A Practical Navigator for the Internet Economy

Open Cell Phones, Innovations in Radios and in Opto-Electronics Provide Challenges to Incumbents

As the Center Can No Longer Hold All Value Captive,
Will Those Operating Silo's Become an Endangered Species?

 

How to purchase this issue. $150 or $450 group.

December 29, 2006 Ewing, NJ -- The February issue contains an introduction on open phones and and interview with John Waclawsky that defines the characteristics of the 21 century NetCo that exists to deliver value to its customers. An interview with John Bowers explains his terra-scale research at UC Santa Barbara.

Executive Summary

In Search of a Business Model for 21st Century Telecom

Introduction

The incumbent carriers, like Rip van Winkle, still slumber. They are blissfully unaware of how Moore’s Law, components standards processes and the Internet have combined to make their old business models of metered use–models to which they still tenaciously cling in a digital and fiber-borne age - inhibitors to the emergence of a global environment of collaboration, e-learning, identity expression and social networking. In this new world there are ranges of new business opportunities that go far beyond the basic telephony business model of connecting two people by voice.

 

Fixated on an idea that ownership and control of everything in the network is paramount, the carriers are ignorant of Waclawsky’s Law: – opportunity for profits lies not at the core of one’s network but rather in the delivery of value to users at the edge of the network. The value delivered encourages innovation both in new devices, and in new services that drive bandwidth use. The carriers’ management understands that the digital revolution means the commoditization of the core of their network. Reacting in fear, they try to lock up their customers and lock down their networks. Globally they spend over $30 to 40 billion per year on a complex web of operations support systems and billing support systems designed to keep their revenues high by making the use of their networks an order of magnitude more expensive than would be necessary if they looked at the OpEx and CapEx expenses needed to maintain their physical plant and then charged a flat rate fee necessary to balance income against cost and (like IBM did a decade ago), restyled themselves as enablers and facilitators of new edge-based businesses.

Of course it will not turn out to be quite so simple. The carriers are like the Titanic. You don’t turn them around on a dime. The requirements of their financial risk managers and bond holders will be used as excuses to allow them to lumber on. With the developments reported in this issue – open phones undergirding an edge-managed identity and life style, the device makers, Nokia, Motorola, Samsung, FIC, HP and others have good reasons to want to break from the carriers’ model of scarcity.

The problem is where and how do you take the first plunge? Fiber-to-the-home density in Japan is getting to be high enough to try. But there maybe a better opportunity that is not nearly so readily apparent. Motorola has recently opened a research facility employing a thousand engineers in Hyderabad the capital of Andhra Pradesh, India. Consequently, Motorola has a major investment in the capital of the Indian province that also is home to a vast greenfield fiber network stretching into 21,000 villages across an area the size of the state of Colorado with a population of eighty million people. It seems to me that Padmasree Warrior the new Motorola CTO should find an opportunity to sit down with the Chief Minister of Andhra Pradesh, Dr. Y.S. Rajasekhara Reddy to discuss how to make the province’s new fiber network a testbed for the mobile always connected philosophy described in this issue.

The Asian market for mobile devices is far larger than the US or Europe. Andhra Pradesh’s fiber network could be mated to Motorola’s vision and create a testbed for finding out what happens when you given 80 million people a model of plenty rather than scarcity. If I were Motorola, I would start to grow the 21st century telecom business model in Andhra Pradesh. Nokia and the other device makers would not be far behind. The world would never be the same.

An Internet Strategy for Network Operators p.8

John Waclawsky (Software Architect Motorola) has a new, different and much needed vision:
Deliver value to your end user customer by making the networks in his environment seamlessly interact with one another. Enable peer to peer applications, make sure the interwork with each other. Encourage your customer at the edge to experiment and use bandwidth.

Quotes- John said: "It is very common perspective of networking people to look from the inside of their network outward to the edge, to their users. I think when you take that point of view you miss the bigger picture. My framework is to start with the perspective of the end user as she or he looks into the network, and ask myself what do the users want to do?

If you go looking at these issue first and foremost from the stand point of money – that is what you as owner of a network can charge people while they use your silo, you will loose sight of the revolution in social networking because that revolution is not about money. It’s about reputation and identity and Maslow.

