Communications

The Dumb Pipe Paradox ― How open access networks build shareholder value

On more than one occasion, "natural monopoly" arguments have been used to obtain, and/or hold onto, a government granted monopoly,  This is definitely true of access networks where the physical right-of-way to any specific real estate parcel is a limited resource, but the economics of what you put in it have changed over time.  At one time it made sense to consider telephone service a natural monopoly.  And for most of the twentieth century, telephone service was operated that way (think Bell System in the US and government run PTTs in most of the rest of the world).  In the latter 20th century, cable TV became a second such monopoly.  Today, it's increasingly clear that telephony and television are higher layer services, not inherently tied to the access network.  Yet our laws and regulation have barely evolved ― each access network is still regulated as a different vertically integrated monopoly.  And, managers in each business focus on preserving their historic monopoly even as market forces or government regulations force them to also offer Internet access.

So it's interesting to see solid economic analysis showing that access network shareholders would make more money if management was willing to open up their access networks, i.e. become "dumb pipes."

The first such argument I encountered was by Craig Moffett and Amelia Wong of Bernstein Research who wrote an interesting paper The Dumb Pipe Paradox, early in 2006.  The original paper is not on line but I have some quotes here and there are some other comments here.  Craig and Amelia were looking at Cable TV's hybrid fiber-coax networks and concluded that cable companies could make more return on investment if they were in the pure dumb pipes business.

More recently, I reported on a speech given by Benoît Felten of Yankee Group and Fiberevolution in which he argued that new fiber to the home (FTTH) investments could be paid back more rapidly if the FTTH network were open, i.e. offered to competitors at attractive wholesale rates.

Now Benoît has written a detailed report describing his findings.  Although the report is for Yankee Group subscribers only, Benoît is also giving a webinar on the subject next Tuesday and that's open to all.  Register here.

I particularly liked the polite suggestion near the end of Benoît's report:

Recommendations for Incumbents
• Re-examine your economic fundamentals in light of the FTTH business model. It’s irrational to cling to antiquated business practices if new approaches, no matter how disruptive, deliver better shareholder value.

Highlights from eComm 2009

This year's Emerging Communications conference, eComm 2009, was the best telecom conference I've been to in ages (ever?).  Now presentations and videos from the conference are becoming available on the web.  The presentations are on SlideShare; search by speaker name or for the tag "eComm."  Here's my presentation, Structural Bypass - A simple proven path to "Real Broadband."

Brough Turner's Presentation at eComm 2009

View more presentations from eCommConf.

Videos and transcripts are also coming, although not as rapidly as I'd like (a matter of resources - one person editting and releasing 2-4 videos per week).  Here's a transcript of the Spectrum 2.0 panel that I moderated.

Videos will show up on Fora.tv, for example, here is the really cool keynote address by Ge Wang entitled "New Expressive Social Mediums on the iPhone."

For more information and pointers, subscribe to the eComm blog.

More bandwidth ― less delay, less latency

I was a little sloppy yesterday and several people have questioned my comment about latency.  I was reacting to slide by Herman Wagter of Amsterdam's Citynet in his presentation at F2C 2009.  His slide said:

Latency is the cause, bandwidth is the effect.

From his discussion it was clear he meant "Latency is the cause, bandwidth is the cure."  At the time he was talking about real-time person-to-person communications and illustrating it with a housebound person in Amsterdam who wanted to play cards with friends in other places (not nearby).  Verbally he mentioned the issue of sending large files.  In short he was addressing the real reason for high capacity Internet access links.

Why people want more "bandwidth"

It's not because they need or want to send and receive 100 Mbps of data all the time or even a significant part of the time.  The issue is delay, specifically serialization delay.  If I have a 1 Mbps upstream Internet connection and I want to send an email with a 5 MB Powerpoint file attached, it will take more than 40 seconds (5 MB ~= 40 Mbits).  On a 100 Mbps link, the same email is delayed only a fraction of a second.

Serialization delay also effects media streams, although much less.  If I want to send 500 Kbps of continuous video over that 1 Mbps uplink, serialization delay will cause added latency.  IP is a packet protocol and the 500 Kbps video stream will be broken into a stream of packets, typically ~1500 bytes (12 Kbits) each. While the serialization delay is only 12 ms on the first link, there is serialization delay on every link.  If there is another 1 mbps link at the other end, that's another 12 ms of delay.  And here, 12 ms is significant.  For a natural interaction between two people, you'd like to keep the round trip delay below 200 ms.  Nothing goes faster than the speed of light so transoceanic links introduce many 10s of ms of delay, each way.  It is very easy to eat up a 200 ms budget, so saving 12 ms at each end is significant.

Burst rate versus continuous

For me and for most people, the issue that drives demand for high speed access links is delay, not the amount of information that is to be sent or received.  Indeed, I'd love a service offered only a few Mbps average over a month, if I could be guaranteed 1 Gbps on a burst rate basis whenever I wanted.

David Weinberger is blogging F2C rather completely

And David is a expert blogger!  i.e., really good coverage.
  http://www.hyperorg.com/blogger/

The first Freedom to Connect conference entry is here. 

Latency is the cause; bandwidth is the solution

Actually, what Herman Wagter of Amsterdam's Citynet said at F2C 2009 was:  latency is the cause, bandwidth is the effect.  But his explanation matched my title above.

If you are attempting to interact with other people, whether by VoIP or just playing cards together (with video) you need less than 200 milliseconds of end-to-end delay.  If it's playing cards together, with video, and you need to exchange 500 Kbps in less than 200 ms, you need a 100 Mbps pipe!

It's latency that drives the need for high bandwidth.  Most people won't fill that pipe most of the time, but they need the pipe to guarentee that what they do send gets through rapidly.

