Intermodal competition is defined as: “provision of the same service by different technologies (i.e., a cable television company competing with a telephone company in the provision of video services).”
Intramodal competition is defined as: “competition among identical technologies in the provision of the same service (e.g., a cable television company competing with another cable television company in the offering of video services).”
Focus on 4 words: same, different, identical, same. Same is repeated twice.
Saying wireless represents intermodal competition to wired (fiber/coax) is like saying that books compete with magazines or radio competes with TV. Sure, the former both deliver the printed word. And the latter both pass for entertainment broadcast to us. Right?
Yet these are fundamentally different applications and business models even if they may share common network layers and components, or in English, similarities exist between production and distribution and consumption. But their business models are all different.
Wireless Is Just Access to Wireline
So are wireless and wired really the SAME? For voice they certainly aren’t. Wireless is still best efforts. It has the advantage of being mobile and with us all the time, which is a value-added, while wired offers much, much better quality. For data it’s the same thing. With wireless I can only consume stuff in bite sizes (email, twitter, peruse content, etc..) because of throughput and device limitations (screen, processor, memory). I certainly can’t multi-task and produce content the way I can on a PC linked to a high-speed broadband connection. One thing I can do with the phone that I can’t do with the PC is take pictures. So they really ARE different. And when it comes to video, there is as much comparison between the two as a tractor trailer and a motorcycle. Both will get us there, but really everything else is different.
Basically wireless is just a preferred access modality and the law of wireless gravity still holds; a wireless bit will seek out fiber as quickly and cheaply as possible.
By saying that intermodal competition exists between wireless and wired, FSF is selectively taking aspects of the production, distribution and consumption of content, information and communications and conjuring up similarities that exist, but are small pieces of the of the overall picture. I can almost cobble together a solution that is similar vis a vis the other, but it is still NOT the SAME! Which raises another issue, namely that product bundling and on-net pricing are huge issues that policymakers and academics have ignored with respect to promoting monopoly and limiting competition. But in the process of both, consumers have been left with overpriced, over-stuffed, unwieldy and poorly performing solutions.
In the words of Blevin, FSF is once again providing a “vague, conflicting, and even incoherent definition of intermodal competition.” 10 years ago the US seriously jumped off the competitive bandwagon after believing in the nonsense that FSF continues to espouse. As a result, bandwidth pricing in the middle and last mile disconnected from moore’s and metcalfe’s laws and is now overpriced 20-150x impeding generative ecosystems and overall economic growth.
I've written about the impacts of and interplay between Moore’s, Metcalfe’s and Zipf’s laws on supply and demand of communication services and networks. Moore’s and Metcalfe’s laws can combine to drive bandwidth costs down 50% annually. Others have pointed out Butter’s law, coming from a Bell Lab’s wizard, Gerry Butter, which arrives at a more aggressive outcome; a 50% drop every 9 months! Anyway those are the big laws that are immutable and washing against and over vertically integrated monopolies like giant unseen tsunamis.
Then there are the smaller laws, like my friend Russ McGuire at Sprint who penned, “The value of any product or service increases with its mobility.” Wow, that’s very metcalfian and almost infinite in value because the devices and associated pathways can move in 3 planes. I like that and have always believed in McGuire’s Law (even before he invented it!).
Since the early 1990s, when I was one of the few, if only, analyst on the Street to cover wired and wireless telecoms, I’ve been maintaining that wireless is merely access to wireline applications. While that has been validated finally with “the cloud” and business models and networks have been merging (at least at the corporate level) the majority of people still believe them to be fundamentally distinct. It shows in simple things like interfaces and lack of interoperability across 4 screens. Thankfully all that is steadily eroding due to cloud ecosystems and the enormous fight happening in the data world between the edge and the core and open vs closed: GOOG vs AAPL vs MSFT (and let’s not forget Mozilla, the OS to rule all OS’?).
Anyone who works in or with the carriers knows wireless and wired networks are indelibly linked and always have been in terms of backhaul transport to the cell-tower. But over the past 6 years the symbiosis has become much greater because of the smartphone. 1G and 2G digital networks were all capable of providing “data” connections from 1998-2006, but it really wasn’t until the iPhone happened on the scene in 2007 along with the advent of 3G networks that things really started taking off.
