For the Week of January 12, 2004
Andrew Odlyzko, at the University of Minnesota, has posted one of those dry academic treatises that really can change the world.
The subject is carriers' attempts to destroy the end-to-end architecture of the Internet through differential pricing. It starts with Voice Over IP.
Carriers (the new name for local, long distance, and cable operators) are encouraging government regulation of VoIP, while building their own systems that violate the end-to-end principle on which the Internet was founded. Carriers are doing this by encouraging government paranoia over the insecurity of encrypted VoIP , promising cooperation with any regime demanding a "back-door" allowing wiretapping.
But their motivation for this has nothing to do with the War on Terror, Odlyzko writes. They simply want to limit competition to those companies that can handle the regulatory burden, which will be paid for by regulated (read rising) prices. This isn't done out of greed. It's a survival strategy.
Odlyzko notes that the telecommunications industry is still 10 times bigger than the Internet access business, even though it costs more to run calls over the Internet. Why does it cost less to run calls over the more-expensive infrastructure? Taxes and regulation, which also limit competition. So by regulating (taxing, protecting) VoIP, carriers get the money they need to keep going.
There are many other services that could be taxed-and-regulated in the same way, should VoIP regulation succeed. Odlyzko's paper studies "differential pricing" from the past, in everything from lighthouse services to canals to railroads. And there are many services - video, IM, p2p - provided over the Internet that government might want to regulate (control) and carriers might choose to dominate through differential pricing. That means a bit from this Web page gets one price, a bit sent as part of a video call gets another, a bit sent as part of a voice call gets still another. The carriers manage the choke points, using the excuse of security, prices are raised to sustain them, and the world goes back to the pre-Web status quo.
That's one view. Odlyzko notes in his paper that the Internet's complexity is all at the edges, not in the core, and that right now a single fiber can probably handle all the core's traffic, thanks to Moore's Law of fiber. The costs, and the problems, lie in getting from the fiber to the home. The obvious solution is to replace all copper with fiber, but the carriers don't want to do this for two reasons. First, they're still paying for the copper, and will be for decades to come. (BellSouth finally ran copper to my house five years ago, replacing a paper-jacketed steel line from the 1940s.) Second, they rightly fear that WISPs can bypass fiber cheaply with 802.16 Wi-Max and 802.11 Wi-Fi radios, delivering faster-and-faster speeds on cost structures that respond to Moore's Law, not 30-year depreciation schedules.
Is there a solution? I will argue there is.
The answer lies in managing the Always-On world for homeowners, based on high-value applications.
It starts with carriers pushing homeowners toward installing their Wi-Fi solutions, based on a strong, modular platform of Linux or Windows. For a monthly fee, carrier technicians will make sure that your whole home (or business) has fast service, even up to your yard, but that your neighbors can't "steal" this service. They will do this with access points that support security and voice out-of-the-box, and with service contracts that will bring them out at the first hint of trouble. (Interference can be your friend.)
Grabbing the customer in this way is just the first step, however. The next step is to start putting applications on this platform. Security is an obvious one. Install a small server that is Always-On, that monitors sensors and/or cameras around the perimeter of your home, and make sure police are not only alerted at the first sign of a break-in, but that they get the evidence needed to jail even a failed attacker. Right now people are paying $27.99/month and up for this service (http://rangeramerican.net/html/faq.html#cost). You can either work with these companies or against them, offering better service for lower costs.
Best of all because you have built this on a modular platform that you can control, you have only just begun to profit. Work with hospitals to monitor patients who have diabetes, heart problems, or other conditions that require regular monitoring. Not only are the profits huge from that, but society benefits as well, because we all want to stay home as we age, we're all getting older, and it will cost society much, much less to let us age where we are, under the control of a wireless network, than in some warehouse under the control of an underpaid nurse.
Now I realize this changes the nature of what carriers do. Carriers are used to running networks that go from their switch to your front door, and charging a per-minute price for a defined voice service. This means running networks that operate within customers' homes, based on per-month or per-incident fees for defined services, some of which exist now and some of which have yet to be created.
But, unlike the strategy of regulation, this puts carriers on the right side of Moore's Law. Everything is going to be Internet. All the complexity is going to be at the edge. If you can manage that complexity for people you can earn your fees, control your customers, and stay highly relevant in an Always-On world.
I work as a business analyst with Progressive Strategies, a New York research firm that has the ear of the world's top technology companies.
My last book, "The Blankenhorn Effect" won the Computer/Internet category in the 2003 Independent Publisher (IPPY) awards .
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Takes on the News
India Starts To Get Always-On
Infosys, one of India's largest technology consultants, has launched its first team to help clients implement trials of RFID technology .
Many people tell me, "but this doesn't have anything to do with Always-On." Ah, but it does. RFID tags are read by a network. An 802.11 network in your home is just as much a network as anything that may be in a warehouse or store. Once it is shown that you own the tag when you buy the product, your home network can start taking advantage of RFID to know what you have and know where it is.
The first company to build this application makes a fortune, and ends what is turning into a major political debate. Maybe that will be an Indian company.
The New Network Infrastructure
News.Com brought a panel of "luminaries" (in quotes because it didn't include me) to talk glowingly of the coming boom in Wi-Fi home networking.
If done right, Wi-Fi represents a new platform for Always-On network applications. By done right I mean done based on a modular, robust operating system, something like Linux or Windows. But most of the Wi-Fi equipment being sold this year won't be based on that platform. The 802.11g sets you see for $80 are built using embedded operating systems that can't deliver other applications like security or voice, without constantly hitting your home server.
Intel's Sean Maloney told C|Net he's excited about applications that let him synchronize his e-mail from the Airport, or let police synchronize their cruiser computers on the road. I am, too. He's also excited about the idea of uploading pictures from a "Wi-Fi" camera, or having Wi-Fi connections on all consumer electronics. I am, too.
But you're putting a lot of demand onto a central server that way, Sean. The Wi-Fi connections are going to slow down to a crawl unless they're built on a modular platform that can deliver true computing services, that can grow. Let's talk.
The False Economy Of Mergers
There are yet more predictions this month of big mergers in the wireless space , which seem to have the intention of only reducing competition, raising prices and (presumably) profits.
Reducing competition is never a good motivation for merging. In the technology space, where the cost of building (as opposed to buying) is usually going down, it's an even-worse motivation.
There are only two good reasons for technology mergers. One is to buy entry into a technology space that can grow big with big investment. A recent example of that is Agere's purchase of TeraBlaze . In that case you want to buy someone small. The second good motivation is to expand your product line into a closely-related field. An example of that is Netegrity's recent buy of Business Layers - e-provisioning is closely related to identity and access management.
But the H-P-Compaq merger has not produced the intended results, and neither has any other big tech merger you can name. In a world where costs are constantly declining, new competitors can emerge quickly, and while your eye is off the ball trying to integrate some big new organization, the mice are off eating your cheese.
Clued-in is IBM's contract with Target to provide "on-demand" computing services . It's a good opportunity to see how pricing and product will work for the most-hyped mainframe technology of the decade.
Clueless is the whole Vice City suit over "kill the Haitians." There are Haitian gangs, the reference is clear, and the litigants are just making fools of themselves.
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