Highlights from Day 1 of F2C

Shamelessly ranked by my areas of interest...

Tim Nulty of East Central Vermont Community Fiber.  Tim is a veteran network builder and a forceful speaker, so he's happy to tell it like is.  He's also got that Yankee mix of liberal politics with extreme fiscal conservatism.  He's building fiber networks, in rural Vermont, which pay for themselves.

Ken Biba of Novarum has been measuring actual wireless networks in buildings and in cities for years.  While the detail is in a report available for purchase, the summary is that WiFi-based Muni WiFi yields significantly better performance than 3G cellular.  Interestingly coverage and reliability is right up there in selected cities, as well.  The take-away - 802.11n really rocks. I.e., the next cycle of WiFi is going to be vastly better than what he's been measuring over the past 3 years.

Ellen Miller of Sunlight Foundation was low key by comparison with Tim or Ken, but her stories were compelling - multiple instances of Internet community feedback creating the kind of information that the "open government" initiatives aspire to.

Finally, Dewayne Hendricks is always interesting.  This year he seemed more optimistic than last, presumably the result of the recent election.  In any event, here's another speaker with deep experience in building networks.

Freedom to Connect 2009 and Municipal Fiber

I'm attending F2C 2009 in Silver Spring Maryland. If you are here, please say hello.

Things are just getting started with a panel on Municipal Networks, led by Joanne Hovis, President of Columbia Telecommunications Corporation (CTC).  Panelists are:

Tim Nulty, formerly of Burlington Telecom and now running East Central Vermont Community Fiber, has tons of experience building fiber networks in low density areas (Vermont).

Dirk van der Woude, from Amsterdam's CitiNet, to talk about the Amsterdam's municipal fiber to the home project..

Lev Gonick, CIO Case Western Reserve, who was a key player in creating a 4000 mile fiber network for Cleveland and northeast Ohio under a community organization called OneCommunity.

Bill Schrier, CTO for Seattle, which is starting a fiber project, but already has it's own electric power utility.  (Although Bill implies they have had to drag their utility brethren into this).

What's interesting is the discussion on the chat backchannel is not about muni vs. commercial, but wireless versus fiber.

Tim Nulty has a strong argument that wireless is excellent for mobility, but not economical for fixed access.  In rural Vermont, a WiMAX network would cost $35M if you could get access to the spectrum (which is being horded by others).  Fiber would cost $70M but has 50 times the capacity and several times the revenue potential versus the wireless approach.  Further, if you deploy wireless as an addon after you have the fiber network (and the customer support infrastructure), the incremental cost is dramitcally less (perhaps $10M) and you get enough incremental revenue to get a good return on investment.  IN other words, you make more money if you do fiber first.  Tim's key to success is to get as near complete deployment as possible - something that is possible in areas where the incumbents are going.  Second, he goes for community ventures as a way to qualify for muncipal bonds.

Shareholders should demand phone companies open their fiber networks

A few weeks ago, Benoît Felten of Yankee Group and Fiberevolution gave a speech at a New Zealand Commerce Commission event which included a fascinating argument.

He points out that receiving a return on the substantial capital investments that a fiber to the home (FTTH) project requires is much more dependent on takeup rates than on the average revenue per user.  

Single player large scale deployments usually achive only 20%-25% initial adoption after which growth is exceedly slow.  On the other hand, systems which are open to competitors, i.e. with viable wholesale services, attract many more players who market, sell and deliver new services thus dramatically increasing adoption and accelerating the wholesaler's return on investment.

In short, obtaining a regulatory holiday so you can run your new fiber network as a monopoly is actually bad for your shareholders!

Benoît's speech was filmed.  For the full presentation (in four segments of < 10 minutes each on YouTube) see Benoît's post.

If you want just the essence, listen to the first three minutes of this:

Here is an enlarged version of the chart that Benoît is using while he speaks:

I'm off to the Emerging Communications Conference in San Francisco

It's snowing in Boston and my American flight has been cancelled but Virgin America claims their 8:35am flight is going to leave on time.  So here I am in the Virgin gate area.  Wish me luck.

At this point there are a ton of people I'm hoping to hook up with at eComm 2009.  The agenda looks really good.  And, of course I'm looking forward to good discussions around two favorite policy topics: broadband access and wireless spectrum.

My talk on Wednesday is: Structural Bypass: A simple, proven path to “Real Broadband.”

While the US struggles to define "broadband," high speed Internet access (100 Mbps & above) is widely available at modest cost in several countries and quite a few more cities. So far, US political discussion has largely neglected these successes. Brough will point out what's common among diverse international success stories and propose a path for the US that has proven to work elsewhere, despite established monopolies and political processes dominated by vested interests.

On Thursday, I've organized a panel entitled:  Spectrum 2.0 - What's really happening?

WiFi, UltraWideBand and now TV White Spaces represent new commons-based approaches to radio spectrum regulation. While some advocate commons-based approaches for all wireless spectrum, that's hardly acceptable to broadcasters or the mobile phone industry. By questioning a diverse panel of industry experts, we will expose the roots of today's controversy - technical, commercial and political - and see what's likely to occur over the next two to five years and in the long term.

The panelists are top notch:  Richard Bennett, Maura Corbett, Peter Ecclesine, Darrin Mylet and Richard Whitt.

If you're attending, please say hello.

Rate speakers - Interesting new website SpeakerRate

If you are attending eComm 2009 this week, please consider rating my presentation on SpeakerRate.  It's entitled "Structural Bypass" and you can rate me here.  

 

The SpeakerRate website just came out of stealth mode a few weeks ago.  It looks like a service I'd use and refer to, so I wish them luck.