The key was Steve Jobs’ demand to AT&T that smartphone applications purchased through the App Store have unfettered access to the internet, be it through:
2G, which was relatively pervasive, but slow at 50-300kbps,
3G, which was not pervasive, but faster at 500-1500 kbps, or
Wifi (802.11g), which was pervasive in a lot of “fixed” areas like home, work or school.
The latter made a ton of sense sense, in particular, because data apps, unlike voice will more likely be used when one is relatively stationary, for obvious visual and coordination and safety reasons; the exception being music. In 2007 802.11g Wifi was already 54 mbps, or 30-50x faster than 3G, even though the Wifi radios on smartphones could only handle 30 mbps. It didn’t matter, since most apps rarely need more than 2 mbps to perform ok. Unfortunately, below 2 mbps they provided a dismal experience and that’s why 3G had such a short shelf-life and the carriers immediately began to roll out 4G.
Had Jobs not gotten his way, I think the world would be a much different place as the platforms would not have been so generative and scaled so quickly. This is an example of what I call Metcalfian “suck” of the application ecosystem for the carriers and nothing exemplified it better than the iPhone and App Store for the first few years as AT&T outpaced its rivals.
But few people to this day realize or appreciate that Steve Jobs revived equal access; something the carriers and federal government conspired to and successfully killed in the early 2000s. Equal access was the horse that brought us competitive voice in the early 1980s, competitive data in the early 1990s and helped scale digital wireless networks nationwide in the late 1990s. All the things we’re thankful for, yet have forgotten, or never entirely appreciated, how they came about.
Because of this “smart” or market driven form of equal access and in appreciation of Steve Jobs’ brilliance, I am going to introduce a new law. “The Law of Wireless Gravity: a wireless bit will seek out fiber as quickly and cheaply as possible.” I looked it up on google and it doesn’t exist. So now I am introducing it into the public domain under creative commons. Of course there will be plenty of metaphors about clouds and attraction and lightning to go along with the law.
I hope people abide by this law in all their thinking about and planning for broadband, fiber, gigabit networks, application ecosystems, devices, control layers, residential and commercial demand, etc…because it holds across all of those instances. Oh, yeah, it might actually counter the confusion over and disinformation about spectrum scarcity at the same time. And it might solve the digital divide problem, and the USF problem, and the bandwidth deficit….and even the budget deficit. Ok, one step at a time.
Is IP Growing UP? Is TCPOSIP the New Protocol Stack? Will Sessions Pay For Networks?
Oracle’s purchase of leading SBC vendor (session border controller Acme Packets), is a tiny seismic event in the technology and communications (ICT) landscape. Few notice the potential for much broader upheaval ahead.
SBCs, which have been around since 2000, facilitate traffic flow between different networks; IP to PSTN to IP and IP to IP. Historically traffic has been mostly voice, where minutes and costs count because that world has been mostly rate-based. Increasingly they are being used to manage and facilitate any type of traffic “sessions” across an array of public and private networks, be it voice, data, or video. The reasons are many-fold, including, security, quality of service, cost, and new service creation; all things TCP-IP don't account for.
Session control is layer 5 to TCP-IP’s 4 layer stack. A couple of weeks ago I pointed out that most internet wonks and bigots deride the OSI framework and feel that the 4 layer TCP-IP protocol stack won the “war”. But here is proof that as with all wars the victors typically subsume the best elements and qualities of the vanquished.
The single biggest hole in the internet and IP world view is bill and keep. Bill and keep’s origins derive from the fact that most of the overhead in data networks was fixed in the 1970s and 1980s. The component costs were relatively cheap compared with the mainframe costs that were being shared and the recurring transport/network costs were being arbitraged and shared by those protocols. Also, all the players, or nodes, were known and users connected via their mainframes. The PC and ethernet (a private networking/transmission protocol) scaled only later. So why bother with expensive and unnecessary QoS, billing, mediation and security in layers 5 and 6?
But Bill and Keep has three problems:
It supports incumbents and precludes new entrants
It stifles new service creation
It precludes centralized procurement and subsidization
With Acme, Oracle can provide solutions to problems two and three; with the smartphone driving the process. Oracle has java on 3 billion phones around the globe. Now imagine a session controller client on each device that can help with application and access management and preferential routing and billing etc, along with guaranteed QoS and real-time performance metrics and auditing; regardless of what network the device is currently on. The same holds in reverse in terms of managing "session state" across multiple devices/screens.
