Subject: [NEXTEL-1] Three Takes on Telecom's Troubles

From: Marcel <[email-masked]>
Date: Fri, 03 Jan 2003 00:56:30 -0500

Three Takes on Telecom's Troubles

Spectrum asked three IEEE members from
the telecommunications sector to comment
on the industry's current woes and prospects.

1) Bandwidth Is a Commodity. Deal With It

By Roch Guerin

The impact of technological change on telecommunications is
enormous, yet sometimes overstated. It calls for a shift in
business models-for example, modern routers and other
infrastructure must be depreciated in only a few years, instead of
the 20-30 years typical for traditional telephone equipment.
That's new for a phone company, but it's just business as usual in
many other industries. The bottom line is that technology is
making bandwidth a commodity; it shouldn't matter who supplies it.
Those fighting tooth and nail, through regulatory and other means,
to prevent this irreversible change will lose out in the end.

With bandwidth available from a number of sellers, at around the
same price, getting connected isn't where the high-profit margins
are to be found. Instead, the sweet spot of the telecom business
will be in offering services that people will want enough to pay
for-again, nothing new. As in every industry, the move is upward
in the food chain-for telecommunications, into the growth areas of
movies, sporting events and concerts, online shopping, mobile
access to information, and so on.

There is still money to be made in the infrastructure. But the
companies earning it will be either the few brutally efficient
providers of bandwidth and connectivity or the boutique companies,
experts in providing custom connectivity in niche markets such as
streaming media, portals, and e-commerce. In both cases, decent
profit margins are quite possible, if only because costs are
continuously declining, while the price that can be charged for
delivering and managing that connectivity reliably, efficiently,
and with sufficient quality of service is not holding steady.

Telecommunications networks differ from traditional commodities:
value is not intrinsic, but grows with both the number of users
and the range of functions a network makes available. The near
ubiquity of the Internet has been one of the main factors
contributing to its success. Just as fax machines increased the
value of the traditional phone network without requiring it to
change, every new service-such as peer-to-peer file sharing or the
availability of online services such as banking and shopping
catalogs-increases the value of the network as a whole.

What can go wrong?
The biggest danger we face is putting control of the
infrastructure and the services it enables into the same hands.
This would stifle not only competition, but also greater
efficiencies. Just imagine that you could buy toasters or TV sets
only from your local utility company, or purchase only cars
manufactured by an oil company. Your choices would be limited, and
the drive for greater efficiency and innovation would be largely
absent.

Though the value of the telecommunication infrastructure is
directly related to the number of its users, only competition
ensures an ever-increasing range of uses. Whether for
entertainment, e-commerce, information, or collaboration, these
will spur even more people to use the infrastructure. This is the
dynamic that we should be building upon, not slowing down, and the
most effective way to do it is by decoupling the commodity
providers from the value providers.

Roch Guerin (F) is the Alfred Fitler Moore Professor of
Tele-communications Networks in the University of Pennsylvania's
department of electrical and systems engineering (Philadelphia).

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2) Dazzle Us-and Do It Soon

By Frank Ferrante

In all the fuss about the dot-com boom and bust, and the
subsequent techno-meltdown, people forget the role played by the
Year 2000 crisis. When the world realized that telecommunications
and business operations could come to a screeching halt if we all
did not pull together to address Y2K, the industry response was
massive (maybe too massive).

Manufacturers were deluged with orders for new upgraded systems
and began to increase inventory. Funding directed at research and
planned growth was easily redirected to the needs of Y2K, placing
other work on the back burner.

People were hired, the rate of production increased, and
manufacturers and providers of Y2K-certified products moved
forward like a well-oiled machine. The information technology
industry was a nation going to war. Vast sums were spent warding
off the unthinkable.

But when Y2K was over, production stayed high and inventories
continued to build, while demand effectively stopped overnight.

What will save the day?

What we are waiting for now is a new chip, a new product, a new
innovation-something dazzling enough to compel the masses to
spend. They have the resources to buy new multipurpose lightweight
always-connected phones and other devices, and must-have digital
entertainment services. But manufacturers must deliver. This now
appears to be happening, but like all changes, slowly-too slowly
for a quick industry turnaround.

