Look to History, See the Future of Telecommunications — continued

The pace of change, a delta of delta
The other critical aspect we can immediately recognize is the length of the time it takes one technology to completely replace the previous technology.

When the Internet became public in the early 1990s, most of the public used dialup to connect. In a relatively short period of time, (1994 to 2005) broadband was introduced and came to lead the market. This eleven year period represents a dramatic change, and businesses that rely on broadband to deliver their services can be said to be playing in a completely new market.

Broadband options were developed: cable, DSL, satellite and, to a lesser extent, fixed wireless. Each of these technologies has advantages and disadvantages. As new services, such as VoIP and IPTV, are delivered, and demands on the infrastructure change, the relative position of each technology can change.

Even the pace of change is increasing. Moore's Law tracks a change that occurs every 18 months. It drives technology obsolescence. As the chips in computers and radios and equipment get better and faster, equipment needs to be replaced again and again.

ISPs need to replace equipment and struggle under the debt load of the price of equipment that is now obsolete. In the midst of the recent dispute with Level 3, Cogent CEO Dave Schaeffer taunted Level 3 by saying, "Level 3 could buy equipment, but it's hard to do when you have a $6 billion debt load."

No longer can financial models be built that span 30 years (as the telecommunications industry is used to doing) any more than individuals can expect to graduate college and expect their education to be enough to hold them to retirement, or expect to work for one company all their lives. Many successful companies themselves change business plans. Any company that was founded in the early 1990s as a dialup ISP is certainly a very different company today.

For even faster change, go wireless
Let's return to wireless. Internet technology can be divided into to groups: tethered and untethered, wired and wireless. Tethered connectivity, which includes fiber, cable, DSL, and possibly BPL, depends on a hard, physical connection from point to point. Untethered satellite, cell phone/EVDO, and Fixed Wireless do not—even though at some point every wireless network connects to the wired Internet to go to the upstream.

Untethered service has several intrinsic advantages over the tethered technologies. Untethered services can provide mobility. Untethered services—especially Fixed Wireless—can be deployed more quickly. In addition, to connecting individual customers faster and cheaper, Fixed Wireless networks offer faster and cheaper network buildouts as well as a lower cost of continued operation.

It's so cheap that Fixed Wireless networks can be temporary. Covad, in touting the advantages of its NextWeb acquisition, mentioned temporary networks. "On a construction site, for example, we can put a high bandwidth link into a trailer and people can send drawings back and forth," said Pat Bennett, executive vice president of Covad Communications.

Upgrades, too, can be faster and cheaper. As hardware is replaced by software, in switches and radios, upgrades will become more virtual, more frequent, and less expensive

Changes in technology require changes to the business model. The myth of Economics textbooks, the buggy whip manufacturer, shows what happens to businesses that fail to prepare for change.

Change at the heart of the business model
One of the most significant changes wireless enables lies at the heart of the telco and cableco business model. A key industry metric is the number of customers per mile. Companies report the number of customers passed (the potential market) as well as the number of customers served (the actual market). Companies decide whether or not they can afford to serve a market based on the expected number of subscriptions per mile passed.

The phone companies have managed to influence regulation to obtain government financing to serve rural areas (see the theory of regulatory capture).

A combination of forces including relaxed regulations and new technology such as VoIP and IM have radically altered the traditional business model. No longer is a monopoly structure necessary to provide universal communications. In fact, in many rural areas where the cost to provide communications was exceptionally high, we now can provide service for significantly less by replacing wired technology with wireless.

Look to History, See the Future of Telecommunications

For even faster change, go wireless

>The common good is a positive externality