With all of those capabilities, large companies can use access networks (and I think this is also where big data will come into play) as a way to grow economies and increase transactions; just like 800, prepaid calling cards, VPNs and the internet itself. I call this process marrying the communications event to the commercial/economic transaction. The latter has far more value for service providers and large companies alike than the overpriced subscription models of today. Let's hope Oracle seizes the day.
TCP/IP Won, OSI Lost. Or Did It? Clue: Both Are Horizontal
Edmund Burke said, “Those who cannot remember the past are doomed to repeat it.”What he didn’t add, as it might have undermined his point, is that “history gets created in one moment and gets revised the next.”That’s what I like to say.And nothing could be more true when it comes to current telecom and infomedia policy and structure.How can anyone in government, academia, capital markets or the trade learn from history and make good long term decisions if they don’t have the facts straight?
I finished a book about the origins of the internet (ARPAnet, CSnet, NSFnet) called “where wizards stay up late, The Origins of The Internet” by Katie Hafner and Matthew Lyon written back in 1996, before the bubble and crash of web 1.0. It’s been a major read for computer geeks and has some lessons for people interested in information industry structures and business models. I cross both boundaries and was equally fascinated by the “anti-establishment” approach by the group of scientists and business developers at BBN, the DoD and academia, as well as the haphazard and evolutionary approach to development that resulted in an ecosystem very similar to what the original founders envisioned in the 1950s.
The book has become something of a bible for internet, and those I refer to as upper layer (application), fashionistas who, unfortunately, have, and are provided in the book with, very little understanding of the middle and lower layers of the service provider “stack”. While those upper layer fashionistas would like to simplify things and say, “so and so was a founder or chief contributor of the internet,” or “TCP/IP won and OSI lost,” actual history and reality suggest otherwise.
Ironically, the best way to look at the evolution of the internet is via the oft-maligned 7-layer OSI reference model. It happens to be the basis for one dimension of the InfoStack analytical engine. The InfoStack relates the horizontal layers (what we call service provisioning checklist for a complete solution) to geographic dispersion of traffic and demand on a 2nd axis, and to a 3rd axis which historically covered 4 disparate networks and business models but now maps to applications and market segments. Looking at how products, solutions and business models unfold along these axis provides a much better understanding of what really happens as 3 coordinates or vectors provides better than 90% accuracy around any given datapoint.
The book spans the time between the late 1950s and the early 1990s, but focuses principally on the late 1960s and early 1970s. Computers were enormously expensive and shared by users, but mostly on a local basis because of high cost and slow connections. No mention is made of the struggle modems and hardware vendors had to get level access to the telephone system and PCs had yet to burst on the scene. The issues around the high-cost monopoly communications network run by AT&T are only briefly mentioned; their impact and import lost to the reader.
The book makes no mention that by the 1980s development of what became the internet ecosystem really started picking up steam. After struggling to get a foothold on the “open” MaBell system since the 1950s, smartmodems burst on the scene in 1981. Modems accompanied developments that had been occurring with fax machines, answering machines and touchtone phones; all generative aspects of a nascent competitive voice/telecoms markets.
Then, in 1983, AT&T was broken up and an explosion in WAN (long-distance) competition drove pricing down, and advanced intelligent networks increased the possibility of dial-around bypass. (Incidentally, by 1990s touchtone penetration in the US was over 90% vs less than 20% in the rest of the world driving not only explosive growth in 800 calling, but VPN and card calling, and last but not least the simple "touchtone" numeric pager; one of the percursors to our digital cellphone revolution). The Bells responded to this potential long-distance bypass threat by seeking regulatory relief with expanded calling areas and flat-rate calling to preserve their Class 5 switch monopoly. All the while second line growth exploded, primarily as people connected fax machines and modems for their PCs.
Another foundation of the internet ecosystem, PCs, burst from the same lab (Xerox Parc) that was run by one of the founders of the Arpanet, Bob Taylor, who could deserve equal or more credit than Bob Kahn or Vint Cerf (inventors of TCP) for development of the internet. As well, the final 2 technological underpinnings that scaled the internet, Ethernet and Windows, were developed at Xerox Parc. These technology threads which should have been better developed in the book for their role in the demand for and growth of the internet.
In the end, what really laid the foundation for the internet were numerous efforts in parallel that developed outside the monopoly network and highly regulated information markets. These were all 'generative' to quote Zitrane. These parallel streams evolved into an ecosystem onto which www, http, html and mosaic, were laid--the middle and upper layers--of the 1.5 way, store and foreward, database lookup “internet” in the early to mid 1990s. Ironically and paradoxically this ecosystem came together just as the Telecom Act of 1996 was being formed and passed; underscored by the fact that the term “internet” is mentioned once in the entire Act and one of the reasons I labeled the Act “farcical” back in 1996.
