Is it too Late?

by Neale Martin published June 05, 2006 in Telephony Telephony

It has been 10 years since Bill Clinton signed the Telecommunications Act, and it seems appropriate that we take the opportunity of the inaugural Globalcomm to look back as we look forward. Shortly after the bill was passed, I was asked to develop a program on the future of competition in telecommunications. Historically, participation for the competition section of this annual conference had been light. In 1996, the sponsor had to break down the partition to double the ballroom space, and there was still standing room only. Of course, I would have liked to take credit for the surge of interest, but the reality was the industry was supposedly awake to the threat of competition.

The presentation began with a provocative question: Is copper an asset or a liability? Although it would be hard to argue against a technology that was bringing in roughly $200 billion in annual revenues, the future was becoming clear. The battle for the residential market would be based on broadband services. While legitimate debate ensued about what killer apps would dominate, few argued that existing copper-based technologies were inadequate to the task.

An audience member asked, “What will it take to win the residential market?”

Remembering my first PC purchase, I was reluctant to put a stake in the ground. The PC salesman assured me I should buy the smaller 40 Meg hard drive because, “I can't imagine ever needing more than 40 Megs.” I hesitated to answer for fear of making the same myopic prediction. Reluctantly, I offered this prediction. “Short term, 4 Megs, quickly rising to 10 Megs, and within 10 years, you'll need 100 Megs.”

This educated guess 10 years ago became a standard question in my presentation to the industry: Does the first guy with a 100 Mb/s solution to the residential customer win? The question was based on the economics of networks, a field of business research extending back to the expiration of Alexander Graham Bell's original telephone patents. The industry was recognized as a natural monopoly after competing duplicate networks proved uneconomical. Updating that for the 21st century, is there a rational business plan to over-build on top of an existing network that provides 100 Mb/s throughput providing video, high-speed Internet and voice?

As we walk through the vast confines of McCormick Place, looking at this orgy of technology that was unimaginable just a few years ago, the haunting question must be asked: Is it too late?

In the last decade, the cable industry has spent roughly $100 billion to upgrade its physical plant and can now provide high-definition video, video-on-demand, high-speed Internet and voice over IP to most Americans. The standardized hybrid fiber/coax network they have in place can deliver 100 Mb/s downstream service.

Over the same time period, the phone companies have vacillated, unable to agree on technology, network architecture or standards. Each time the industry heavyweights have agreed on standards to reduce costs and time to market, one or more of the players dissent. The two major players are deploying radically different solutions. Verizon hopes to have its FiOS fiber-to-the-premises service available to 3 million homes this year. AT&T's slower Light-speed is just now expanding beyond its San Antonio incubator. They plan on offering the service to 15% of the U.S. market by the end of 2008.

In a recent conversation with a senior cable executive, I asked when his company would start giving voice away for free. A Cheshire-cat grin spread over his face. “I see you are a student of game theory,” he said. When I repeated the question, he said simply, “When the time is right.”