Fractals of Change

Ten Telecom Tsunamis

The telecom industry five years from now will be unrecognizable. The creative destruction of the Internet broadly writ will be even greater than it has been in the last decade. The major telcos, the major television networks, and the major cablecos – if they still exist at all – will have very different revenue models than they have today. That's the good scenario. In the bad scenario the old business models are bailed out or saved by regulation to the detriment of consumers and society in general.

Here's a list of ten major drivers of change:

Universality

The driver of all drivers will be universal very broadband Internet access. Five years from now we'll all (except for those who choose to live off the net) have a minimum of 25megabit per second download speed (and that'll be the low end) when we're standing still. We'll be connected – perhaps at a slightly lower rate – when we're moving around, especially in our cars but also in planes and trains and on foot. That means that the next generation of communication services whether they be voice, entertainment, power management, information, health or something else can and will all be built assuming this universal connectivity. See here for why government should help accomplish universality sooner rather than later.

End of the Billable Minute

We won't pay for voice calls by the minutes any more than we pay for email by the word. This trend is already well underway, of course, with flat-fee VoIP based services, "free" VoIP-VoIP calls, and unlimited minute plans; but last mile monopolies have managed to keep minutes billable on many international and most mobile calls. Universal IP connectivity for both residential and mobile users will complete the bypass of these last mile bottlenecks. There'll be no incremental charges for voice, just monthly connectivity plans for bits of any sort. Gory details on why we still have billable minutes are here.

End of Copper POTs

The recession is accelerating the abandonment of landline phone service currently running at better than 10% per year. Without a major breakthrough (which could happen), copper-based DSL won't be good enough for the bandwidths we'll all need in a year or two. Line loss along with displacement of voice calls to VoIP (see above) will shrink revenue earned by the copper network, which has served us long and well, so that the carriers can no longer afford to maintain it even though it will still have many users left. That may be a mess. More here.

End of the Channel

The channel is a left over concept from the days of over-the-air TV. It's convenient for marketing reasons but not technically necessary for cable and satellite companies to deliver a set of channels; they could offer single shows or series ala carte. Today they choose not to except for events they can get a good premium for – pay-per-view. But The Internet is essentially ala carte and the Internet will deliver our entertainment, business model tbd. There may be bundles of content available both to facilitate choice and for economic reasons but children will ask "Daddy, what's a channel?" It's likely that the cablecos will convert most of their bandwidth to support generic very high speed Internet access instead of carving it up for channels.

End of Over-The-Air TV

As we know from the recent flap over the now-postponed switch to digital TV, there are people who still watch TV over the air. But the number keeps shrinking and, as more and more of that same content is available on the Internet and more and more people have sufficient connectivity (see above) to receive that content from the Internet, the economics of over-the-air TV will become prohibitive even though the broadcasters don't have to pay for the spectrum they use. It's not that the local stations'll disappear (at least I don't think they will); they just won't have antennas attached to them. The stations may be able to get a boost by subleasing the spectrum they used to use for over-the-air for generic Internet access. We'll probably end up paying people $40 each for boxes to attach their old tv sets to the Internet.

Open Spectrum

After a rocky start, the white space experiment which the FCC decreed this year will be an enormous success. This open spectrum will be extremely valuable both for fixed and mobile Internet connectivity. More open spectrum will be needed and will become available as TV goes off the air (see above). Why open spectrum is so important is here.

Bandwidth Demand

The price of providing bandwidth either over the air or through a fiber goes down roughly with Moore's law. Every year and a half the amount of bandwidth that can be provided at a given cost doubles. This trend'll continue as we all demand more bandwidth partly in order to receive all the entertainment we used to get from dedicated networks and partly for new applications. Today's five meg connections will soon be as useless as yesterday's dialup as new bandwidth-hungry Internet uses are invented and become essential and as websites are built on the assumption of higher and higher bandwidth availability. See here for more on the bandwidth required to receive "television".

Online GPSes

It'll be no more than a couple of years until every car-mounted GPS is online whenever the car is turned on. We'll get and contribute automatically to crowd-based weather and traffic reports. We'll know how long the lines are at a local attraction before we get off the Interstate – and we'll buy our tickets before we get there. The billboards will literally be inside the car. This post is about an early GPS with connectivity.