But the biggest error of the book in my opinion is not the omission of all these efforts in parallel with the development of TCP/IP and giving them due weight in the internet ecosystem, rather concluding with the notion that TCP/IP won and the OSI reference model lost. This was disappointing and has had a huge, negative impact on perception and policy. What the authors should have said is that a horizontally oriented, low-cost, open protocol as part of a broader similarly oriented horizontal ecosystem beat out a vertically integrated, expensive, closed and siloed solution from monopoly service providers and vendors.
Last summer I attended a Bingham event at the Discovery Theatre in NYC’s Time Square to celebrate the Terracotta Warriors of China’s first emperor, Qin Shi Huang.What struck me was how far our Asian ancestors had advanced technically, socially and intellectually beyond our western forefathers by 200 BC. Huang's reign, which included the building of major transportation and information networks was followed by a period of nearly 1,500 years of relative peace (and stagnation) in China.It would take another 1,000 years for the westerners to catch up during periods of war, plague and socio-political upheaval.But once they passed their Asian brethren by the 15th and 16th centuries they never looked back. Having just finishedArt of War, by Sun Tsu, I asked myself, is war and strife necessary for mankind to advance?
This question was reinforced over the holidays upon visiting the Loire Valley in France, which most people associate with beautiful Louis XIV chateaus, a rich fairy-tale medieval history, and good wines. What most people don’t realize is that the Loire was a war-torn area for the better part of 400 years as the French (Counts of Blois) and English (Counts of Anjou; precursors to the Plantagenet dynasty of England) vied for domination of a then emerging Europe. The parallels between China and France 1,000 years later couldn’t have been more poignant.
After the French finally kicked the English out in the 1400s this once war-torn region became the center of the European renaissance and later the birthplace of the age of enlightenment. Francois 1st brought Leonardo from Italy for the last 3 years of his life and the French seized upon his way of thinking; to be followed a few centuries later by Voltaire and Rousseau. The French aristocracy, without wars to fight, invited them to stay in their Chateaus, built on the fortifications of the medieval castles, and develop their enduring principles of liberty, equality and fraternity. These in turn would become the foundations upon which America broadly based its constitution and structure of government; all of which in theory supports and leads to competitive markets and network neutrality; the basis of the internet.
And before I left on my trip, I bought a kindle version of Sex, Bombs and Burgers by Peter Nowak on the recommendation of an acquaintance at Bloomberg. Nowak’s premise is to base much of America’s advancement and success over the past 50 years on our warrior instincts and need to procreate and sustain life. I liked the book and recommend it to anyone, especially as I used to quip, “Web 1.0 of the 1990s was scaled by the 4 (application) horsemen: Content, Commerce, Communication and hard/soft-Core porn.” But the book also provides great insights beyond the growth of porn on the internet into our food industry and where our current military investments might be taking us physically and biologically.
While the book meanders on occasion, my take-away and answer to my above question is that war (and the struggle to survive by procreating and eating) increases the rate of technological innovations, which often then result in new products; themselves often mistakes or unintended commercial consequences from their original military intent. War increases the pace of innovation out of necessity, intensity and focus. After all, our state of fear is unnaturally heightened when someone is trying to kill us, underscoring the notion that fear and greed are man’s primary psychological and commercial motivators; not love and happiness.
Most people generally believe the internet is an example of a technological innovation hatched from the militarily driven space race; which is the premise for another book I am just starting Where Wizards Stay Up Late, by Hafner and Lyon. What most people fail to realize, including Nowak, is that the internet was an unintended consequence of the breakup of AT&T in 1983; another type of conflict or economic war that had been waged in the 1950s-1970s. In that war we had General William McGowan of MCI (microwave, the M in MCI, was a technology principally scaled during WW II) battling MaBell along with his ally the DOJ. At the same time, a group of civilian scientists in the Pentagon had been developing the ARPAnet, a weapon/tool developed to get around MaBell’s monopoly long-distance fortifications to enable low cost computer communications across the US and globally.
