As pal Om Malik writes this weekend about the layoff woes at Alcatel-Lucent and the delisting danger at Nortel, many of us in the industry are experience what I call the “Heartburn Chuckle”.  Or, as I try to put an ironic spin on Jeff Pulver’s famous Purple Minutes expression by calling negative achievements in the telecom industry as “Brown Minutes”, I can’t help but laugh at how empty the promise of unified communications has turned out to be.

This is Brown Minutes and the Heartburn Chuckle all wrapped together. But I can tell you why this telecom crash is occuring. Remember, once an industry is scaled to its max, like the telecom industry, the only way to succeed is to generate profit through new innovations. Merely recycling established ideas with different pricing and bundles may be good for short-term cash grabs but has little to do with the sustainability of long-term profit.  Just ask Yahoo. They’re dying because of that axiom right now.

The Manufacturers

Companies like Cisco and Nortel have done too little to move the VoIP revolution beyond the customer’s demarc, while tradeshow talks about SIP trunking and a spirit of cooperation in using the Internet to replace the PSTN have all been hollow talk designed to please the audience of the day.  True, end-to-end VoIP still isn’t reality unless you’re willing to sit in front of your PC and run Skype.   To say Skype carried out the VoIP vision more successfully than Cisco and Nortel ought to be greatly humbing to those companies, but it’s really true.  Skype got it.  Cisco, Nortel, and Avaya didn’t.

The big manufacturers continue to be the only powers with enough leverage to move the carrier giants away from circuit-switched technology, yet the manufacturer’s own uncertainties about recooping licensing fees and retaining customer-base (through lock-in rather than innovation) have scared them away from issuing the carriers a real challenge: build an all-IP global voice network or we will.

The Carriers

The carriers are firms like AT&T, Windstream, Verizon, BT, and so on.  Their obsession with the billing unit (the almighty minute) has made them helpless to see the possibilities of a software-rich, application-based global ecosystem.  Consequently, the most successful apps to arrive on the carriers’ networks, the ones most embraced by the public, overwhelmingly have one purpose: to steal billable minutes from the carriers. The innovation disappeared and the scrappy new players in the market, the ones with the power to transform the public’s thinking about telecom, instead got stuck doing the same old thing the big telecoms do to put bread on the table: bill minutes.

The Government

In the United States, deregulation under President Clinton in the Telecom Act of 1996 went in all the wrong directions and didn’t do enough to create entrepreneurial freedom in telecom. It failed to recognize that the Internet was going to eclipse the PSTN in terms of consumer participation, and as a result, it positioned the carriers to remain in their highly subsidized comfort zone.

Further mistakes were made when the FCC became distracted by lobbying for Network Neutrality legislation. As with many things, the passage of time revealed that Netnoot was a solution in search of a problem, more often than not.  Apparently nobody at the FCC realized that the free market would provide for the needs of consumers who didn’t want to participate in a 93-octane Internet.  So the FCC spent a lot of time looking at issues that were overstated and geared to bolster the chances of a few admittedly excellent Silicon Valley content startups who didn’t want to get choked out by the carriers.

Shame on us for not recognizing that the carriers are too inept to succeed in the content business anyway. And shame on the FCC for wasting all that energy when they should’ve been looking at ways to encourage greater adoption of end-to-end IP technology.

The Conclusion

So, when you have three willing participants in a massacre, you get a massacre.  The three power players in our industry–boxmakers, regulators, and networkers–are playing the same tune.  Protect revenue by doing nothing. The fruits of that labor are now obvious.  Like the automotive industry, which has a frighteningly similar situation on its hands, the answer now is the same as ten years ago: innovation.  Put on those thinking caps, MIT grads and garage tinkerers. We’ve got an even bigger hole to think our way out of now.