Gigabit Ethernet over fiber can already be delivered to homes for
less than US $100 per month. New services, such as video, will
make cellphones and other devices computation-intensive, helping
chip manufacturers. Even high-definition television, a real bust
so far, may yet find a home, if manufacturers end the miasma of
trademarks and standards, and lop a digit off four-figure prices.

Governments need to help out, too, with key regulatory changes,
especially by reassigning spectrum for the fast-growing mobile
population of the future. Loosening commercial television's grip
on spectrum allocation may be the next big political battle ground
for the U.S. Federal Communications Commission.

Some truly dazzling mobile data and location-based services are
just sitting and waiting to be introduced: broadband wireless
local-area networks that span hundreds, instead of tens, of
meters; high-speed mobile video/data phones that easily
interoperate across national borders; medical and healthcare
patient record systems that automatically monitor your wellness
using smart systems fitting in your wallet; secure voting systems
that still assure privacy; and services that change in the
background as you drive down the highway.

The next generation of mobile Internet can bring connectivity to
rural and poor urban areas. If we can plant the seeds of
entrepreneurial telecommunications infrastructure in these areas,
entrepreneurial businesses and a techno-literate workforce will
thrive. We have a tremendous future.

Frank Ferrante (SM) retired recently from Mitretek Systems Inc.
(Falls Church, Va.). He is editor-in-chief of the IEEE's IT
Professional Magazine.

__________________________________________________________________
___________________________

3) Engineer, Heal Thyself

By Jules A. Bellisio

Botched divestiture, fumbled regulatory reform, misbegotten
business plans: it's easy to blame politicians and senior managers
for a telecommunications industry fiasco that was two decades in
the making. But we engineers must stop pretending we are innocent
bystanders and try to divine some lessons for the future.

Divestiture happens
Much of the difficulty of the current era was triggered by the
Bell System divestiture some 20 years ago. Remarkably few
engineers were speaking up, and those who were, weren't being
heard at a time of fateful decisions that still haunt us today.
Why did we allow business manipulators and bureaucrats to drive
the show?

In at least two key cases, a good technological understanding
would have suggested a different path.

Technical Misconception No. 1: Long distance will always be a
high-margin business. AT&T was broken up in a somewhat irrational
way so as to couple the new phone-equipment manufacturing entity,
the future Lucent Technologies, with the company's then cash
cow-Long Lines, the long-distance division. What engineers could
have told them was that new technologies, particularly fiber
optics, were making the technical cost of long haul rapidly
approach zero.

Instead of leveraging this inevitability to everyone's advantage,
we have a number of virtually identical, nearly bankrupt
long-distance carriers, AT&T among them, each of which spends
almost all the money paid by consumers on advertising and
administrative expenses.

Technical Misconception No. 2: Anyone can design a computer. One
of the desiderata underlying the way AT&T was broken up was making
its manufacturing entity a major force in the computer industry
that could challenge IBM, itself the object of antitrust
investigation. The business brains underestimated what it took to
put out a superior product. They especially had no appreciation of
the organizational fabric of technology companies and the
embedded, but usually unwritten, cultural and institutional
knowledge engineers have-the stuff that makes a technical company
successful.

There were more than a few things about IBM's business that a
newcomer could not learn in a day (or a year, for that matter).
Interestingly enough, IBM made the same mistake and met the same
fate when it tried to enter the telecom business.

Engineers become huckster
Then there's the whole dot-com bubble, which was aided and abetted
by engineers who should have known better. Engineers were more
than willing to produce techno-business scenarios to "prove" the
silliest of propositions. We invented reasons why the nation
needed to be wired with an endless tangle of fiber-to-nowhere
because it would surely find a use.

While the hucksterism was lamentable, the kind of greed that took
over by the end of the bubble was inexcusable, and is, or ought to
be, a violation of IEEE ethics. Many of us became engineers
because we get enormous pleasure out of making innovative things
work. And we made good money in the process-no problem with that.

Still, many engineers put together ventures for the sole purpose
of attracting capital, and then took the money and ran. The
underlying technology and business propositions were pure
vaporware, there solely to lure the unsuspecting. When we allow
our ranks to become populated with people so interested in money
that they use technology simply to cover for a scam, then we are
also to blame for the current mess.

Jules A. Bellisio (F) is executive director of the Federal
Communications Commission's Technological Advisory Council and
principal of his own consulting practice, Telemediators LLC
(Farmingdale, N.J.).
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