Published on March 12, 2014
Information Velocity Partners, LLC Michael Elling, @infostack firstname.lastname@example.org 973-222-0759
AMERICA’S REAL DEFICIT 2 © I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C 3 MODERN DIGITAL INFORMATION REVOLUTION Rate Of Change Hi Low Telco Monopoly Wireless Monopoly And USF Carterfone Modems/Fax Cable licenses Private Inventions Equal Access for Voice, Data, Wireless 1996 Telecom Act Special Access Deregulation Broadband Equal Access Revoked WiFi Equal Access By Steve Jobs 70-100% competition 30-70% competition 0-30% competition
WE KILLED MOORE & METCALFE 10 YEARS AGO 4 © I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
HOW TO KILL COMPETITION • 1996 telecom act: a well intentioned farce • open access not applied universally • average cost models (TELRIC) out of touch with technology reality • baby bells have singular (political) mission • 2002 deregulate special access • highly concentrated market • easy to implement anti-competitive pricing • mid-mile impact on last-mile margins kills latter • 2002-05 band-x • universal death of equal access • final consolidation of baby bells and IXCs (rebuilding Mama) 5 © I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
COMPETITORS & CAPITAL MARKETS NOT BLAMELESS • vertical business models • that’s the way it was done • digital fundamentally different from analog (not understood in 80s-90s) • easiest way to maintain monopoly • antithesis of smart capital • classic irrational exuberance • opex/capex tradeoffs not well understood • linkages between upper & lower layers & across networks not perceived • antithesis of good analysis • price cap and rate of return trained • rapidly evolving landscape provided few historical markers • inability to model supply and demand drivers 6 © I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
• wired vs wireless • telco vs cable • video vs voice • broadcast vs 2-way • pc vs smartphone 7 WHY? CONFLICTING & CONFUSING FORCES • mobility/BYOD • blogging/tweeting • social networks • app ecosystems • 4 screens • old business models & network/service definitions gone • end-user wants choice, flexibility and control • role of corporation, institution, individual all changing divergence of demandconvergence of supply © I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
•fcc: broadband summit: adoption & usage february 7, 2013 •silicon flatirons: digital broadband migration february 10-11, 2013 •isen.com: freedom2connect march 4-5, 2013 •fcc: 3.5Ghz workshop march 13, 2013 •fcc: technology transitions policy task force workshop march 18, 2013 •free state foundation: completing the transition to digital march 21, 2013 •fcc: gigabit communities workshop march 27, 2013 •no focus on marginal cost or cost savings • it’s all high investment & high growth • everything is new; revolution, not evolution • big & confusing challenges ahead •no focus on changed or changing network theory • “its just a technology transition” • nothing learned from recent past • perpetuating failures of the pre-1983 past •no clear consistent path • lack of good data • muddle along strategy • lots of illogical and inconsistent policy • “less” regulation because of “bad” regulation 8 TODAY: WHAT STAKEHOLDERS AREN’T SAYING key industry discussions net takeaways © I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
HOW DO WE GET FROM A TO D? 9 i. it’s not about • regulation vs deregulation • competition vs monopoly • liberal vs conservative ii. it is about • analog vs digital • closed vs open • vertical vs horizontal • average cost vs marginal cost • moore’s, metcalfe’s AND zipf’s* laws *--3 major laws behind network theory, moore is processing, metcalfe is network effect, zipf is congestion management set priorities determine approach i. learn from 3 prior digital shifts (WAN, data, wireless) and role of equal access & pricing ii. get on same page semantically; stop debating meaning (like ‘net neutrality’) iii. rigorous data collection and analysis (quantitative and qualitative) iv. develop ex ante marginal cost models clearing expected supply and demand v. develop a “communications graph” and common reference framework © I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
MOORE IS ALIVE AND WELL 10 Source: Matthew Komorowski. © I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
