For any of my readers interested in telecommunications I cannot recommend highly enough David Isenberg's SMART letter. David is on the leading edge of telecommunications and his perceptions of what is going on in that world are always extremely cogent.

He is the foremost proponent of "dumb networks", that is networks where the intelligence lays at the edge of the network rather than the core switches ( a prime example of this would be a pure IP network where all the intelligence is in at the network edge).

This of course does not sit well with the major telecoms as it puts a great deal of network control into the users hands rather than the network itself. For example, an incumbent would rather sell you a switched circuit (say a T1 line a 1.544 Mbps full duplwx end to end circuit) than an IP connection (a 1.5 Mbps half duplex, or less, circuit from your computer to the central office DSLAM switch). In the first instance they control the circuit from end to end and can charge you an arm and a leg for it, in the second instance they lose control of the circuit as soon as your data packet passes their DSLAM (Digital Subscriber Line Access Multiplexer).

Below is a quote from David's SMART letter #72 (not yet available on his website but go here for past issues). BTW: SMART stands for Stupid-network Mindful, Articulate, Response Team :-) Here he lays out very succinctly why telephony (ie: what your local telephone company does) is a no show for the Internet.

Telephony is vertical, Internet horizontal. Telephony integrated, Internet modular. Telephony centralized, Internet creates its value at the edges. Telephony financial returns do not distinguish network transport from application, but in an Internet world it is very, very, very difficult to make
money providing pure network transport (see netparadox.com).

His last point there is one of the most important ones and one that legislators just do not get (too much soft money from telcos no doubt). So long as service providers are also the infrastructure providers you will never have true competition.