] are acquiring were aggressive competitors in the marketplace in terms of maintaining business at different price points. With that taken out of the market, we think there will be less downward pressure on pricing. It’ll still be an intensely competitive market. For antitrust purposes, I wouldn’t want to comment otherwise. But the market should rationalize quite a bit with those players out, of our sector at least.

On Moore’s Law: The telecom industry should hire the computer industry’s PR agency. Because with Moore’s Law, you can double your power at the same price every year and it’s a fantastic thing. In the telecom industry, you can get the same bandwidth for half the price every year, and we get dinged for it. I just think we’re doing a bad job of PR.