Latency Intolerance

Latency is the time between when we send something on the Internet and the time when we receive a response. Interactive voice demands low latency; so do modern web pages which build themselves on your screen through a series of interactions. High altitude (geostationary) satellites cannot provide low latency because of speed-of-light limitations so they will not be a significant provider of Internet connectivity. Local Internet providers also have routing problems to and from the Internet backbone which contribute to latency. Some measure of expected latency'll become part of the marketing description of an Internet connectivity service. More on latency and satellite here.

Smart Grid

Electricity will begin to replace imported oil and gas for home heating and transportation and some other applications during the next five years. Our total electric consumption will go up. But the fossil fuel required to create that electricity will go down as the demand for electricity goes up. A smart grid which lets us better use baseline power from hydro, nuclear, wind, and solar will accomplish that near miracle. See The Smart Grid Should be Stupid.

Babysitter’s View of the Future

Grandson Jack went to sleep bravely with just a few complaints about the pain of teething. As babysitters do, Mary and I turned on the big screen… and watched the future of TV.

Like most young couples Hugh and Kate don't have a landline phone although of course they both have mobiles and use Skype Video to keep Jack in touch with grandparents who aren't in town. But Kate and Hugh also don't have any sort of network TV connection: no rabbit ears, no cable, no satellite. Their at home news and entertainment is all web-based.

The movie Mary and I watched was streamed from Netflix. 12,000 of Netflix' 100,000 total movie and tv show titles are available for instant viewing on a PC. That's not a huge collection but we had little trouble finding something we had missed and wanted to see. All but the cheapest of the Netflix plans for mailing-order DVDs include unlimited hours of watching streamed video. You can pause and backspace a movie which is being streamed but you can't (without hacking) save it.

The PC was hooked to the big LCD screen for good viewing from the couch. The movies are NOT downloaded in high def (presumably too big and slow for most Internet connections in the US today) and the presentation occasionally had brief freezes which could have been either transmission hiccups too big to be handled by the buffer or interference from some other process on Kate's Mac (my guess).

Kate and Hugh say they generally don't miss having a "real" TV connection except that they have to page through their news rather than have it being presented to them. I'm sure they'd be happy for a link to any web-based news shows. Kate's never watched sports on TV and Hugh's Irish so doesn't miss being able to watch the NFL or NBA. If he cared, he could pay to watch baseball on MLB.com.

As our bandwidth gets broader, our Internet connections'll become the only connections into our houses. Programming will still exist as will serial and movie production. The concept of the "channel" will simply disappear. Some sorts of aggregators will replace TV networks as places where we find stuff prepackaged to accommodate our tastes or simply as a place to buy content as Netflix is today. Cable companies will split into content providers accessible over Internet connections and physical providers of Internet connections giving access to all content. at&t and Verizon will find that they went into the "cable" business just in time to get out of it but can still benefit if they sell fast enough connections cheaply enough.

So, speaking of the future of entertainment, where did Kate and Hugh go while we were babysitting? The movies, of course.

Mobile Trumps Fixed Broadband – Comm Prediction #2

"80% of Web users will choose mobile broadband over fixed by 2013" is the headline of a Total Telecom interview with John Cunliffe of Ericsson. I agree with the conclusion although I think Ericsson will be unpleasantly surprised to find that LTE is NOT the technology which leads to this revolution.

Mobile access at speeds at least equal to what cable offers and at a price lower than today's cable broadband will be available both in the home and on the road within a year or two at the most. From the Total Telecom article:

"Cunliffe said that over the last 12 months Ericsson has been running LTE tests in Sweden. These have taken place in urban environment, with clear line of sight between the cell tower and the device for less than 40% of the time, while moving at speeds of up to 45 kilometres per hour.

"'We recorded peak speeds of 154 Mbps, an average of 78 Mbps, and minimum speeds of around 16 Mbps,' he said."

What'll drive this change? My friend Pip Coburn argues persuasively that change doesn't happen until there is a perceived benefit large enough to overcome the perceived pain of adoption of a new technology.

