This is part of IEEE Spectrum's special report: What's Wrong—What's Next: 2003 Technology Forecast & Review.
Bandwidth Is a Commodity. Deal With It
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 2030 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.
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.