BT Becomes a Services Based Giant

JP Rangaswami Explains the Strategy Behind BT’s Move to an Open Multi-sided Services Platform Enabling Production Rather than Speculative Capital

This issue features an in depth examination of the changes at British Telecom. Freed to ‘think differently’ by the sale of its wireless business in late 2001 and the arrival of CEO Ben Verwaayen in January 2002, JP explains how BT changed its focus from hardware devices and billable minutes to software and billable services. . How to purchase this issue. $350 or $1400 group.

April 30, Ewing, NJ -- The June issue looks at the transformation of British Telecom.

Executive Summary

BT Strategy pp. 1-15

This issue features an in depth examination of the changes at British Telecom. Freed to ‘think differently’ by the sale of its wireless business in late 2001 and the arrival of CEO Ben Verwaayen in January 2002, JP explains how BT changed its focus from hardware devices and billable minutes to software and billable services. A switch to an all IP network is making it possible for this incumbent to offer an agnostic and open multi-sided services platform that is like a utility where the customer can plug in and either buy the rough equivalent of raw cycles and do the remainder of what they need done themselves or choose from an open ended menu of services to do what they wish to do and have BT do the rest. All services are not yet available but the strategic details are and JP in a private interview and a recorded public session at the Loma Linda COOK-In is extremely detailed and open about BT management philosophy and the direction in which things are headed.

JP at the end of the interview said: Our goal is to say we can unwrap this all-IP network, which gives us the ability to do things from a remote perspective in ways we could not before. We can unwrap it with a series of assets that go from the data centre to the desktop. When we expose those assets, we are going to have effectively created an environment which lets our customers, whether it is an individual consumer or whether it is a large enterprise, choose how they want to engage with us, no longer as slaves, being locked in by what we give them, but free to walk into our market-place, make selections and leave. What we are hoping to do is attract many of those customers to build things with us, because they are not interested in owning the tools, they are just interested in using the tools.

The bottom line of this extremely important development is that BT is showing that it is possible for a telco to transition from a drag on a nation’s economy to a facilitator of growth. For further detail please read the introduction to this issue on pages 1 through four and then the interview and discussion on pages 5 through 31.

Rangaswami Waclawski Discussion – a few excerpts pp.16-31

JP Rangaswami: It could be about switching from finance capital to production capital, but actually, it is much closer to an understanding of the cause and effect, because as something modernises, I think the premise was that instead of making money with something, you make money because of something, and that was the real shift that has taken place in finance capital and production capital.

[snip] I am not sure how many of you agree, but I find explaining it in the context of an airport is the best way I know how to describe an open, multi-sided services platform. If you go through the airport, it has the capacity for planes to land and take off and for people to get on and off. That, in some countries, is an airport. As you scale up, you have to add some concept of a check-in desk.

As you scale up further, you need to bring in simple things like security, because of volumes. If you go international, you bring in immigration, and you also will need some concept of conveyor belts for taking luggage on and off. However, it is still a single purpose for helping people and their things get onto a plane and get off it and for the planes to land and take off. snip

Erik Cecil: Do you think you see anywhere that a wireline business is ever going to approach the valuations that you are seeing in something like Google?

JP Rangaswami: It ought to possible at some point. But repeating Carlota's comments at various points, we are wondering the paradigm is shifting, a move from finance to production, whether we will ever get the valuations, because I am not sure that she makes that point clearly, but I think there are two different groups of valuations, one when you have your financial centre, you have the peaks and the troughs and the crashes, and the other when you are running a steady state production business. I think that for BT, the value is going to come from long-term innovation rather than stock-market bubbles, so I do not know whether I will ever get the valuations and whether we can even aspire to do so. I think the speculative game is over for ICT. Right now we just die back, because we are already operators.

COOK Report: But this shift is how you get into the great golden age of deployment.

JP Rangaswami: That golden age is the innovation spreads to a much larger market, much larger populations, and part of the reason the spread is that great is because it is open and the openness reduces your lock-in and therefore where are you going to make progress? The finance guys want the customer lock, the windfall profit. The more they get that, the more they can give us in the valuation.

Symposium Discussion p. 32

Bill St Arnaud and James Hettrick debate the strengths and weaknesses of microtrenching as a means of laying fiber.
Hettrick: Things to remember about micro trenching that make it cost effective.
It is not meant to be a panacea for fiber deployment it is meant to be a tool to bring down the cost and make the behind the curb deployment efficient. [snip]


Bill St Arnaud: Unfortunately there is no magic solution for fiber. Each installation is depend on a variety of local conditions:
-- Aerial remains by far the easiest, cheapest (and surprisingly the most reliable)
-- If you can't do aerial, slot or mirco trenching is cost effective if you are on bed rock
- there are basically 3 types - in the curb, curb side and in the pavement

In some neighborhoods you can use "cut and cover" tools for direct bury again with micro conduit or fiber through the front lawns. Directional boring and hydraulic vertical borers works well as long as there is know bedrock and low takeup installations Backhoe trenching is the most expensive.

Hettrick: Bill brings up a good point about permitting. In fact in many cases Aerial requires permitting as well. I think we are both saying it takes a concerted effort to understand all the variables for installing fiber.


Network Stupidity and the Nine Step Regulatory Plan

List members engage in another and very excellent discussion of the frustrations of Regulation. Some highlights:

Mark Cooper: The network is only stupid because regulator prevented it from becoming smart. In the U.S. there has been a constant struggle over the last twenty years to prevent the network operators (telcos and cable) from reasserting central control, which is coming to a head in Comcast's assault on P2P. Openness is not the natural state of the communications network in mass society, it requires active intervention by the regulator.