Now if you start to think outside the vertical silo, you may, for example, realize that perhaps one of your monetization opportunities is secure “reputation.”

If you think that you are going to link up hundreds of billions of smart devices and radios everywhere and your point of view is a single layer of connectivity – you would provide GSM or CDMA, or perhaps you are the cable company, forget about whatever other options may be available to the end user because if you are a specialist in any one of these areas you are missing everything else.

If you look ahead you will have to realize that these new social networks are coming and will be used, like it or not. Peer-to-peer overlay networks are taking shape. Edge network services will occur. If people can’t find the services they need, someone on the edge will figure it out. All these services will happen in support of the user’s need to belong and express who they are.

Edge to edge will become the predominant paradigm as it opens many new opportunities. What it all comes down to is that we need to go beyond thinking about minutes and services and instead contemplate how we can offer the foundation functions or enabling mechanisms for a world of millions and perhaps even billions of overlapping peer-to-peer environments that will run over numerous physical transports that enable us to belong and participate in other social networking activities and deliver them seamlessly to the edge, in other words to the peer networks."

Summary: It is not about voice or communications services. It’s about getting people together by means of location and presence technology so that for your customers it is like about being “almost there.” What you sell is the ability to express yourself and to collaborate.

It is not about ARPU and traffic coming into your network for which you can charge. It is about you providing to the edge devices information to satisfy identity needs, providing location information, providing file services, providing privacy enabling tools and services, search services, wuffie services, financial payment services, e-navigation, directory sync, advertising, mobility support, simplification, usability, group formation and the list goes on and on and on. All of these are value added services for which customers would pay if they were treated like customers rather than revenue producing units.

Advances in Opto-electronics Enable Optical Switching and Integrated Terra Scale Modulators - p.24

One problem is using the abundance created by advances achieved in sending data through fiber and by Moore’s law in making more powerful CPUs and associated circuits. As silicon chips and their associated components becomes more densely packed, they use much more electricity and produce much more heat. John Bowers, Professor of Electrical Engineering describes his work with both the Intel opto-electronic chip design research project and with Calient networks.

As CPU architectures become more dense Intel’s answer to heat and power consumption has been its parallel processing Cores. A part of the power reduction and heat reduction strategy is to make the chip process as much data optically as possible, John describes the work his lab is doing to put hundreds and then thousands of lasers on individual integrated circuits. The objective in addition to reducing heat and power consumption is to reduce electrical transmission of data as much as possible. The substitution of lasers for electricity is very effective. The problem is integrating the necessary material into the chip development process. It looks as though John has solved this problem as he explains his groups efforts to develop a tera-scale optical modulator (25 forty gigabit per second wavelengths) as a single integrated component. The goal here is 1000 fold cost reduction or more. This holds out the hope of individually affordable optical transmission. If individuals can just get access to fiber.

Moving on to Calient optical switches, John explains the development of 320 by 320 3D MEMs that allows the design of a powerful switch with only 2 MEMs needed for every port. This achieves a dramatic reduction in the cost per port. The final aspect that makes the switch very desirable from an operational point of view is that it makes it possible to fiber in software rather than physically.

Quotes: Current across a junction in silicon gives heat. Current across a junction of indium phosphide emits light. This is why all lasers are made of indium phosphide or gallium arsenide or III-V compounds that are efficient light emitters.

We have found a way to put it into the back end of the process. When you finish your CMOS processing perhaps 75 to 90 percent of the optical wave guide technology is complete. At this point we add in a III-V layer that gives us light or absorption or amplification, and you have just found a way to make integrated circuits of lasers on silicon. Our goal, which I think is very achievable, is to make these transmitters for, at most, a dollar each rather than a cost of a thousand to five thousand each.p> Intel also has a lot of interest in telecommunications. They sell a lot of communications chips and they are very much involved in transceivers. The problem is that today a transceiver costs $100 minimum. You could not therefore put a transceiver on each pin of a processor. That would be prohibitively expensive. We are looking therefore for a way to go from a hundred dollars per pin to a penny per pin.

COOK Report: The transceiver is the laser that pumps out the photons. Right?

