Tuesday, December 19, 2006

Fight to the death: Net Neutrality

Bring up the topic of Net Neutrality and it's not unlikely that an audience will roll their eyes and sigh. It's a complicated topic, in part because it's technical, in part because it's untrod legal turf. It's also because FUD is being applied in heavy measure by many parties with a vested interest in the outcome.

For those folks who don't know what FUD is, it's fear, uncertainty and doubt, now used as a term of art in the software and hardware industry.

It is this FUD that makes it very difficult for us to get to the bottom of this situation readily. If consumers and internet users feel frustrated and begin carping at each other, the FUD has done its work.

This overview is written for folks who are not working in technology (including communications, internet, software, hardware industries), in order to get past the FUD. If there's something erroneous or omitted, please point it out constructively, collaboratively and as simply as possible in comments for the benefit of others who may want more information on this topic.

Net Neutrality is a death match

The telephone industry (telcos) is currently in its death throes, or at least it is trying very hard to defend an aging business model struggling with profitability and therefore no longer viable.

Changing business models is accelerating in technology companies; unlike many traditional brick-and-mortar firms, the products offered can change in days and hours rather than years or decades. A breakthrough on chip size and speed today can force computer manufacturers to change their entire product line-up overnight. The schism between proprietary software companies and free/open source software provides another example of businesses whose models are being challenged; a simple change in licensing, like Sun Microsystem's recent release of Java to open source, can fundamentally change that for which a software company charges. Are they now a software maker or a software service provider if they don't own the software technology? This is a fundamental and generational shift in technology and business.

Google is an example of a business that is riding this shift in technology to profitability and future opportunity. It uses open source software and capitalizes on users' desire to collaborate over a network, instead of using proprietary software in a closed network or with no network at all. This is why we see telcos on one side of the equation, and Google on the other: their business models manifest different generations in technology.

Telcos cling to their old business model with a death grip, hoping that increasing the charges for some of the data ported over their lines will somehow save them. It's rather like stepping back in time to the 1800's, watching a cartage company using horse team-drawn wagons demanding more money for some of its freight when the same freight could get to its destination faster over those new-fangled iron horse railways.

That's a very dead business model.

Telcos' oligopoly is dying

Telephone companies had an oligopolistic position after the break up of AT&T, for reasons that are both physical and historic. There used to be only one physical network attached to a home or business; because of the investment and security issues involved, our laws evolved to both protect citizens from abuse by a monopoly and at the same time continue to encourage the telephone company (telco) to improve (i.e., Bell Labs).

The AT&T monopoly was broken in order to encourage lower pricing through competition while punishing unfair marketing practices (in exchange for AT&T's entry into computer services), but the breakup resulted in an oligopoly – few suppliers for the same products that don't fully compete, primarily due to the limitations of local physical networks.

With the emergence of cellular phones, this oligopoly has been threatened; cellular service represents a second network that can reach households without the same sunk costs to hardwire to each location. The network is moderately portable, too, meaning that the physical lock-in that reinforced oligopolistic conditions are also threatened.

Hence the acquisition of cell phone companies by telcos; not only did telcos buy marketshare and offer increased shareholder value through economies of scale, but they could continue to salvage the physical lock-in. Notice how some cell phone networks haven't been available except in defined areas, and often in tandem with the local telco that bought them.

Cable: the third network

Until recently, cable television (CATV) was not a threat to telcos. It offered entirely different services, even though it, too, required a physical network installed to premises. With improvements to Voice-over-Internet-Protocol (VoIP) and network technologies, CATV has become a threat to telcos as well, offering not only video but voice communications services.

This poses an even bigger threat to the telcos, who still rely on voice transmission for their bread-and-butter. Why would anyone who could get cable select plain old telephone service (POTS) if CATV could offer both video and voice?

Hence the battle here in the state of Michigan, between CATV providers and telcos; they are duking it out for what is the telcos' lifeblood, the consumer who uses POTS and video. Telcos figure they can keep this consumer if they can offer the same services as CATV providers – but for telcos this is a matter of life-or-death, since so many of their traditional POTS customers have already migrated to cell phones.

Pervasive WiFi – the death knell

The silver bullet that could kill telcos' business model is pervasive wireless access. Indeed, the telcos have already worked very hard behind the scenes to kill off technologies that could offer such service. Unlike today's spotty wireless network availability, a pervasive wireless network could offer all consumers internet access, video on demand, as well as voice communications, from virtually anywhere, and is not limited to individual access points defined by highly local equipment on an owner's premise. This technology threatens not only telcos, but CATV providers as well, since CATV business model is built around physically limited networks and contracts currently defined by existing legislation; CATV no longer has to worry about telcos busting into the video business, but the highly disruptive wireless network.