The two conflicts aligned in the late 1980s as the remnants of MaBell, the Baby Bells, sought regulatory relief through state and federal regulators from a viciously competitive WAN/long-distance sector to preserve two arcane, piggishly profitable monopoly revenue streams; namely intrastate tolls and terminating access. The regulatory relief provided was to expand local calling areas (LATAs) and go to flat rate (all you can eat) pricing models. By then modems and routers, outgrowths of ARPA related initiatives, had gotten cheap enough that the earliest ISPs could cost effectively build and market their own layer 1-2 nationwide "data bypass" networks across 5,000 local calling areas.
These networks allowed people to dial up a free or low cost local number and stay connected with a computer or database or server anywhere all day long. The notions of “free” and “cheap” and the collapse of distance were born. The internet started and scaled in the US because of partially competitive communications networks, whom no one else had in 1990. It would be 10 years before the ROW had an unlimited flat-rate access topology like the US.
Only after these foundational (pricing and infrastructure) elements were in place, did the government allow commercial nets to interconnect via the ARPAnet in 1988. This was followed by Tim B Lee's WWW in 1989 (a layer 3 address simplification standard) and http and html in subsequent years providing the basis for a simple to use, mass-market browser, mosaic, the precursor to Netscape, in 1993. The result was the Internet or Web 1.0, which was a 4 or 5 layer asynchronous communications stack mostly used as a store and forward database lookup tool.
The internet was the result of two wars being fought against the monopolies of the Soviet communists and American bellheads; both of which, ironically, share(d) common principles. Participants and commentators in the current network neutrality, access/USF reform and ITU debates, including Nowak, should be aware of these conflict-driven beginnings of the internet, in particular the power and impact of price, as it would modify their positions significantly with respect to these debates. Issues like horizontal scaling, vertical disintermediation and completeness, balanced settlement systems and open/equal access need to be better analyzed and addressed. What we find in almost every instance on the part of every participant in these debates is hypocritical and paradoxical positions, since people do not fully appreciate history and how they arrived at their relative and absolute positions.
A year ago it was rumored that 250 Apple employees were at CES 2012, even as the company refused to participate directly.The company could do no wrong and didn’t need the industry.For the better part of 9 months that appeared to be the case and Apple’s stock outperformed the market by 55%.But a few months on, and a screen size too small for phones and too big for tablets, a mapping app too limited, and finally a buggy OS, Apple’s excess performance over the market has narrowed to 10%.
Two major themes of this year’s CES--mobile device screen size and extensive application ecosystems to connect just about anything--will place Apple’s mobile dominance and lead further in doubt. To us it was already in evidence last year when we talked about the singularity. But the real reason today is becoming apparent to all, namely that Apple wants to keep people siloed into their product specific verticals. People and their applications don’t want that because the cloud lets people update, access and view information across 3 different screens and any platform. If you want Apple on one device, all your devices have to be Apple. It’s a twist on the old Henry Ford maxim, “you can have any device…as long as it is Apple.”
This strategy will fail further when the access portion of the phone gets disconnected from all the other components of the phone. It may take a few years for that to happen, but it will make a lot of sense to just buy an inexpensive dongle or device that connects to the 4G/5G/Wifi network (metro-local or MAN/LAN) and radiates Bluetooth, NFC and Wifi to a plethora of connected devices in the personal network (PAN). Imagine how well your “connection hub” would last if it didn’t need to power a screen and huge processor for all the different apps? There goes your device centric business model.
And all that potential device and application/cloud supply-side innovation means that current demand is far from saturated. The most recent Cisco forecasts indicate that 1/3rd of ALL internet traffic will be from mobile devices by 2016. In the US 37% of the mobile access will be via Wifi. Applications that utilize and benefit from mobility and transportability will continue to grow as overall internet access via a fixed computer will drop to 39% from 60% today.
While we believe this to be the case, the reality is far different today according to Sandvine, the broadband policy management company. This should cause the wireless carriers some concern as they look at future capacity costs. In their recent H2-2012 report Sandvine reveals that power smartphone users are already using 10x more than average smartphone users, or 317 megabytes a month vs 33. But even the former number is a far cry from the 7.3 gigabytes (20x) that the average person uses on their fixed broadband pipes (assuming 2.3 people per fixed broadband line). Sandvine estimates that total mobile access will grow from ~1 petabyte in H2-2012 to 17 petabytes by H2-2018.