Online cars will be the initial benefit in buying high-speed mobile connectivity. I just got my first connected GPS. It's called Dash Express and can connect either through GPRS (low speed mobile data) or WiFi. Here's what's really cool: all the Dash Express units can communicate the current speed they are moving through their data connections and have access to the aggregate traffic reports of all the other units – talk about crowd-sourced realtime traffic reports. Wow! I know I won't get much useful information here in Vermont until penetration of these devices are higher but friends tell me it is already useful in urban areas where the company has apparently seeded units. You can also do Yahoo searches for anything you're looking for and find cheap gas, all using real-time data rather than a stored set of points which quickly gets obsolete. I'll write more about this when I have more experience with it.

High speed mobile data connections are about to become very cheap because of technologies like WiMax and LTE and, IMHO, even more importantly because of the FCC's action in freeing up the "TV" white spaces for unlicensed use. Now think of that GPS screen in the car. It's a lot bigger than the screen on your mobile phone; it's connected to the car battery so doesn't have to worry about battery life. It's going to have realtime video of traffic conditions, attractions you are passing, and is going to deliver entertainment – hopefully to the passengers. Of course there'll be another screen for the kids in back, already is in many cars but now it'll be Internet connected.

So we'll all need to connect our cars. Once we do that, we'll start to wonder why we need a separate connection for our house. It'll take us awhile to drop these where there already installed and working; but, when it comes time to upgrade for higher speed, we'll tend to switch to the mobile connection for home use as long as it's fast and cheap enough. For new subscribers the choice'll be easy: they'll just buy one connection.

Ericsson's customers are carriers so they think of how much easier it is for a carrier to let a customer self-install mobile than to make a house call for a fixed-connection: "Installation of a fixed connection into the customer premises is a nightmare for both the consumer and the service provider, compared to a mobile connection which self-installs and automatically connects to the network," Cunliffe says. We won't rush out and buy mobile connections to make life easier for carriers although easy installation will help bring the price down. We WILL buy mobile connections because the pain of being unconnected while in motion'll be too high and there will be little or no incremental cost for mobility and because they meet our need for high-bandwidth when we're sitting still.

Vermont Files in Support of Using White Space for Mobile Broadband Access

The Vermont Public Service Department and the Vermont Telecommunications Authority have joined in an ex parte filing at the Federal Communications Commission urging that the Commission “move expeditiously to adopt the necessary technical parameters … and help make this promising technology [use of the so-called ‘TV whitespaces’] a reality.” Given that the docket has been open since May of 2004, a little expeditiousness is certainly in order.

“TV white spaces” is the term used by the FCC but it’s a misnomer; no broadcaster has actually paid for any of the spectrum at issue; no one is using it; in short; it’s wasted. Originally, before cable and satellite TV and before the Internet, it was reasonably believed that this spectrum would eventually be occupied by a proliferation of over-the-air stations. That’s not gonna happen. Vermont has as much radio spectrum “reserved” for over-the-air TV stations as New York City – 50 channels worth. That “reserved” spectrum is not of any use to anyone and won’t be until the FCC promulgates some rules for its use.

The filing explains the many reasons why this spectrum is ideally suited to meeting the needs or rural America for much better broadband and cellular coverage:

“First, rural areas like Vermont have relatively fewer TV broadcasters and therefore more unused ‘white spaces.’ Moreover, rural communities also have the largest geographic areas without access to wireless services. Second, the ability of TV frequencies to propagate over great distances and difficult terrain provides an opportunity to reach locations too economically challenging for existing wireless services. Third, the use of TV ‘white space’ for the provision of rural broadband is an alternative means of accomplishing the Commission’s universal service goal of deploying advanced services to all areas of the nation without requiring additional funding mechanisms. In fact, the use of TV ‘white space’ could actually decrease the demand for universal service funding at a time when the level of funding is facing heightened scrutiny.”

The filing makes clear that the petitioners do NOT think that this spectrum should be auctioned off at a high price. The greatest public good will come from making these public resources available “at low or no-cost to those entities willing to utilize them for such purpose [broadband and mobile access].”

It will take the concentrated political power of rural America to free up this spectrum to meet the rural need for better communication. But this isn’t urban vs. rural; urban areas also have something to gain from better spectrum availability and nothing to lose.

