Look to History, See the Future of Telecommunications — continued

Once wireless broadband cost disruptions reach urban areas, the equations that govern the telco business model will be destroyed.

A word of caution, however. We have not yet reached this point. The telco is not yet obsolete. There are still a number of services that the telecommunications industry provides that none of the alternative technologies can match. For all their faults, the telephone companies have managed to provide a very reliable, nearly universally available service for the better part of a century. We have grown to expect that service will be available whenever we pick up a handset, with outages the exception instead of the rule. We expect that the audio quality to be good, calls to not be dropped and that anywhere we try to call will be available to us, at any time.

While a case could be made that cell phone service does not measure up to this level of service, the fact remains that we seem to be willing to accept that trade off because the advantages that mobility provide outweigh the added expense and inconvenience inherent with today's cell phone service. We can only assume that cell phone service will improve as time goes on, but changes here do seem to be governed by market forces (Dave Burstein argues that this market is becoming a monopoly, however, in DSL Prime Editorial: Enable $19.95 Per Month Cellular).

Let's not forget that the telecommunications industry provides very important services besides voice. Metropolitan Ethernet services are an ever more important service as is videoconferencing, remote medical diagnostics and monitoring, and now video delivery services including Video on Demand. Almost all of these advanced services cannot be delivered by untethered service providers at this time.

But perhaps the wireless technology, the protocols, are capable of delivering the service even though the equipment currently on the market cannot. As we mentioned earlier, equipment improves every year. The radios of 2006 will be better than those of 2005.

The monopolies that remain
The satellite industry is a special case. Each satellite covers a vast swath of land, eviscerating the equations that determine whether or not a company can serve an individual town. But satellites are tremendously expensive to launch, have to stay in the sky until they are obsolete to justify the cost of their launch, and fly far enough above the earth that latency is an issue, preventing satellite networks from delivering real time applications like voice communications at an acceptable quality level. I expect real time applications to dominate data delivery in the future, and I therefore expect the satellite Internet market to disappear in the long term.

Cellular providers have two problems: low throughput and poor coverage. I do not believe they can overcome them, but if they can solve both problems they will survive.

WISPs have been the unknown in this industry for several years. WISPs are not public companies. Many are small. There is no accurate data on the size of the WISP market or the number of WISPs. WISPs range from small amateur efforts using a single DSL or cable connection and consumer wireless gear to very large business-oriented companies that use fiber and licensed microwave equipment. This latter group may be a real challenge to the telcos.

Ironically, the last challenge to the telcos was also based on microwave. MCI Communications was founded as Microwave Communications, Inc. in 1963. Recently, Verizon acquired MCI (an Internet access conglomerate that now includes WorldCom and UUNet) in a much-criticized move (see, for example, Group Blasts Verizon-MCI Merger).

Re-monopolization in the telephone industry parallels that of the oil industry, where the components of Standard Oil are being reassembled. The breakup of Standard Oil in July, 1911 is described in The Prize: The Epic Quest for Oil, Money, & Power, the famous history of the oil industry, in a way that hints at just how powerful Standard Oil really was (p.110):

Standard Oil was divided into several separate entities. The largest of them was the former holding company, Standard Oil of New Jersey, with almost half the total net value; it eventually became Exxon—and never lost its lead. Next largest, with 9 percent of net value, was Standard Oil of New York, which eventually became Mobil. There was Standard Oil (California), which eventually became Chevron; Standard Oil of Ohio, which became Sohio and then the American arm of BP; Standard Oil of Indiana, which became Amoco; Continental Oil, which became Conoco; and Atlantic, which became part of ARCO and then eventually of Sun. "We even had to send out some office boys to head these companies," one Standard official sourly commented. These new entities, though separated and with no overlapping boards of management, nonetheless generally respected one another's markets and carried on their old commercial relationships.

The number of Bell phone companies is shrinking. The number of cell phone companies is shrinking. The number of cable companies is shrinking.

But wireless continues to grow.

The common good is a positive externality
The ISP industry got its start delivering dialup to residential subscribers. But the future lies in delivering rich services to businesses, services which will some day also be available to residential and home office users.

For that future, bigger is not necessarily better. Look at the sparse network map of national VoIP provider CommPartners—it's no telco. Wireless is the last mile component of an internet revolution that includes VoIP and softswitces. It will shake the phone companies at just the moment they have reassembled Ma Bell.

It is a revolution that will free small business to compete with big business, free innovation to compete with monopolies, free startup software companies to compete with established brands. It will bring ideas to market.

As long as the government does not intervene to prevent change (see We, The Internet, about a speech by Susan Crawford, recently nominated to ICANN's board), the future will not be the past.

In a free market, those building new networks for new services will be able to overcome those who look backward. In a free market, democracies innovate and dictatorships decline and fall, stifled by nepotism, corruption, and groupthink. As Marlon Schafer wrote earlier this month (see Wireless Regulation Matters Even More, Now), "Competition keeps prices down and quality up. It's the free enterprise way of keeping companies honest."

This is the WISP revolution. It's a 21st century revolution. No shots will be fired. Instead, professionals will work together fulfilling market mandates and, along the way, as a positive externality, make the world a better place.

It began a few years ago. It continues in 2006.

—End

 

Look to History, See the Future of Telecommunications

For even faster change, go wireless

The common good is a positive externality