Wednesday, June 25, 2003

With all the concern about "broadband" and concerns about how we'll build out a new infrastructure for the Internet, something happened -- the Internet is available everywhere. Or, at least, the entire infrastructure is Internet-ready.

The telecommunication carriers (telephone and cable) are embracing the Internet and becoming Internet-based enterprises themselves. They are doing this out of necessity -- it is the lowest cost and most flexible way to deliver their services. They also recognize that their last mile (our first mile) of connectivity has a lot of capacity. The Telcos are lowering their prices for DSL and the cable companies are initially using the capacity for new services such as a Video on Demand services that use a singles stream per program rather than broadcasting.

The remaining technical problems are relatively modest. The copper wires can be upgraded to be a digital medium. A single copper wire can carry 10 to 100 megabits per second or thousands of phone calls. The streams used for VOD can carry Internet traffic. For the first applications speed is secondary compared with the value of always-on connectivity. This simplifies widespread deployment by reducing the initial capacity requirements.

Rather than treating the carriers as adversaries the FCC should encourage and accelerate this transition and not focus on micromanaging a world of telecommunications that is being eclipsed. Such disputes only add to the confusion that makes it hard to see the obvious triumph of connectivity.

As the carriers' Internet denial turns into enthusiasm they will soon find that their early concerns were well-founded. Even if the carriers recognize that their customers can create their own services they still believe that they are safe because people would rather buy a service than build it themselves. The problem is that their customers are no longer captive and can buy products from anyone, not just the carriers. We already see this in the latest generation of Voice over IP services that work just like the traditional telephones except without the need for a phone network. The only cost is in reaching users still on the traditional phone network and with the high volume users converting to Voice over IP the transition will be swift.

With millions of potential entrepreneurs the real threat is from services far more exciting than simple telephony. There are already many articles telling people how to build an entertainment center using their PC and how buy videos directly from the studios or how to share local content with friends. It's only a short step to having such products available in traditional retail stores. My newest TV is from Sony and supports PC input as well as traditional video and can show HDTV content now. Though Congress has mandated a 2007 transition to broadcasting, HDTV, the Internet and the PC make such a mandate not just pointless but counter-productive.

The FCC doesn't need to mandate a separation between the transport and the content/services because the carriers will soon find themselves scrambling to rid themselves of the burden of the transport facilities. Owning the infrastructure no longer confers an advantage -- all providers have equal access and there are few ways to add value to the transport and many ways to reduce the value. Capacity is what counts and the only differentiation is in how little the carrier impedes the free flow of packets by imposing arbitrary notions of quality and other restrictions. Internet packets don't respect the carriers billable channels -- if I turn on my PC I don't care if I use my neighbor's Wi-Fi or my own. Connectivity, like roads, will be funded as a shared utility.

This is soon going to be obvious to the carriers' shareholders who will demand that the companies try to reinvent themselves as viable entities rather than just spending money trying to stay ahead of the growth of the Internet.

The focus must now be on clearing the impediments and facilitating this transition. The biggest challenge will be in helping people understand what is happening and how to take advantage of the new opportunities.

For more on this topic, see my essay "We have Connectivity!".