My own consumption, since moving from 3G to 4G and going from a 4 to 4.7 inch screen is a 10x increase to 1-2 gigs 4G access and 3-6 gigs wifi access, for a total of 4-8 gigs a month. This is because I have gone from a “store and forward” mentality to a 7x24 multimedia consumption model. And I am just getting comfortable with cloud based access and streaming. All this sounds positive for growth and investment especially as the other 95% of mobile users evolve to these usage levels, but it will do the carriers no good if they are not strategically and competitively well positioned to handle the demand. Look for a lot of development in the lower access and transport layers including wifi offload and fiber and high-capacity microwave backhaul.
I met the Godfather of New York Venture capital a few weeks ago and I was talking about an arbitrage opportunity of a lifetime in the communications sector. I started talking about the lack of competition and resulting high prices (which I highlighted last week) brought about by bandwidth being 20-150x overpriced. He just looked at me and said, “bandwidth issue? What bandwidth issue!” It just so happens that his current prize investment is an IPTV application. I just rolled my eyes thinking, “if he only knew!”, remembering what happened to all the web 1.0 companies that ran into the broadband brick wall in 2000.
This statement is symptomatic of the complacency amongst the venture community; those investing billions in the upper layers of the stack. Yet people on Main Street, as evidenced by the Kansas City Fiber video on the Fiber To The Home Council website indicating that 1,000 communities had responded to the contest with over 200,000 people directly involved, know otherwise.
The numbers tell a worse story. Because of the CLEC boom-bust 10-15 years ago, rescission of equal access, failure of muni-WiFi and Wimax and BTOP crowding-out Telecom spending has disconnected from other venture spending over the past decade. Based on overall VC spending telecom spending should be 2-3x greater than it is. Instead it stands 70% below where it was from 1995-2005. It took a while for competition to die, but now it is official!
Venture spending today for the sector, which used to average 15-20% of total VC spending is now down below 5% over the past 3 years. All the other TMT sectors have held nearly constant with overall VC spending.
Everyone should look at these numbers with alarm and reach out to policy makers, academics, trade folks, the venture community and capital markets to make them aware of the dearth of investment as a result of the lack of competition. Now, more than ever contrarian investors should look at the monopoly pricing and realize there is significant profits to be made at all layers of the stack.
Thursday December 19, 2013 will commemorate the 100 year anniversary of the Kingsbury Commitment. There are 528 days remaining. Let's plan something special to observe this tragic moment.
In return for universal service, AT&T was granted a "natural monopoly". The democratic government in the US, one of the few at the time, recognized the virtue of open communications for all and foolishly agreed to Ted Vail's deceptions. Arguably, this one day changed the course of mankind for 50-70 years. Who knows what might have been if we had fostered low-cost communications in the first half of the century?
Anyway, when universal service didn't happen (no sh-t sherlock) the government stepped in to ensure universal service in 1934. So on top of an overpriced monopoly the American public was taxed to ensure 100% of the population got the benefit of being connected. Today, that tax amounts to $15 billion annually to support overpriced service to less than 5% of the population. (Competitive networks have shown how this number gets driven to zero!)
Finally in the early 1980s, after nearly 30 years (the final case started in 1974 and took nearly 9 years) of trying the Department of Justice got a Judge to break up the monopoly into smaller monopolies and provide "equal access" to competitors. The AT&T monopoly was dead; long live the Baby Bell monopolies! But the divestiture began a competitive long-distance (WAN) digitization "wave" in the 1980s that resulted in, amongst other things:
90-99% drop in pricing
90% touchtone penetration by 1990 vs 20% ROW
Return of large volume corporate traffic via VPN services
Explosion of free, 800 access (nearly 50% of traffic by 1996)
Over 4 (upwards of 7 in some regions/routes) WAN fiber buildouts
Bell regulatory relief on intralata tolls via expanding calling areas (LATAs)
Introduction of flat-rate local pricing by the Bells
The latter begat the Internet, the second wave of digitization in the early 1990s. The scaling of Wintel driven by the Internet paved the way for low-cost digital cellphones, the third wave of digitization in the late 1990s. By 1999 our economy had come back to the forefront on the global scene and our budget was balanced and we were in a position to pay down our national debt. I expected the 4th and Final Wave of last mile (broadband) digitization to start sometime in the mid to late 2000s. It never came. In fact the opposite happened because of 3 discrete regulatory actions:
1996 Telecom Act
2002 Special Access Deregulation
2004 Rescision of Equal Access and Bell entry into Long Distance (WAN)
Look at the following 6 charts and try not to blink or cry. In all cases, there is no reason why the prices in the US are not 50-70% lower; if not more. We have the scale. We have the usage. We have the industries. We have the technology. We started all the 3 prior waves and should have oriented our vertically integrated service providers horizontally a la the data processing industry to effectively deal with rapid technological change. Finally, we have Moore's and Metcalfe's laws, which argue for a near 60% reduction in bandwidth pricing and/or improved performance annually!