Not to over-dramatize but I see this as the public interest vs. entrenched communications interests. The TV industry would like to sit on this spectrum without paying for it “just in case”; they also may be worried about Internet use of the spectrum becoming a competing “channel” for delivering entertainment. Traditional communications carriers benefit from LACK of competition in the US broadband market; they have no reason to want to see competition growing like weeds (or, more accurately, like WiFi) in fields of open spectrum.

Google and other “Internet” companies do have an interest in keeping their paths to the consumer unblocked; competition would be good for that. This post is about a proposal Google has made for putting the unused white space to work.

Disclosure: My wife, Mary Evslin, is Chair of the Vermont Telecommunications Authority.

Happy Hour

Next Tuesday, Feb 5th, I'll be a guest on the Happy Hour show hosted by my friend Cody Willard (2d from left). The show is on FoxBusiness Network every weekday from 5 to 6 PM; appropriately, it's broadcast from the Bull and Bear Bar in the Waldorf Astoria. Below is an episode from last week.

Note: If you can't see the video below, link here.

Even if your local cable or satellite network doesn't carry Fox Business (DirecTV channel is 359, not on Dish) all segments from the show are available as video at www.foxbusiness.com. Trick is to go there, click on VIDEO in the horizontal menu bar, then scroll down to the Search for Videos box in the middle of the new page (don't use the search box at the top of the page), enter "Happy Hour", and click Search.  Each segment (guest) of each Happy Hour show is then accessible. Since it's broadcast live (and then, again, at 11 PM) the segment obviously won't be on the web until after it appears on the air but they do seem to go up almost immediately after they happen.

Don't know quite what we'll talk about but Cody is good at making almost anything fun and puncturing pomposity in guests. Hope you'll join us on TV or on the Web. BTW, you can rate the segment on the web. If you come to the bar, we can have a drink and you can tell me how I did in person.

P2P – Boon, Boondoggle, or Bandwidth Hog? – Is Metering the Answer?

Reader Aswath posted a comment on Thursday’s post suggesting that charging users explicitly for both upload and downloads pricing is “an equitable  solution” to the congestion problem ISPs claim is caused when peer to peer (P2P) services use some of each user’s “unlimited” Internet capacity to serve other users and as a substitute for the service provider having to buy more Internet bandwidth itself. Aswath’s a smart guy and knows his telecom; he’s right that this is a solution to the problem; but I think it’s the wrong solution.

P2P does involve shifting bandwidth usage (and usage of other resources) from the service provider to the users. If users choose to let Skype or BBC or Napster use some of their CPU power or disk storage to serve other users (as they actually do when they sign up for Skype calling, BBC iPlayer, or Napster sharing), that’s a personal choice (as long as they’re informed that’s what they’re doing).

You could say the same thing about “their” access bandwidth; they are paying for it. They should be allowed to use it as they please. But ISPs do rely on the fact that most access bandwidth isn’t being used most of the time. If they assumed it would all be used all the time, backbone networks would have to be many times larger than they are today and Internet access would cost us all many times what it costs today (especially in markets which are more competitive than the US).

If, as Aswath suggest, we all paid for what we actually used, we’d be very careful of what was done with “our” access bandwidth and not place more load on the backbone than we’re willing to pay for. We’d be very sure that applications we choose to run, especially P2P applications, don’t run up huge bills behind our back

“Granted,” Aswath writes, “users need to be retrained from the flat-rate pricing, but it eliminates ISPs' cries of wolf.” Seems to me that usage pricing for Internet use is to draconian a cure to the problem, particularly if the problem IS just ISPs crying wolf.

I think unmetered use constrained only by the size of the access pipe one chooses to buy (and the actual capacity you can obtain over that pipe in true life) has helped to give the Internet the enormous utility it has. Several reasons for this:

1. usage billing systems are themselves expensive and drive up the cost of service. Lots of records have to be kept of lots of little things. Detailed bills need to be produced; expensive conversations have to be had to resolve billing disputes. What if I download 100meg of a 101meg file and my Internet connection blinks (or I think it did) and I have to start all over? Am I entitled to a credit? Do I have to pay for spam?
2. people are afraid of accidentally running up a large bill so refrain from many activities. How do you know how many bytes is a VoIP call is going to be? Are you gonna tell your kids not to send you big pictures? Videos?
3. people hate complexity. As long as you’re going to be billed at all, there’s nothing simpler than having your bill be the same amount each month. You don’t have to reconcile it; you don’t have to worry about being overcharged. There are no unknowns in your budget. My experience is that people will pay a premium for simplicity (see this old post).