While we see telcos and CATV duking it out for each other's marketshare, they are working cooperatively in the halls of Congress to thwart this fourth invisible network. Northpoint's “Broadwave” brand technology exemplifies pervasive WiFi technology that was killed in the cradle; it sought approval in Congress, but its efforts were suffocated after telco and CATV lobbyists went after it a couple of years ago. Had it survived, Northpoint would have licensed all the unused north-facing bandwidth; the technology used bandwidth for WiFi transmission not currently used by south-facing satellite dish technology. Any location that could receive satellite transmission could technically have transmitted wireless in the opposite direction – and both CATV and telcos would have been forced to drop their prices even further or buy up this technology, since the estimated price for combined video-voice-internet service was $20 per month per consumer. They saved their shareholders a lot of money by simply buying lobbyists and access in Congress.

Another telco-threatening technology sought listing offshore in Europe, avoiding potentially deadly U.S. competition for capitalization. Based on 900 Mhz frequency like cordless phones of last decade, XG Technology of Sarasota, Florida offers the ability to provide wireless networks within a two-mile range in a frequency that does not require licensing approval. Technically, any location that can support a 900 Mhz phone could become a wireless internet service provider. It seems a shame that American technology must go abroad to obtain financing in order to go head to head with an American oligopoly.

Telcos' other monster-sized nightmare

Google's proposed community wireless project in San Francisco is being monitored closely by telcos and CATV; it represents the kind of scenario that telcos and CATV dread, yet another player in the marketplace that is not confined by physical limitations of network or regulated to cradle-death by FCC and Congress. Although only one of six proposals submitted to San Francisco, the joint offering by Google and Earthlink relies upon advertising sales for funding, as well as fees for services above baseline broadband access. This is a potentially profitable income stream that telcos and CATV entities cannot realize due to limitations in their models. Google's recently announced discussions with Orange in Europe provides a hint of what's ahead for wired-and-wireless communities like San Francisco; imagine using a cell phone to look for the closest Thai restaurant, in a city with thousands of Thai restaurants, and having the cell phone automatically point to the closest restaurant, the most recommended restaurant, and the one that paid for higher indexing all in a matter of seconds, after choosing nothing more than Google Local, then entering “thai food” in a query.

Why would anyone bother using a POTS telephone instead of a competitively priced cell phone if this additional service was available for free, or even the Yellow Pages?

Why would a Thai restaurant pay as much as they have for a traditional Yellow Page, if they got more business from Google Local via cell phone rather than traditional telephone service?

One can see that this new model is highly disruptive; it will affect not only telcos providing POTS. Would telcos try to obstruct or capitalize on this disruption, by charging additional fees for packet transport of graphics, or video data instead of voice?

Next steps

Obviously, there are technologies in the pipeline that are going to continue to threaten telcos and CATV along with other peripheral businesses. Affected businesses are going to fight tooth and nail to maintain status quo, until a tipping point at which the fight is more expensive than the benefit of changing their models. How do citizens ensure that telcos and CATV get to that tipping point?

In Michigan, one method would be to develop a comprehensive, statewide strategy for rolling out community-based wireless broadband, perhaps using San Francisco as a model upon which to develop. Telcos and CATV are either going to have to be part of the solution or gradually phased out to a level reducing them to a default service provider of last resort.

But are there other options we haven't yet discussed? Or are the benefits of pervasive community-based wireless broadband access so compelling to education and economic development in this state that worrying about telcos and CATV isn't worth our time?

Friday, December 08, 2006

Ethics, schmethics

The 109th Congress sails off into the sunset, leaving behind all its cares as it becomes history.

I'd like to say it enters history as a bastion of ethics, but that would be a complete and utter joke, beyond sarcasm's broad reach.

As its parting gift, the 109th indulged its last Republican Document Dump Friday. They jettisoned a particularly nasty bit of work, the Foley Report, flopping a complete piece of crap onto the public like a rotting fish as they filled their shredders, cleared their offices, and fled the District.

This mother of two struggles to find swear words adequate to voice the rage and frustration felt over this last bit of trash foisted on us, knowing now with certainty that Republican representatives have failed abjectly to protect young people from a known predator in their midst.

Disgusting, revolting, immoral. I hope they did not let the door hit them in their pompous, overfed, pampered and excessively soft backsides.

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