If the FCC had failed to provide a space for non-facilities based ESP in the Computer Inquiries, the ISPs that were allowed to use the network would have been serfs to the feudal lord (AT&T, later the Baby Bells). AT&T would have exterminated them.

Erik Cecil: Regardless, these networks and their dusty rules can be and are used to make stupid networks act in very complicated and expensive ways. David is spot-on when he says that "'active intervention by the regulator'" forces "the [stupid] network[s] to become 'smart'". This is because regulators are jumping into the Internet right and left. Why? Simple. Because they can. They've got to have something to do. Landline voice is a dying business. Wireless continues to grow and VoIP is on the upswing. And there are fewer entities to regulate these days.

So, in state after state, PUC after PUC, every day there's some new proceeding trying to shoehorn IP-based networks and services into ancient regulatory models.

Chris Savage: 1. Some markets work, some don't.
2. Sometimes the ones that don't work, don't work because some of the suppliers have market power.
3. At that point you can either:
(a) do nothing and let the market-powered suppliers screw consumers and hope something eventually happens to erode the conditions that create market power; (b) take affirmative steps to change the conditions that create the market power; or (c) leave the underlying conditions in place but regulate the providers with market power.
4. If the product/service in question is sufficiently inessential and the consumer-screwing isn't so bad, probably (a) is the best choice.
5. If the service is seen as essential and/or the consumer-screwing gets bad enough, public pressure pushes the government to choices (b) or (c).
6. Market-powered suppliers just really, really hate option (b). This hatred usually takes the form of arguments seeking "deregulation" because "the market knows best how to meet consumer needs," or avoiding "creating an un-level playing field" or "engaging in Japanese-style industrial policy" or "picking winners and losers rather than just calling balls and strikes" or similar hoo-rah.
7. Therefore we typically end up with option (c). This is because, while market-powered suppliers would prefer option (a), even if they get it, sooner or later they overstep the bounds of acceptable consumer-screwing and we end up with (c) anyway.
8. Regulation being regulation, normally what happens is that over time you end up with such a kludge that everyone recognizes it as such and you try to sweep it away and start over. E.g., the 1996 Act here in the US.
Go to (1), above.


BT Becomes a Services Based Giant

JP Rangaswami Explains the Strategy Behind BT's Move to an Open Multi-sided Services Platform Enabling Production Rather than Speculative Capital

A Brief Summary of the Critical Changes at BT p. 2

The Importance of a Perezian View of Capital Investment in an all IP Network p. 2

Do it Yourself Fiber at the Municipal Level p. 4

The Understanding Driving the Strategy Behind the Open Multi-Sided Services Platform

JP Rangaswami Explains the Development of a Production Capital Oriented, Internet Friendly Carrier

Editor's Introduction - Some Context Setting p. 5

The Rise and Fall p. 5

A Major Strategy Change p. 6

The Role of the CIO at BT: Outsourcing, Agile Practices and Customer Experience p. 6

Proving that Transformation Could Take Place Within BT p. 7

Utility Computing and the Provisioning of Services p. 8

The Importance of a Perezian View of Capital Investment in an All IP Network p. 10

Three Ways of Engagement: Tools to do it yourself; Us to Do it for You; or Software as Service p. 12

What is Meant by Presence in 190 Countries? p. 13

What the IP Network Makes Possible p. 13

Postscript: p. 14

Two Visionaries Discuss Where Technology Is Pushing the Business Model of Telecommunications

John Waclawsky and JP Rangaswami on What Kind of Change Is Needed and How to bring it About p.16

In Search of a Metaphor - an Airport as Open Multi-sided Platform p. 19

Hyper Connectivity p. 21

Identity p. 22

Stewardship p. 23

Future Valuations: From Finance or Deployment Capital? p. 24

Understanding the Influence of Environment on Innovation p. 26

Having the Advantage of Service Operation without the Burdensof Being an Operator p. 28

Communities and Community Networks p. 29

Symposium Discussion March 18 - April 24 2008

The Economics of Micro-trenching for Laying Fiber p. 32

Network Stupidity and the Nine Step Regulatory Plan p. 36

Is There a Free Market? p. 43

Government is a Market Participant p. 45

Executive Summary p.49

Symposium & Interview Contributors to this Issue

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

Kevin Barron, Information Systems Director, KITP, UC Santa Barbara

Erik Cecil, Telecom Regulatory Attorney

Vint Cerf, Internet Evangelist, Google

Roland Cole, Director of Technology Policy at Sagamore Institute for Policy Research

Mark Cooper, Director of Research of the Consumer Federation of America

Susan Estrada, President First Mile.US

Fred Goldstein, Principal of Ionary Consulting, author of The Great Telecom Meltdown

Mary Beth Henry, Deputy Director _Office of Cable Communications, Portland, Oregon

James Hettrick, CEO Is - Ms

Erik Hunsinger, Engineer Level 3

Jerry Michalski, Consultant and Proprietor Jerry's Retreats

Chris Savage, Partner Davis Wright Tremaine, LLP Washington, DC

Doc Searls, Senior Editor, Linux Journal

Bill St Arnaud, Director Ca*Net4, Canada's high speed research network

Jp Rangaswami, Managing Director BT Design

Brough Turner, Co Founder NMS Communications

Tom Vest, Consultant, Caida, Ripe, ICANN

David Young, Vice President of Federal Regulatory Affairs for Verizon

John Waclawsky, Chief Software Architect, Motorola

Sara Wedeman, Principal Behavioral Economics