Moreover, simply charging per byte transferred doesn’t reflect the load each user places on the network as a whole. In general, data transferred during non-peak periods cause no incremental cost to the ISP nor do they cause congestion for other users. It’s only when PEAK loads grow that congestion is experienced and ISPs need to buy more backbone. Those users who transfer data to other users offpeak are actually increasing the productive use of the network at not cost to the ISP and making the network more useful to other users. Should they be penalized or rewarded for providing this service using their own machines and bandwidth?

Even during peak periods, it’s not clear that users running P2P applications actually add to total network load. Take the example of BBC iPlayer whose use involves copies of TV shows being legally transferred from one user to another. If this service really is popular, many of the transfers will traverse only a small distance on a single network. If the transfers were all being done from central BBC servers, all of those people who do not use the same ISPs as BBC will cause long cross-network transfers. ISPs would argue, however, that BCC wouldn’t accept the cost of running the servers and buying the access necessary for running all of these transfers directly so they simply wouldn’t happen.

Net, as always I appreciate Aswath’s thinking. Don’t agree this time with the conclusion and will try to present a solution to the possibility of P2P arbitrage in a future post.

The first post of this P2P series is here.

P2P – Boon, Boondoggle, or Bandwidth Hog? – The Dark Side

Yesterday’s post explained how peer-to-peer (P2P) applications use the processing power, bandwidth, and storage capacity of participants in a service rather than centralized resources. This makes such applications generally less subject to catastrophic failure, much less subject to running out of resources (since each new user brings new capacity as well as new demand), and much cheaper FOR THE PROVIDER of the application in terms of hardware and bandwidth required.

It’s the FOR THE PROVIDER part that’s the rub. Let’s consider the case of BBC’s iPlayer service. For a seven days after most broadcasts, UK residents over 16 years old can download the show free and store it 30 days on their PCs for later viewing which can be offline. The current version doesn’t even download ads with the shows.

Sounds great, right? Just what TV should become on the Internet. Not so fast, according to British ISPs. They complain that this new service will overload their networks and that BBC has no right to do this (although the British regulator has given them permission). The ISPs say they may have to throttle the number of people who can get the shows or “protect” themselves in some other unspecified ways. Usually (by Fractals of Change, at least) the UK is held up as a model of a competitive market for broadband services where issues of net neutrality don’t raise their ugly heads. What’s going on here?

I suspect that the fact that iPlayer is a P2P service is at the root of the problem that ISPs have with it. If BBC downloaded shows to those who requested them directly from its own servers and if the service proves as popular as it might, BBC would have to buy huge (or huger) pipes of its own into the Internet and ISPs would get some revenue from that. However, in a P2P implementation, it is likely that only a few seed copies will be downloaded directly from BBC to the first people who ask for a particular show. Subsequent requestors will get their copies from the first requestors. BBC describes it this way in their terms of services (TOS):

“When you install the BBC iPlayer Library you will also install peer-to-peer file sharing software from Verisign Inc. This software has a file share feature that enables other BBC iPlayer users to download BBC Content through your personal computer (using part of your upload bandwidth), via a secure link, to their personal computers. … When you use BBC iPlayer Library you shall not have the option to 'switch off' the peer-to-peer functionality as this is a core component of the BBC iPlayer Library.”

BBC also warns: “… you are responsible for paying all expenses that you may incur in connection with your access to and use of BBC iPlayer including your internet service provider charges and any excess charges to that provider if you have a cap on downloads and/or uploads…”

OK, fair warning if you’re in the habit of reading TOS carefully. But this warning does NOT appear in any of the marketing information for the service which I saw.

So why should the ISPs be upset? If the users upload too much, they’ll be charged more and the ISPs’ll get paid more – not by BBC but by the users themselves. The problem is that not all ISPs have upload or download caps. Those that do usually don’t advertise them very prominently if at all. Moreover, most users may be well below their caps now – almost certainly are. So the users will use bandwidth which, from their point of view has been sitting idle, and either won’t pay the ISPs any more or will be outraged if they are presented with a bill or thrown off an “unlimited” service for overuse.

