Three Takes on Telecom's Troubles

Spectrum asked three IEEE members from the telecommunications sector to comment on the industry's current woes and prospects

6 min read
Three Takes on Telecom's Troubles

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

roch guerin photo

Illustration: Michael Pilla/Getty Images

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.

frank ferrante photo

Illustration: Alex Wong/Getty Images

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.

Some truly dazzling mobile data and location-based services are just sitting and waiting to be introduced: broadband wireless local-area networks that span hundreds, instead of tens, of meters; high-speed mobile video/data phones that easily interoperate across national borders; medical and healthcare patient record systems that automatically monitor your wellness using smart systems fitting in your wallet; secure voting systems that still assure privacy; and services that change in the background as you drive down the highway.

The next generation of mobile Internet can bring connectivity to rural and poor urban areas. If we can plant the seeds of entrepreneurial telecommunications infrastructure in these areas, entrepreneurial businesses and a techno-literate workforce will thrive. We have a tremendous future.

Engineer, Heal Thyself

photo jules bellisio

Illustration: Laura Pedrick/Getty Images

By Jules A. Bellisio

Botched divestiture, fumbled regulatory reform, misbegotten business plans: it's easy to blame politicians and senior managers for a telecommunications industry fiasco that was two decades in the making. But we engineers must stop pretending we are innocent bystanders and try to divine some lessons for the future.

Divestiture happens

Much of the difficulty of the current era was triggered by the Bell System divestiture some 20 years ago. Remarkably few engineers were speaking up, and those who were, weren't being heard at a time of fateful decisions that still haunt us today. Why did we allow business manipulators and bureaucrats to drive the show?

In at least two key cases, a good technological understanding would have suggested a different path.

Technical Misconception No. 1: Long distance will always be a high-margin business. AT&T was broken up in a somewhat irrational way so as to couple the new phone-equipment manufacturing entity, the future Lucent Technologies, with the company's then cash cow--Long Lines, the long-distance division. What engineers could have told them was that new technologies, particularly fiber optics, were making the technical cost of long haul rapidly approach zero.

Instead of leveraging this inevitability to everyone's advantage, we have a number of virtually identical, nearly bankrupt long-distance carriers, AT&T among them, each of which spends almost all the money paid by consumers on advertising and administrative expenses.

Technical Misconception No. 2: Anyone can design a computer. One of the desiderata underlying the way AT&T was broken up was making its manufacturing entity a major force in the computer industry that could challenge IBM, itself the object of antitrust investigation. The business brains underestimated what it took to put out a superior product. They especially had no appreciation of the organizational fabric of technology companies and the embedded, but usually unwritten, cultural and institutional knowledge engineers have--the stuff that makes a technical company successful.

There were more than a few things about IBM's business that a newcomer could not learn in a day (or a year, for that matter). Interestingly enough, IBM made the same mistake and met the same fate when it tried to enter the telecom business.

Engineers become huckster

Then there's the whole dot-com bubble, which was aided and abetted by engineers who should have known better. Engineers were more than willing to produce techno-business scenarios to "prove" the silliest of propositions. We invented reasons why the nation needed to be wired with an endless tangle of fiber-to-nowhere because it would surely find a use.

While the hucksterism was lamentable, the kind of greed that took over by the end of the bubble was inexcusable, and is, or ought to be, a violation of IEEE ethics. Many of us became engineers because we get enormous pleasure out of making innovative things work. And we made good money in the process--no problem with that.

Still, many engineers put together ventures for the sole purpose of attracting capital, and then took the money and ran. The underlying technology and business propositions were pure vaporware, there solely to lure the unsuspecting. When we allow our ranks to become populated with people so interested in money that they use technology simply to cover for a scam, then we are also to blame for the current mess.

About the Authors

Roch Guerin (F) is the Alfred Fitler Moore Professor of Tele-communications Networks in the University of Pennsylvania's department of electrical and systems engineering (Philadelphia).

Frank Ferrante (SM) retired recently from Mitretek Systems Inc. (Falls Church, Va.). He is editor-in-chief of the IEEE's IT Professional Magazine.

Jules A. Bellisio (F) is executive director of the Federal Communications Commission's Technological Advisory Council and principal of his own consulting practice, Telemediators LLC (Farmingdale, N.J.).

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