DIGITAL PRICE REFLECTS MARGINAL COST analog: 20 cents digital**: 2 cents coax: $450 fiber***: $45 11 1996: marginal cost of wireless minute* 2013: marginal cost of broadband gigabyte *--1983: voice digitization, 1990: data digitization **--imputed from MicroCell 400/$40 bucket ***--imputed from Google KC $70/gig price © I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C 12 Supply Demand Cost User-Interface Coverage Usability Capacity Ubiquity Clarity Universality SUPPLY & DEMAND MODELED “EX ANTE” DRIVES MARGINAL COST & PRICING
SUPPLY/DEMAND MODELED ACROSS THE STACK • geographic boundaries • location and density of demand • network assets and boundary points • fixed vs mobile • traffic type • service layers • broadly defined by lower, middle and upper layers • narrowly defined by: physical, transport, switch, control, session, billing, application • vertical completeness vs integration • horizontal scale counters rapid obsolescence • application/market clouds • commercial, institutional, residential • work, social, play • text, data, voice, multimedia, video • every individual uniquely situated 13 y z x infostack™ © I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
A 3-D COMMUNICATIONS GRAPH & REFERENCE MODEL 14 geography/density servicelayers • consistent • objective • comprehensive • common language • illustrative and graphic • highlights relationships • educational • promotes data collection • aids supply/demand modeling • estimate marginal cost at every layer and boundary point the infostack™ why? y z x infostack™ © I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
IS COMPLEXITY BEST UNDERSTOOD THIS WAY? 15 y z x infostack™ © I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
OR USING A CONSISTENT GRAPH TO MODEL PAST & FUTURE? 16 Fiber/Wlx/HetNets Ethernet/MPLS IP/Opto-electric Mediation/SDN/CDN Session Control/Settlements Application Billing/Support Communication/Commerce/Content Applications “the past = vertically integrated biz models bound by geographic & regulatory constraints” “the future = horizontally scaled intranets serve infinite demand” infinite market segments, generative competition, and virtual economies silo-ed supply/demand, non-generative markets Upper vs boundaries vary by application & market segment across layers Middle Lower © I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
A GRAPH TO OBJECTIVELY UNDERSTAND • the cloud, the smartphone, OTT • hetnets, technology and business model transitions • interoperability, device availability, roaming • USF and rural broadband reform and development • spectrum allocation, reuse, sharing • backhaul and mid-mile costing; transport caching and CDNs • development of balanced settlement solutions • corporate VPNs and centralized procurement • equal access, net neutrality and monopoly bottlenecks • prices, terms and bundles • marginal cost of operations and investment • restructuring and repurposing of existing assets & companies 17 y z x infostack™ © I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
INTERCONNECTION AND OPEN ACCESS WORKS • Dial 1 equal access • Computer 2/3 • Wireless A/B/PCS interconnect/roaming • Number portability • Must carry • WiFi/802.11 y z x infostack™ © I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C 18
Applications Networks App/Net A Settlement Exchanges App/Net B CLEARING TRAFFIC NORTH-SOUTH & EAST-WEST y z x infostack™ © I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C 19
LEADING TO FAST INTERNET FREE EVERYWHERE • huh? but doesn’t someone always pay? • yes, but remember that 3 digital waves in 80s-90s taught us much about equal access and marginal cost… • …& got us to where we are; but few have learned the lessons • 17 years of competition in the WAN led to 90% of long-distance communication thought of, perceived as, or actually was, “free” • despite that industry revenues in 2000 > 1983 • same trends in internet, cloud and wireless (802.11 fully, 1G-4G partly) • price reflecting marginal cost at every layer and boundary point is highly generative and stimulative (look at google fiber kc) • balanced settlements will lead to new services, infrastructure investment and centralized procurement and subsidization • competition leads to ubiquitous and universal (free) service: fife 20 y z x infostack™ © I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
PAST FORMS OF FREE • 800 • VPN • Ad sponsored content • WiFi • Email y z x infostack™ © I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C 21
22 FIFE Efife Michael Elling Information Velocity Partners (IVP) email@example.com 973-222-0759 © I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
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