It is highly unlikely that you use more than a small fraction of the bandwidth on your connection to your ISP most of the time – usually your connection is idle. But ISPs count on the fact that most connections are idle most of the time; there isn’t nearly enough backbone capacity to handle all the traffic which would result if all the local connections were busy all the time.

“Oversubscription” isn’t fraud; it’s the correct way to design networks which are inexpensive enough for their users to use. The phone network wouldn’t work if all phones (or even more than a small fraction of phones) were offhook at the same time. The highway system wouldn’t work if every driveway were disgorging and engorging its maximum capacity 7x24. The backbone of most networks is designed assuming that most spurs will be idle most of the time.

So if BBC succeeds in low cost distribution of its content without buying new capacity of its own and users substantially increase their use of download and upload capacity without paying extra themselves, the ISPs face either providing degraded service or a sudden need to upgrade their networks (or higher charges for uses of other providers’ networks).

Are the ISPs right to try to make BBC pay directly or indirectly for use of enduser bandwidth? Next post a smart reader suggests that Internet access be metered to avoid even the perception of P2P arbitrage at the expense of ISPs.

Timely note: Ironically, as I write this, P2P network Skype is experiencing a rare outage. P2P services are generally more outage resistance than services which depend on a centralized bank of servers which can be subject to all sorts of catastrophes but they’re not invulnerable. Some networks which perform most of their functionality between peers may still rely on a central server to coordinate. Also new software is just as likely to act up in an unanticipated situation when it’s run on a distributed network as it is when it’s run at a central site – this appears to be Skype’s problem; in fact, it’s a bit harder to back out a bad upgrade on a P2P service than a centralized one.

P2P – Boon, Boondoggle, or Bandwidth Hog? – Introduction

Depending on whom you ask, peer-to-peer (P2P) services may be the best thing that ever happened to the Internet or a diabolical arbitrage scheme which will ruin all ISPs and bring an end to the Internet as we think we know it. Some famous P2P services include ICQ, Skype, Napster, and BitTorrent. Currently a new P2P service called iPlayer from BBC is causing some consternation and eliciting some threatening growls from British ISPs.

P2P explanation for non-nerds: a P2P service is one in which transactions take place directly between users’ computers rather than on some central server somewhere in cyberspace. Google search is NOT a P2P service; when you make a query, a Google-owned server somewhere searches a Google database and then returns the answers to your computer. Napster IS (or WAS) a P2P service; the music you downloaded from it wasn’t stored in any central site or sites; it was on the computers of the people who contributed it and was transferred directly from their computers to yours without passing through any central server.

Advantages of P2P

Scalability: P2P services are inherently scalable. If each user is sharing part of the load, more users mean not only more demand but also more capacity. By contrast, if a service runs on a central host, more users will eventually mean that more resources need to be added at the host. If new host resources aren’t added, the service breaks or slows to a crawl or suffers in some other way.

Survivability: If you don’t have a central server, you’re not vulnerable to central failure – nor can terrorists target a service whose elements are widely dispersed. Related post: America’s Antiterrorism Network – Distributed Data Storage. The Internet itself can be considered a network of peers since it has no central site; it was designed to be survivable and its headless nature was an essential element in its survivability.

Hardware Economics: ICQ, an early chat service, was one of the earliest free Internet services to net a small fortune for its founders. The founders could afford to make the service free even as it attracted hordes of users because of its P2P architecture. They didn’t have to have revenue to buy lots of hardware because the work of making connections and even storing the directory was done cooperatively on the computers of their users. Making a service free is a good way to get lots of users in a hurry. But, if it is free and not ad-supported, lots of users can mean a big unfunded hardware bill (even though hardware is much, much cheaper than it used to be, even in the ICQ days). P2P is a resolution to this quandary.

Bandwidth Economics: Here’s where the controversy begins! Suppose that all Skype calls had to pass through central servers; those servers would have to have huge pipes to connect them to the Internet. eBay, Skype’s owner, would have to pay huge sums to ISPs for those huge pipes. That would make ISPs happy but Skype doesn’t work that way. Calls go “directly” over the Internet from one Skype user to another; even call setup is done by using the shared resources of online Skype users rather than a centralized resource (see here if you didn’t know you agreed to help connect other people’s calls when you agreed to the Skype TOS). So the bandwidth needed for both the calls and the call setup is provided by the users. If eBay had to provide all this bandwidth, Skype-to-Skype calls probably wouldn’t be free.