 

Bowers: Right. The transceiver is also what receives and transmits the data from your home Internet connection. Intel wants to make that a relatively high volume, very very low cost item. We want to achieve what they did for CMOS.

Symposium
Discussion: p. 37

David Isenberg offers his analysis of open phones. Useful rumored information about Apple's plans for an I-Phone

Bill St Arnaud: A new book worth reading is called "Outside Innovation: How your customers will co-design your company's future" Patricia B Seybold Harper Business press. She argues that most companies make two common mistakes about their customers: First they think customers can't innovate and so innovation must be driven internally and second that they believe they already do a good job of listening to their customers.

A good example of this type of thinking is how many carriers want to build walled gardens in the belief that they can provide the innovative services that their customers need. But this archetypical business model is being undermined by new open source tools.

Doc Searls to Tim Nulty of Burlington Telecom: What would happen if, instead of offering triple play -- or perhaps alongside triple play, you offered what Korea does -- 100MB (or whatever your maximum capacity might be) to everybody for a flat rate?

Here's one thing you might get: People like me, willing to move to Burlington, just for the connection. We may be an elite today, but we are not few. Meanwhile, one big problem we all share, here in the U.S., is a complete absence of imagination about what one can do with real unencumbered Net capacity. We need to shine a light on that.

People don't demand what they don't know. Markets grow in two ways. One is by suppliers satisfying demand. Necessity mothers invention. The other is by suppliers creating demand. Invention mothers necessity. We need both. Especially the latter.

How the Telcos Could Improve Internet Service p.43

Editor: There is a large unmet need here. Systems integrators – teach people how the components can go together. There should be a huge demand to learn how to assess and adopt edge-based resources. If the telcos could only get smart they could develop business models designed to increase bandwidth usage and peer to peer traffic and edge based creativity and then offer to teach their customers how to use the richness that the edge develops.

December 1 Coluccio: Lest there be any doubts, the entirety of what sits below this line is from the blog: Ian's Chips and Tech, at:

http://hnorth.wordpress.com/2006/12/01/ten-things-to-hate-about-internet-services-telco-20/ This is a jointly edited guest post by the Telco 2.0 team and Keith McMahon, who writes incisive insights over at Telebusillis. Keith strongly feels that network operators are not putting up nearly as good a fight as they could or should be doing in competing with Internet services.

Last month, securities analyst James Enck gave a hammering list of reasons why investors are shy of putting their money into telecom operator stocks. Whilst telcos need to play to their strengths, it is where those strengths are opposed to weaknesses in the Internet players that the biggest opportunities can be seen.

So here are Ten Things to Hate About Internet Services. Some of these problems are derived from issues with the Internet’s architecture, many are about the businesses built on top of the network.

Andrew Odlyzko Explains Why Cities are Better Positioned to Fund Infrastructure than Corporations p. 46

for the time being we are in a situation where corporations have very high hurdle rates for new investments. I think it was one of Ken Belson's articles from the NYT that was posted here a month or two ago that complained about lack of broadband in rural New England, and cited how the ILEC there expected investments to pay in two or three years. That kind of horizon is common today, not just in telecom, but is crazy by historical standards.

Just to take an example, suppose we are talking of FTTH at $2,000 per household. If you are planning to finance it with equity at 25% annual profit rates (totally unrealistic by historical standards, but absurdly low if you measure yourself by the example of Google), you are talking of $500 per year per household just to pay for that, which is $40 per month. But if you are a municipality, and borrow at tax-free interest rate of 4% per year, you need just $80 per year, or $7 per month per household.

St Arnaud: I would argue that why there is so little investment in broadband by the private sector is due to the god awful ROI. At first blush broadband would seem to have spectacular returns - but that is predicated on 100% up take. [snip] My prediction is that soon broadband and fiber to the home will be free and positioned as a loss leader, rather than an investment opportunity in its own right. The trick is to find a business case that takes this into account.

Coluccio: If ever there was a rationale required for municipalities to agree to undertake the administration of fiber infrastructure underlays and their associated support structures, you couldn't find a better one than Andrew's debt financing model and Bill's ROI argument. Together they conspire, convincingly, to explain why city and state water supply systems and other public works are financed with horizons specified in multiple decades, not single digit years.