But the government abetted a remonopolization of the sector over the past 15 years.
It's almost a tragedy to be American on this July 4 week. The FCC and the government killed competition brought about by Bill McGowan. But in 2007 Steve Jobs resurrected equal access and competition. So I guess it's great to be American after all! Many thanks to Wall and the Canadian government for these stats.
I’ve been waiting nearly 2 decades for Big Bang II.An adult flick?No, the sequel to Big Bang (aka the breakup of MaBell and the introduction of equal access) was supposed to be the breakup of the local monopoly.Well thanks to the Telecom Act of 1996 and the well-intentioned farce that it was, that didn’t happen and equal access officially died (equal access RIP) in 2004.Or did it?
I am announcing that Equal Access is alive and well, albeit in a totally unexpected way.Thanks to Steve Jobs’ epochal demands put on AT&T to counter its terrible network, every smartphone has a 802.11 backdoor built-in.Together with the Apple and Google operating systems being firmly out of carriers’ hands and scaling across other devices (tablets, etc…) a large ecosystem of over-the-top, unified communications and traffic offload applications is developing to attack the wireless hegemony.
Cisco just forecast that 50% of all internet traffic will be generated from 802.11 connected devices.Given that 802.11’s costs are 1/10th those of 4G something HAS to give for the communications carrier.We’ve talked about them needing to address the pricing paradox of voice and data better, as well as the potential for real obviation at the hands of the application and control layer worlds.While they might think they have a near monopoly on the lower layers, Steve Job’s ghost may well come back to haunt them if alternative access networks/topologies get developed that take advantage of this equal access. For these networks to happen they will need to think digital, understand, project and foster vertically complete systems and be able to turn the "lightswitch on" for their addressable markets.
The first quarter global smartphone stats are in and it isn’t even close. With the market growing more than 40%+, Samsung controls 29% of the market and Apple 24%.The next largest, Nokia came in 60-70% below the leaders at 8%, followed by RIMM at 7% and HTC at 5%, leaving the scraps (28%) to Sony, Motorola, LG, ZTE. They've all already lost on the scale front; they need to change the playing field.
While this spread sounds large and improbable, it is not without historical precedent.In 1914, just 6 years after its introduction the Ford Model T commanded 48% market share.Even by 1923 the car still had 40% market share.2 years later the price stood at $260, which was 30% of the original model in 1908, and less than 10% what the average car cost in 1908; sounds awfully similar to Moore’s law and the pricing of computer/phone devices over the past 30 years.Also, a read on the Model T's technological and design principles sounds a lot like pages taken out of the book of Apple.Or is it the other way around?
Another similarity was Ford’s insistence on the use of black beginning in 1914.Over the life of the car 30 different variations of black were used!The color limitation was a key ingredient in the low cost as prior to 1914, the company used blue, green, red and grey.Still 30 variations of black (just like Apple’s choice of white and black only) is impressive and is eerily similar to Dutch Master Frans Hals’ use of 27 variations of Black, so inspirational to Van Gogh. Who says we can’t learn from history.
Ford’s commanding lead continued through 1925 even as competitors introduced many new features, designs and colors.Throughout, Ford was the price leader, but when the end came for that strategy it was swift. Within 3 years the company had completely changed its product philosophy introducing the Model A (with 4 colors and no black) and running up staggering losses in 1927-28 in the process.But the company saw market share rebound from 30% to 45% in the process; something that might have been maintained for a while had not the depression hit.
The parallels between the smartphone and automobile seem striking. The networks are the roads.The pricing plans are the gasoline.Cars were the essential component for economic advancement in the first half of the 20th century, just as smartphones are the key for economic development in the first half of the 21st century.
So what are the laggards to do to make it an even race?We don’t think Nokia’s strategy of coming out with a different color will matter.Nor do we think that more features will matter.Nor do we think it will be about price/cost.So the only answer lies in context; something we have raised in the past on the outlook for the carriers.More to come on how context can be applied to devices. Hint, I said devices, not smartphones. We'll also explore what sets Samsung and Apple apart from the rest of the pack.