BBC is planning to make most of its content available free over the Internet for a limited time after showing (remember, they are funded differently than American TV). They say their system is P2P meaning that the shows will mostly travel from one user’s machine to another over those users’ own Internet connections rather than being served directly from BBC to each user . “Foul!” cry the British ISPs, “BBC isn’t going to have to buy more bandwidth to offer this service; they’re going to use the bandwidth users already have. Usage’ll go up. We won’t get any more revenue from anyone. Customers’ll complain that their Internet connections are getting slow.”

Who’s right? More here.

Mass Customization

Computers and the Internet have made mass customization possible. The long tail of goods and services now available to us are a beneficiary of that trend.

Amazon doesn’t look the same way to any two of us (unless we take cookies off our computers). It’s personalized to the books we’ve bought and even looked at; it knows what country we’re in, what language we use, and even our screen size. It presents itself to us in as relevant a way as it possibly can.

Google doesn’t give us all the same response to the same query. It has our query history; it knows where we are and what language we speak. It tries hard to be relevant to us individually.

The WSJ Online (paid service) says “welcome evslin”. When the front page remembers who I am (it regularly forgets even though I told it to remember), it contains information on stocks, companies, and subjects I care about.

In fact many of the newer web services are valuable only because they are configurable to include the people, places, and things we care about.

Broadcast television and radio are “one message fits all” media because of the technology they use to reach us. To the extent the audience is segmented by where they watch or what they watch, some tailoring of ads to audience can be done on traditional broadcast media. But the Internet, e-mail, and even traditional direct mail allow for much more targeting. So that’s where the action is in advertising. The next generation of ads we see – the ads we’re beginning to see now, in fact – are mass customized.

There was a fascinating article in the NY Times last week by Louise Story about the plans of advertising giant Publicis Groupe (Saatachi & Saatachi, Leo Burnett and more) for mass customization of the ads they create:

“The plan is to build a global digital ad network that uses offshore labor to create thousands of versions of ads. Then, using data about consumers and computer algorithms, the network will decide which advertising message to show at which moment to every person who turns on a computer, cellphone or — eventually — a television.

“More simply put, the goal is to transform advertising from mass messages and 30-second commercials that people chat about around the water cooler into personalized messages for each potential customer…

“Greater production capacity is needed, Mr. Kenny [David W. Kenny, the chairman and chief executive of Digitas, the guy in charge of the effort for Publicis] says, to make enough clips to be able to move away from mass advertising to personalized ads. He estimates that in the United States, some companies are already running about 4,000 versions of an ad for a single brand, whereas 10 years ago they might have run three to five versions. And he predicts that the number of iterations [sic] will grow as technology improves.”

I think he means distinct versions rather than iterations. And I don’t think this will eventually come to television as we know it; instead video will move to the Internet where mass customization is already embedded in the delivery technology.

IMHO, this is a positive development. Both consumers and advertisers gain by better targeting. I’ll certainly glad NOT to see the same old ad a million times. The losers are the broadcast middlemen who have a stake in selling the largely untargeted audience that they deliver with their technology.

Content will go where the ads which support it go (and where consumer ears and eyeballs are). So mass personalization is one of the reasons why content like TV shows and even professional sports will move out of the walled gardens of cable TV, will never really move into the walled gardens of individual cellular networks (but will appear on small screens), and we’ll each be able to enjoy more of exactly what we want – including the ads.

Prediction: Google WILL Bid for 700MHz Spectrum and WILL Win

There is an excellent business case for Google bidding megabucks in the upcoming 700MHz auction and investing even more to get a network up and running. I think Google is well aware of the value to them if they win and the harm they’d suffer if the duopoly wins instead. Google can make big bucks with a nationwide third network AND make things better for all Internet users AND improve the United States’ pathetic competitive position in the contest for broadband access. Hope this post doesn’t end up post-tagged “wishful thinking”.