Eben Moglen on Economics of Free Software

Editor’s Note: Moglen is the attorney for the Free Software Foundation. His keynote address to this year’s annual meeting was quite inspiring. You may listen to it at
http://www.youtube.com/watch?v=NorfgQlEJv8

No Price Information Means No Backbone Market

Harold Feld: I was just at a fascinating discussion where those who know better than I were complaining loudly about how awful the backbone market is for small and mid-size purchasers outside major urban areas. The consensus is that there are a lot of assets available (e.g., lots of dark fiber around) but no good way to get enough information to negotiate for transport. All agreements are individually negotiated and NDAed and no one can figure out a fair price other than by guessing.

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Contents

Open Cell Phones, Innovations in Radios and in Opto-Electronics Provide Challenges to Incumbents

As the Center Can No Longer Hold All Value Captive, Will Those Operating Silo's Become an Endangered Species?

Understanding What Your Customers Want p. 1
Open Phones - At Last p. 2
The Application Will Sell the Phone p. 3
A Sales Force Dot Com Application for the FIC Open Moko Phone p. 6
Storm Warnings Ahead: Vista versus Waclawsky’s Law p. 6

Open Phones Can Lower Development and OpEx Expense for Vendors and Carriers

An Internet Strategy for Network Operators

Find Opportunity by Offering Value to Your Customer at the Edge and Make it Possible for Your Customers to Live an Always-on-net, Always-Interconnected Life Style

Change Must Start with the Perspective of the User at the Edge p. 8
The Opportunity Is Connectivity and the Goal Is End User Value p. 9
Patterns of End User Behavior Changing p. 10
Networking is “Belonging” Brought about by Constant Connectivity p. 11
Reputation and Community of Interest p. 13
Identity Management p. 15
Connecting Everyone to Everything p. 19

Padmasree Warrior and Strategic Change at Motorola

Environmental Phase Change p. 22
In India A Huge Opportunity Lurks p. 23

Slashing the Cost of Optical Bandwidth

John Bowers Explains How Advances in Opto-electronics Enable Optical Switching and Integrated Terra Scale Modulators

The Technology Management Program p. 24
How to Make Less Expensive Opto-electronics p. 25
The Joint Research with Intel p. 26
Tera Scale Integration p. 30
Optical Switching versus Routing p. 33
The Marketplace Role for Optical Switching Technology p 35

Symposium Discussion November 17 - December 17, 2006

Breaching the Cellcos' Garden Wall with Open Phones that Add value from the Edge p.37

If a Telco Could be Taught to Think like Internet Provider the PSTN Might Fade Away p. 38
A Future vs. Present Argument in the Context of Burlington Telecom p. 40

Could the Telcos Become Service Companies?

Ten Ways They Could Improve Internet Service p. 43
Rural Broadband and the Economy – Educate, Teach, Facilitate p. 44
Working with Your Customer p. 47
The Killer App is Simplicity p. 49
BT’s Global Venture Business – a Critique p. 49
Telcos’ Service Delivery Platform as IMS Second Cousin? p. 51
Eben Moglen on Economics of Free Software p. 54
No Price Information Means No Backbone Market p. 54

Executive Summary In Search of a Business Model for 21st Century Telecom p. 57

Symposium & Interview Contributors to this Issue

Affiliation given for purposes of identification - views expressed are those of the contributors alone

John Bowers, CTO Calient and Professor Electrical Engineering UC Santa Barbara Frank Coluccio, President DTI Consulting Inc., New York City
Sean Donelan, Security Analyst Cisco
Bob Frankston, developed Visicalc and Lotus and later home networking at Microsoft
Harold Feld, Vice President Media Access Project
Tom Hertz, CTO Fiber Utilities
Bruce Kushnick, Founder Teletruth and author 200 Billion Broadband Scandal
Tim Nulty runs Burlington Telecom, in Burlington Vermont
Andrew Odlyzko, Director Digital Technology Center, University of Minnesota
Henrdrik Rood, Principal Stratix Consulting, Delft, The Netherlands
Doc Searls Editor Linux Journal and Doc’s IT Garage blog, ClueTrain Co-author
Bill St Arnaud, Director Ca*Net4, Canada’s high speed research network
John Waclawsky, Chief Software Architect, Motorola