by Dana Blankenhorn
  Volume VIII, No. XII

This Week's Clue: The Trojan Horse

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This Week's Clue: The Trojan Horse
SSP (Shameless Self Promotion)
SP (Shameless Promotion)
Software Needs A Public Sphere
Triumph Of The Chinese Internet
Dean Withdrawal
Clued-in, Clueless

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For the Week of March 22, 2004

CTIA is in Atlanta this week. We haven't partied like this since 1999.

The parties are big and glorious. The liquor flows. I see big shrimp in cocktail sauce. The gift pickings will be lush -- toys, candy, maybe t-shirts.

That's because the cell phone industry has figured out a business model that works. They give consumers something valuable, the cell phone, then charge them to use it.

Of course, it's not that simple behind the scenes. Even a "giveaway" phone costs money. What they're doing is charging you roughly $10/month for a $200 (retail) item in exchange for a 2-3 year service contract.

But the secret of the model goes deeper than that. The companies are balancing the sophistication and cost of the phone against the "billable events" it might reasonably generate. And they're giving consumers the power to make a higher-value choice, offering a range of models that do more than their giveaway model.

Then there are all those "calling plans," supposedly one for every taste. But if you look at it more closely, they're all variations on a theme, which is $40/month for basic service plus add-ons. Add-ons could mean extra minutes, or calls made outside your company's calling area. They could include Ringtones, SMS messages, or the passage of photos. They could involve Web access. The booths at this show will be filled with add-ons.

What you have, in the end, is the appearance of unlimited choice, but the reality of fairly fixed prices and lots of up-sells.

So now phone carriers (most of which own a cell phone company in whole or in part) are trying to work the same magic in their little world. It won't be easy. Wireless services compete only against other wireless companies. Phone companies these days have a host of competitors, real and imagined. There are cable guys, there are long distance carriers offering "all-in-one" service (MCI and AT&T), there are independent ISPs and VOIP outfits like Vonage. There are (still) CLECs. There are even power companies that want into the market. And, no, I haven't forgotten the WISPs.

The weapon of carrier choice in this battle is called the residential gateway.

A gateway combines an ADSL modem with a router, enabling the owner to run a network. What has made the offer practical has been the rise of 802.11b wireless networking, and the promise of more speed - a, g, a+g - to come.

Thanks to Ford's Law (mass production and predatory pricing) such gateways can be produced for roughly the price of cell phones, and better gateways are on the way. Much of the complexity of building a gateway is being dealt with by the manufacturers. The risks to a carrier in having a gateway installed are being reduced.

A gateway today would not just be user-installed, it will provide high value out of the box. It will offer security, in the form of a good firewall. And of course it will extend the reach of a broadband connection throughout the home.

The best gateways will do much more, of course. They will provide "up-sell," services like parental controls, Voice over IP, maybe even video. You might be able to do a VPN tunnel through a gateway, or define Quality of Service (QoS) standards. Why? One reason might be for gaming, which plays best with low latency.

Right now it's anticipated these services would be sold by-the-month, with service tiered as cable service is tiered. The Holy Grail is to create "billable events," the equivalent of cellular's SMS and camera phone messages, and to write contracts in such a way that consumers who take "excessive" backhaul services pay extra for them (even if they don't cost carriers a dime to provide).

The carriers seem to have caught some magic with their new low-priced tier of $30/month, which has been drawing in customers who see more speed than with a modem and may not know they're missing the full speed of ADSL. (Then there's the up-sell.) I noticed a BellSouth commercial for this service recently, and the theme was interesting - a house that's too small. Yes, modems are that way now, but their low-priced broadband soon will seem too small, and then the family's going to want to share it. Ah, you want our faster-speed plan and another $10/month to run a network, maybe you want to buy a gateway. Maybe, as silicon prices keep going down, the gateway fee can be eliminated. But not the monthly service charge.

The main goal of your local phone company, over the next year, is probably going to be getting a gateway into your home. It's the ultimate Trojan Horse.

And that's just the problem. I know the story, as do you. The Trojan Horse comes into your palace, all the little up-sell soldiers come out, and pretty soon you're bound hands-and-feet to paying the phone company's prices for what it defines as service. Wouldn't it be better to just go to BestBuy, as you can, and buy one?

It might be, except for one problem. The problem lies under my desk, a brick-sized ADSL modem from Alcatel (which has since left the business), installed here over four hours by three truckloads of BellSouth men back in 1998. In order to provide any DSL service, after all, you must have a twin of your DSL modem, called a DSLAM, installed at your phone company's switch. If they don't want to upgrade my DSLAM, I can't change my modem...unless, of course, I take their gateway. In which case all I'll be able to buy for my home networking will be a router. It might be a nice router, but it will probably be a cheap router (I like cheap), one that doesn't work all the time (because it's cheap), one that hiccups and knocks me offline. One without security, or parental controls, or direct support for VOIP, VPNs, and QoS. I've got one of those.

What this means is that, over the next year or two, you're going to be offered some very nice gateways by your phone company. (Personally, I'm waiting for my non-Bell ISP to offer one.) The gateways will offer parental controls, they might offer Voice Over IP (later), they will be capable of handling QoS (which will be sold as Gaming Services) and VPN Tunnels (which will be sold as Telecommuting Services). Best of all (for the phone company), they will practically install themselves, and fix themselves, thanks to self-configuration, and self-monitoring routines, built into them by the company (and there are something like 50 gateway makers) that made them.