Pessimists know that the spectrum which’ll be vacated by broadcasters in February 2009 is worth more dead than alive to the telco/cableco duopoly: it can potentially be used to provide a competitive service which will hasten the end of their landline phone business, force the mobile phone business to be open and much less profitable, end the telcos hopes of using their access monopoly to muscle their way into content ala cable, and end the cablecos hopes of using their current lock on content distribution to muscle their way into telephony. Oh yeah, and if a new open network with great roaming capability, high bandwidth, and low prices comes along which doesn’t have to say “Mother, may I?” to the owners of the wires that come into our houses today, there goes the duopoly’s ability to charge high prices for inadequate Internet access service.

So no question it’s worth the telco/cableco duopoly members bidding big bucks to make sure no one radical gets hold of this spectrum. The “use it or lose it” provisions that the FCC has proposed actually allow the winner to hold every square inch of territory and every hertz of spectrum for eight years with NO use and NO buildout before they forfeit anything. Not bad on a ten year license. Sure, they’ll build in the places where it’s profitable for even over-stuffed monopolies with high overhead to build and they’ll be careful not to create any surplus capacity anywhere which might rock the club.

How’s Google supposed to bid against that? And, if Google wins, it actually has to assure that a network gets built. It can only lose by a slow buildout or letting the capacity lie fallow. The negative to Google of not having third network is that the owners of the access duopoly may well find some way to dam and then collect tolls on Google’s revenue stream.

But there’s also a huge positive opportunity for Google and one it appears that the company is well-aware of. The opportunity, very specifically, is to resell whatever spectrum Google wins on a “shared spectrum” basis. When radio spectrum is licensed slice-by-slice to different users, most of it goes unused. In a letter to the FCC sent before the auction and before its “ultimatum letter”, Google said:

“As has been pointed out by various studies, the vast majority of viable spectrum in this country simply goes unused, or else is grossly underutilized. Our nation typically uses only about five percent of one of our most precious resources, and even that minimal use is inefficient compared to what is technically possible today…”

Google was asking the FCC to clarify that the winner of the auction would be able to resell spectrum as a wholesaler. Unofficially, the FCC did just that in remarks from the Chairman and all of the commissioners. If Google wins, they can resell as a wholesaler – the traditional carriers have dared them to bide enough to win and do just that.

For reasons I blogged about more fully here and here, spectrum to which there is open access and for which there is contention gets much better overall usage than spectrum allocated in slivers. WiFi and Bluetooth are brilliant demonstrations of the efficiency of chaos in allocating a scarce resource. Actually, so is the Internet itself. The fact that WiFi and Bluetooth frequencies are totally unlicensed has certainly helped fuel innovation in their use but nominal licensing fees without expensive usage monitoring or bookkeeping won’t break the model. Google could charge a small fee as part of the sale of consumer devices which use the frequencies and/or lease or auction rights to contend for the frequencies to providers in relatively small geographic chunks and make more money overall than a traditional carrier running a closed network. Google suggested this strategy in its letter to the FCC so is certainly considering it.

Google can compete both for traditional cellular business – at the wholesale level – and for wholesale Internet access business and suck the remaining value out of the landline voice business – all by licensing the rights to contend for “it’s” spectrum. Many small sales and very reasonable prices will yield more overall revenue than a few large sales at high prices because the overall usage of the spectrum will be enough more efficient to create more capacity to sell. Low prices will pull demand from the traditional networks. Low prices create new uses and new usage. We’ve seen that result with the wired Internet; we will see it in a radio access network.

This strategy may let Google avoid the expense of a national buildout. Radios using Google frequencies by virtue of Google licenses could go on existing towers and new towers built by others to take advantage of the new opportunity. There is no reason for all those radios to be part of a “network”; they just need the same Internet connections any ISP needs. Google may provide some of the backbone but it’s certainly not necessary for them to do that everywhere.

It will be even more profitable for Google to wholesale the spectrum coming up for auction than it would be for the cablecos and telcos to keep the spectrum safely out of competition with their existing networks. If Google can license a “network” into existence rather than build it themselves, they’re spared that expense and we get coverage everywhere faster.

Ergo, Google DOES have a good business case to outbid the other guys. And they’ve got the money. Hope it happens.