DSL Prime: Technology, Politics, Competition

As the market increases, companies seek advantages both fair and foul.

by Dave Burstein of DSL Prime and Future of TV [May 19, 2006]

Cisco fighting Alcatel at the edge with "Big Iron" CRS-1
Alcatel's Mehdi Sif "Three to eight times improvement"
Bandwidth costs continue dropping, particularly the components in the networks required to deliver "net neutrality." Alcatel has been winning market share in high-end routers and switches, as customers including AT&T choose them, especially the "reliable" Timetra for TV over IP. There's a generation shift occurring in the middle mile, with Mehdi Sif claiming 200 percent or better performance improvements over the installed base of gear.

Mike Volpi (SVP) sees this as a crucial market for Cisco, especially with his CEO, John Chambers, focusing on the "800 percent increase in bits likely" as a predictor of Cisco growth.

I asked Volpi to translate the "increase in bits" to an estimate of "increase in dollar sales," given that equipment prices were also coming down fast. "10 to 20 percent market growth per year would be doing very well," Volpi answered. He intends to win his share, and I've separately learned Cisco is considering fighting back with a version of the topline CRS-1 core router.

The CRS-1 has been praised by customers from Britain to China (where it supports the Great Firewall). Volpi mentioned that some customers were already using the CRS-1 at the edge, although I believe the current price makes that rare. Cisco's logical next step is to re-package the CRS-1, perhaps disabling some features, and drop the million dollar price dramatically for the "new middle-mile." The manufacturing cost of the CRS-1 is (relatively) modest, so the price Cisco charges is based on market conditions and the need to recover previously incurred development costs.

Moore's Law and tough competition are driving down the cost of edge routers very fast. I may be underestimating with my working assumption of an annual 25 to 40 percent drop in the cost per bit to the carriers. Verizon, BellSouth, and AT&T have refused to answer my questions about the reality of traffic volume, but I have numerous data points that suggest the cost of their bandwidth is dropping faster (25 to 40 percent) than the traffic is growing (10 to 20 percent).

mPhase bring active splitters to ANSI
What every DSLAM needs
Phil Golden and Herve Dedieu, editors of the new Fundamentals of DSL Technology, worked together at LEA, a French company with backing from France Telecom. Open a DSLAM, and you'll discover the splitters actually take more of the extraordinarily valuable board space then the DSL chips themselves. This unglamorous part gets little attention, typically considered an inexpensive commodity. LEA's "active splitters" are typically half the size. While the cost is higher, the resulting system is often cost effective.

Now, Ron Durando and team at mPhase have developed and will distribute a model for the North American ANSI market. The mPhase folks have been generous supporters of DSL Prime, so I'm delighted they now have this product of note.

TI, Conexant settle patent case for $70 million
Reduces verdict, avoids antitrust case
TI's $112 million judgment against Conexant/Globespan scared the entire industry, because the royalty rate suggested was enough to stifle competition. TI's history of aggressively seeking royalties suggested others were next, with Centillium and others fearing the next suit. Wisely, TI chose to settle, accepting less than they had been awarded, and waiving the right to seek triple damages from the judge. Conexant had the resources to pay, so TI might have collected a windfall, but the industry could have been torn apart by the related antitrust suit. ATIS was the key group involved, and the CTOs of BellSouth, SBC, and Verizon are ATIS officers who might have been dragged into court, and the practices of the standards bodies examined in depth.

The purpose of standards is to create a large market and bring down costs for everyone. The danger in doing so is creating a monopoly, which can demand higher prices anyway. Consumers and those who serve them (like telcos) pay the price. The typical compromise is to require that royalties on anything in the standard be "reasonable and non-discriminatory." That sounds good, but is meaningless without a definition of reasonable and is rarely enforced.

ATIS's manager, Susan Miller, explained to me "we don't get involved in disputes like that. We leave it to the companies." Going to court on an issue like this costs literally millions in legal fees, leaving smaller companies and startups highly vulnerable, and consumers unprotected.

"The best standards have no royalties," ITU leader Haolin Zhou told me a while back. He was particularly concerned with products that sell in very large volumes in poorer countries, such as cell phones and now DSL.

As cellphone prices come down to $35 and below, the world is rebelling against the "Qualcomm Tax." The MPEG Licensing Authority, backed by Sony, Microsoft, and other giants, is demanding a fee from nearly every television program being broadcast over the internet that is between 10 and 50 times higher than anything "reasonable," but people are afraid to fight. The fight over Blu-ray and HD DVDs is all about royalties and market control. Sony was pushed out of the DVD market by Chinese manufacturers driving the price down to $30 or $40, and now, with allies, Sony has built a patent strategy designed to keep the Chinese out of the market. The resulting "Sony Tax" will add a hundred dollars to every player for several years.

The benefits of standards are being lost to the excess royalties. The Chinese are developing their own DVD and 3G cellphone standards. Google, MySpace, and others are using the Flash/On2 codec instead of MPEG-4 to avoid the "TV Tax" paid to Sony and Microsoft. Telecoms Korea editorializes "Korea Should Join in Stopping Qualcomm's Monopoly." TI was wise to sidestep the battle by settling.

Copyright 2006 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

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