As I said the Bells' goal, over the next 2 years, will be to sell as many services to me as possible, through the gateway. They will likely be willing to take a short-term loss on the gateway, for a long-term service contract, and then ply me with "extras." It is these "extras," they hope, that will make me dependent on them.

How dependent? That's the question. There will remain other providers out there. Hopefully, some will offer gateways. Moore's Law will continue rolling along. And I'm not the idiot they think I am. I know I have choices, and hopefully I'll have more. I am not going to let some carrier define my Internet and internal networking for me.

Are you?


Shameless Self-Promotion

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 .

You have my permission to forward this newsletter widely. And if you have trouble subscribing let me know. Remember: it's journalism that keeps the Clues coming...


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Takes on the News

Software Needs A Public Sphere

The paranoid have been having a field day with news indicating SCO is really a proxy for Microsoft, on a FUD attack against an operating system it can't fight in conventional ways.

It the paranoid are right, Microsoft is simply Clueless. Or, perhaps, there's a point it wants to prove, namely that there should be no such thing as "public property" when it comes to the world of ideas.

If that is indeed the point, I disagree. Here's why.

Software is usually built on other software. The hard work you should be paying for is the application, which is at the top of the stack. The bottom of the stack should be stable. It should be assumed. It should be free.

If it's not (and it's not in the Microsoft world), then you're constantly paying for the same work. I don't mind paying someone to work on my foundation at home, but if the foundation is fine, their demand for payment is either insurance or extortion. (When Windows 98 gets broken by some hacker it's insurance, but the payment should still be optional.)

In order to build a World of Always-On, we're going to need many layers of software, and a stable base. I don't see any way of getting that in a proprietary world. Certainly Microsoft has never delivered on that promise.

Linux might. Besides, it has a stronger case.

The problem, it seems to me, is that the public interest can't afford the kind of lawyers that private interests can. That's not just a danger in the areas of software and intellectual property. It's a danger generally. If there's no "our side," if there is just "my side" and "your side," then it's not the meek, or the software geeks, who will inherit the Earth. It's the lawyers.

And I don't think that's the legacy Bill Gates wants to leave.


Triumph Of The Chinese Internet

The "War On Terrorism" requires that we distrust one another and absolutely trust the government. This does not come naturally to Americans. But it does to most Chinese.

So Intel's refusal to submit to a Chinese government demand that its snoops be given a back-door into its 802.11 systems isn't just one company standing in front of a Chinese tank.

That's also an American tank they're standing in front of. "The War" trumps everything, and with absolute security comes absolutism. Better our'n than there'n, right?

I don't know any other way to treat the latest FBI demand, that government be able to tap all broadband communications, and quickly.

Anyone who knows anything about the Internet knows this is not as easy as it sounds. Bits are bits. You can't tell voice bits from text bits from graphic bits. And you can't easily tell if the bits have been scrambled, either. Yet that is just what the cops are demanding. Stop the Internet until we can monitor it. How American is that, and how Chinese?

And how irresistable, especially with word that the Spanish atrocities were the work of Al Qaeda.

Americans are thus faced with a very hard choice. We are all east of the rock and west of the hard place.

I, for one, at least know where I stand. I would rather risk the anarchy of Al Qaeda than the absolutism of either the Chinese or the Ashcroftians. Absolute power corrupts absolutely. Of this I am certain. No matter how nice, kind and reasonable Ashcroft may be, you can be sure that someone who inherits that power won't be so nice, kind or reasonable.

Even Ashcroft may be forced to agree. I can make him. (Nurse, get the sedative ready.)

Now Mr. Attorney General, sir, close your eyes. Relax, you're in a deep relaxed state. Now, it's February 2005. President Bush has been defeated. You are back in Missouri. And in Washington your successor is being sworn-in. It's Hillary Clinton. (Nurse, nurse?)

Dean Withdrawal

What Howard Dean took out of the Presidential race was more than a man, and more than a platform. He took with him the idea that people can, without the elites, control their own country.

Perhaps that's why I seem to be taking his rejection personally, not as an attack on him, but as an attack on me. Dean himself is not a very angry man. There was always a smile on his face when he tore into the President. It was his supporters who were angry. And that's what the Democratic Party rejected.

Democracy should not be an elite game, in which positions and principles are mere poses for one gang or another. But Dean was over in an eye blink, as though it never happened. Was it all just a dream?

Not only did the major media quickly fall in lock-step with the elite game, but so did the "professional bloggers," those devoted to blogging on Democratic politics, like Daily Kos , Atrios , Oliver Willis , and many others. Within a few weeks Dean was an un-person. I was an un-person.

It's hard to see a useful result from all this. What I want from politics, more than anything else, is less anger, more dialogue, less heat and more light.

And I'm not going to get it.


Clued-in, Clueless

Clued-in was the tossing of Eolas' overly-broad patent claim on web browser plug-ins by a committee of the U.S. Patent Office.

Clueless was Fed chairman Alan Greenspan endorsing Social Security cuts , damaging his credibility as an impartial economic observer at a time the economy most needs one.


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